Session 162 PD, Managing the Impact of Long-Term Care on Retirement Security—Part 1: A Holistic and Multi-Generational View
Moderator:
Steven W. Schoonveld, FSA, MAAA
Presenters:
John Cutler
Anna M. Rappaport, FSA, MAAA
Sandra Timmermann
ANNA RAPPAPORT CONSULTING
STRATEGIES FOR A SECURE RETIREMENT
SMIntroduction: Long-Term Support and Services Facts
Presenter:
Anna M. Rappaport, Anna Rappaport Consulting
Society of Actuaries Annual Meeting
October 2014
Long-term Care and Retirement Security:
What are the Issues?
Cost of a major long-term care event: depletes retirement assets for families who purchase services
Impact on the financial security of the surviving spouse
Added responsibility and financial burden placed on caregiving family members
Health and long-term care costs over what is planned for, and they outpace general inflation
Increased longevity: greater likelihood of needing care
Limited participation by middle income earners in the private insurance market
Societal impact of an aging population on Social Security, Medicare, and Medicaid
Long-Term Care 2014
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Long-Term Care in America:
Expectations and Reality
60% of Americans over age 40 have experience with long- term care: of this group
– 73% provided care
– 17% provided and received care – 7% received care only
– 4% financially provided care
Majority of caregivers (57%) provided care to a parent
83% of caregivers had a positive experience
15% did not have a positive experience
77% of caregivers said it strengthened their relationships
51% said it caused stress in the family
Source: Long-Term Care in America: Expectations and Reality, Survey from The Associated Press and NORC, May 2014
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How is Long-Term Care Financed?
Source % Comments
Medicaid 62.2% Pays benefits to those with very low resources Program varies by state and is under pressure due to state budgets
More than 50% is for nursing home care;
home care is increasing
Other public 4.6 Includes Medicare, VA, and others
Out-of-pocket 21.6 Many families spend down assets and then go on Medicaid; does not include value of informal care
Other private 11.6 Insurance benefits is largest part of this
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Source: Federal Long Term Commission report, page 31 and 23; based on 2011 data for chart and 2005 data for average cost
Expected value of all LTSS for a person turning 65 in 2005 was
$47,000 (but distribution highly skewed)
Private Long-Term Care Insurance
Covers about 10% of care
Usually pays benefits based on inability to perform 3 or 6 (or 2 of 5) activities of daily living
Different types of policies
– Stand-alone long-term care
– LTC combined with life or annuity products
Number of companies in market has declined and rates have risen
May be eligible for tax benefits if certain requirements are met (HIPAA)
Many seniors need some support but do not have current level of disability that makes one claim eligible
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How Long-Term Care Affects Seniors
Duration of Expected LTSS Need for Persons Turning 65
None – 31%
Under 1 year – 17%
1-2 years – 12 %
2-5 years – 20%
5+ years – 20%
Distribution of Future LTSS Cost for Persons Turning 65
None – 50%
Under $10,000 – 25%
$10,000 - $25,000 – 7%
$25,000 -- $100,000 – 12%
$100,000 or more – 6%
Source: Federal Long Term Commission report, page 24 and 25
Long-term care also affects caregivers and family members
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Women Expected to Need Long-Term Care Longer than Men
Age and Gender
Non- disabled
Mild or moderate disability
More severely disabled
Total Life Expectancy
Male 65 12.3 1.5 1.5 15.5
Female 65 13.6 3.0 2.8 19.4
Male 85 2.9 1.0 1.8 5.7
Female 85 2.5 1.7 3.0 7.2
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Source: Stallard, Eric, Estimates of the Incidence, Prevalence, Duration, Intensity, and Cost of Chronic Disability Among the U.S. Elderly, Society of Actuaries Living to 100 Monograph, 2008
Note: Women less likely to have spouse who can offer care
Life Expectancies in Years
Where is Care Delivered?
What Does it Cost?
Where National Median Cost Comments At home $20/hour – home
health aide
Majority of care is provided at home; most by family caregivers Adult day health
care
$65 per day Supports care in the community
Assisted living $3,500 per month Provides care for those for whom independent living not appropriate but who do not need nursing home
Nursing home $240/day private room
$212/day semi-private
Medicaid pays for majority of care; long-term care insurance would generally cover nursing home care
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Source: Genworth 2014 Cost of Care Survey
Long-Term Care 2014
Speaker: Anna Rappaport
Anna Rappaport, FSA, MAAA is an internationally known researcher speaker and author. She chairs the Society of Actuaries Committee on Post
Retirement Needs and Risks and is a Past President of the SOA. She founded Anna Rappaport Consulting in 2005 after retiring from Mercer.
She completed 50 years as a Fellow in 2013.
Contact information: anna@annarappaport.com
See www.annarappaport.com for more information
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How American Society will Address Long-Term Care Risk, Financing and Retirement
John Cutler
Managing the Impact of Long-Term Care on Retirement Security
October 29, 2014
Disclaimer:
The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of any agency or the Federal government.
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“Everybody talks about long term care, but nobody does anything about it.”
Reported to be by Mark Twain, though slightly modified….
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Special thanks to the Society of Actuaries and particularly their Pre-Retirement Needs and Risks (PRNR) committee for focusing on this issue.
Their Call for Papers “Managing the Impact of Long-Term Care Needs and Expense on Retirement Security: A
Holistic and Multi-Generational View” can be found at http://www.soa.org/Research/Research-Opps/Call-For- Papers/research-managing-impact-ltc-security.aspx
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Thesis
What if we have a crisis and no one comes? What if we muddle along and do nothing? Or rather, at best, we only move forward with incremental public
initiatives. And the private sector similarly makes marginal product changes? What does America look like if we ignore all the warnings?
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Counter point
Something will happen. There actually WILL be some modifications or changes in public and
private systems and many of these are already in play. In fact, it might well be that we ARE
seeing long term care reforms underway but too incremental (and fragmented) to be obvious.
So just what IS going on…?
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Topics Reviewed
• Medicare
• Medicaid
• Health insurance
• LTC insurance (including life and annuities)
• Social Security
• Pensions
• Housing and reverse mortgages
• Family, caregiving and the workforce
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Deus Ex Machina
At this point in my article we turn attention to
whether there might be some major policy proposal or product that fixes all these problems and makes them go away. But major changes in public policy are few and far between. And product innovations come just as rarely.
More importantly, individuals cannot plan for these.
They cannot (or at least should not) assume they don’t need to plan for the future because the
government (or private sector) will wade into action.
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Possibilities for more expansive reform
• The Commission on Long-Term Care
• William Galston at Brookings
• Robert Moffit at Heritage
• LeadingAge, and their guidelines (framework) for financing long term care
• The Bipartisan Policy Center
• The Society of Actuaries (multiple areas of research including this Call for Papers)
• Paul Forte and his American Long Term Care Insurance Program
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So Where does that leave us?
The tenet of this talk is not that there won’t be
changes in the way insurance and retirement will be addressed. To the contrary, it seems
probable that there will be a wide array of policy proposals or product ideas to address the
growing number of individuals moving into older ages and retirement.
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So Where does that leave us?
Even if a private market option is chosen it has to have government involvement. Both empirical research as well as expert opinion hold that the government must be involved as a key player.
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So Where does that leave us?
Will we really see a long term care proposal
adopted on the scale of, say, the ACA? Most likely not. Instead it will be incremental.
But while unlikely it is not impossible, especially if it is subsumed in something even larger such as
entitlement reform. But the underpinnings are there now to be seen if any legislation is passed. Just as the 1965 Medicare law was essentially the Blue
Cross Blue Shield standard option of 1964, any new social insurance legislation will be based on the
experiences of the private insurance and retirement products of today.
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Contact information
John Cutler
John.cutler@opm.gov or johncutler@yahoo.com
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ANNA RAPPAPORT CONSULTING
STRATEGIES FOR A SECURE RETIREMENT
SMThe Impact of Long-Term Care Costs on Retirement Wealth Needs
Paper by Vickie Bajtelsmit and Anna Rappaport
Presenter:
Anna M. Rappaport, Anna Rappaport Consulting
Society of Actuaries Annual Meeting
October 2014
Paper Covers
Background on retirement and long-term care
Discusses impact on women
Sets up four methods for private financing of long-term care
Presents simulation research
Provides conclusions
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Bigger Retirement Planning Issue for Women
Age and Gender
Non- disabled
Mild or moderate disability
More severely disabled
Total Life Expectancy
Male 65 12.3 1.5 1.5 15.5
Female 65 13.6 3.0 2.8 19.4
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Source: Stallard, Eric, Estimates of the Incidence, Prevalence, Duration, Intensity, and Cost of Chronic Disability Among the U.S. Elderly, Society of Actuaries Living to 100 Monograph, 2008
Women live longer
Expected to need long-term care longer than men
More likely to be alone
More likely to be caregivers when they are younger
Four Options for Financing Care
Insurance Savings CCRC Housing Equity Prevalence < 10% 15% of care pd
out of pocket
Low, higher net worth only
Little use of reverse mortgages
When to do While still healthy
Ongoing – all ages
Time of entry and monthly
When needed
Match to needs
Depends on contract, situation
No direct match Depends on contract, situation
No direct match
Applies to Middle and upper income
Higher income and net worth
Higher net worth
All levels who own home
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Four Options for Financing Care (continued)
Insurance Savings CCRC Housing Equity Risks Premium
increases, costs exceed limits, situation not covered
Investment risk, may not have enough money, difficulty of
managing assets
Monthly costs can increase, bankruptcy risk, don’t know if needs covered
Equity
unmatched to need, illiquidity, interest rates affect reverse mortgages
Costs no LTC need
Premiums paid None Buy-in price, higher monthly premiums
None
Issues for surviving spouse
Reduces risk of asset depletion
Survivor may not have enough assets left
Security of CCRC; higher monthly costs;
possible relocation
Survivor may not have
enough assets left
Taxation Some policies tax advantaged
Most retirement savings tax deferred
Part of price = insurance premium
Gain on sale of house often tax free
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Building Long-Term Care into
Stochastic Retirement Modeling
EBRI model
Aggregate approach
Focuses on entire population
Identifies % of population who will not have enough money
SOA Retirement Adequacy Study
Individual approach
Focuses on sample
individuals near the middle
Estimates how much
money a household needs for retirement success
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Both studies:
Shocks including long-term care are important
Long-term care is a major factor in inadequate assets
EBRI Results: % of Households with Sufficient Funds to Pay Expenses
Income Quartile Lowest Second Third Fourth No stochastic
health costs
39% 89% 97% 99%
With stochastic health costs
11 42 42 84
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SOA Study: Effect of LTC Insurance on Retirement Adequacy
Wealth Needed at Retirement in 000s
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Base Case:
No LTC Ins.
Buy LTC for Both Spouses
Buy LTC for Wife
Median family
Wealth at retirement:
50
thpercentile $170 $227 $195
Wealth at retirement:
95
thpercentile $686 $333 $338
75% family
Wealth at retirement:
50
thpercentile $544 $599 $581
Wealth at retirement:
95
thpercentile $1,011 $851 $871
Median family: $60,000 income and $100,000 non-housing wealth
75% family: $105,000 income and $250,000 non-housing wealth
Key Findings: Background
Major LTC event can devastate retirement security for most households. For households below median who need an extended stay in nursing home, Medicaid is probably only viable option.
Major private methods of financings LTC include insurance, savings, CCRCs, and use of home equity. Can be
combined.
None of these match needs perfectly. Some have better chance than others.
Longest lived people most likely to have major needs.
By age 80, 1/3 have some disability and by 86, majority have disability.
Women have greatest challenges.
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Key Findings: Simulation
EBRI and SOA-RA models include long-term care and health risk in broader retirement simulation models. Many models exclude these risks.
Results are very different when these risks are included.
Huge difference between 50
thand 95
thpercentile, because of shocks.
Strategies like changing retirement age or reducing
spending help at the median but can’t handle the full impact of shocks.
Advance planning for LTC very important for low and middle income households.
LTC insurance can be useful for those in middle-income brackets.
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