How to Curb the High Cost of Caregiving
Caregiving is often so easy at the start, you don’t even think of it as caregiving. It’s a few days off from work to accompany Dad for medical tests, or a couple of hundred dollars a month for someone to check in on Auntie, or a few extra flights home to help your parents move into a senior community. It seems manageable—until it isn’t. Short-term fixes can stretch into years, upending lives, taking family dysfunction to new levels, and blowing up otherwise solid retirement plans.
Caregiving poses a challenge even to professionals like Amy Goyer, AARP’s caregiving expert.
Goyer’s parents were well prepared for retirement, with pensions and long-term care insurance, not to mention a daughter with access to some of the best resources around. Like many affluent seniors, they moved into a continuing-care retirement center, only to be forced to leave five years later by the soaring additional costs required for Goyer’s mother, who had suffered a stroke, and her father, who was diagnosed with Alzheimer’s.
Goyer then moved from Washington, D.C., to care for her parents at their home in Phoenix. Her mother died a few years ago, but Goyer is in her 12th year of caring for her dad. “That is one of the things that shocked me. I had no idea it would be so long,” she says. “I’ve worked in aging for more than 35 years, and caregiving is extremely difficult for me; I can’t imagine what it’s like for others. It’s impossible to predict exactly how loved ones’ needs will develop, so I’m constantly problem-solving.”
THAT UNPREDICTABILITY makes providing long-term care one of the biggest challenges of aging—and also why it gets short shrift in retirement discussions. There is no neat template for the process. About 70% of today’s 65-year-olds will need prolonged assistance. The tribe of caregivers for people older than 50 numbers 34 million, and is likely to grow: The downside of living longer is that many people spend their later years hampered by chronic conditions that require help for basic tasks. “Long-term care is a reality for all of us, and figuring out how to be ready for it should be part of every single financial and retirement plan,” says Ken Dychtwald, head of Age Wave, a consulting firm focused on aging trends.
Too often, however, there is no plan. Two-thirds of people in a recent survey by Genworth Financial expected the government to cover all or part of their long-term care. But Medicare covers only some skilled nursing services—such as short-term speech or occupational therapy, intermittent skilled nursing care at home, and hospice services—leaving many long-term care costs uncovered.
What’s more, the statistics around long-term care costs can foster a sense of complacency among diligent savers. For example: The national median cost for a private room in a nursing home was $97,500 last year, according to Genworth’s latest survey. The average stay in a nursing home is two years, amounting to just under $200,000.
While high, that wouldn’t crack the nest eggs of many affluent people. But those estimates can create a false sense of security. For starters, Genworth estimates that, assuming a conservative 3% inflation rate, a private room will cost $176,000 annually in 20 years, when today’s 65-year-olds may need care. Then there’s the myriad of out-of-pocket items, from small things like incontinence products and airfare to bigger-ticket items like private aides. Also excluded: The indirect costs borne by caregivers who give up their jobs or reduce their hours.
The biggest risk comes from chronic conditions like dementia, which people can live with 10 or more years after diagnosis, pushing the total long-term care tab to $500,000 or more. The need for home health aides or nursing care is a big part of this, and it’s only getting costlier. “We have a long-term care crisis on the horizon. Over the next 15 to 20 years, the number of potential caregivers to people needing care will be cut in half—a scary proposition for the cost of care,” says Jamie Hopkins, a professor at the American College of Financial Services’ retirement income program.
Barron’s canvassed experts, including lawyers, care managers, insurance consultants, and caregivers themselves, to map out the stages of care and craft a plan that facilitates the best financial and emotional health possible for all involved.
First Phase: I’ve Got This
What it looks like: Initially, caregiving can feel like simply lending a hand. Family tends to pitch in, providing rides to doctor’s appointments or for errands, helping out with some light housework, or even just checking in on someone more often.
Costs for this phase are difficult to estimate because spending is erratic, and few people track it. Plus, they can build gradually. “It’s the ‘shock and denial’ phase,” says Anne Tumlinson, a public policy researcher and consultant who also runs Daughterhood, a site to help caregivers navigate the elder and health-care systems. “People try to avoid making hard decisions, and that can set them up for failure later.”
What you can do: The bulk of long-term care is handled by family—so gather your family and discuss with the person who needs care how he or she wants different scenarios handled. That scenario-planning should include what happens to the surviving spouse—too often that gets neglected. For instance, if a couple moves into an assisted-living facility because one person needs more care, and if that person dies, the surviving spouse may not need to stay there. Moving out could reduce long-term care costs and may be better for one’s emotional health.
The conversation should also assess available resources—human and financial. Get recommendations from doctors and lawyers for service providers and senior communities. Find faith-based or community resources that can assist with transportation or companion care, and gauge which neighbors, family, or friends can be called on in a crisis, or pitch in on a more regular basis. The National Association of Area Agencies on Aging can direct you to local resources, such as service providers and long-term care facilities. Even if plan A and plan B is to remain at home, caregiving experts stress the need to check out facilities early. Most have waiting lists, and no one should make a housing decision under duress.
This is also the time to assess the financial options, including long-term care insurance. Once someone needs professional care, has a chronic condition such as multiple sclerosis, or has a handicap sticker on the car and a walker in the trunk, it’s almost certainly too late to purchase long-term care insurance. Policies vary widely, but long-term care insurance generally covers certified nursing assistants, assisted living, and adult day care. This can help in a myriad of ways, but it’s not a panacea. (We’ll go into more detail in the Second Phase. Also, see “A Word on Long-Term Care Insurance.”)
The typical rule is that insurance can reduce the chance of outliving assets of $250,000 to $1.5 million. For those with bigger portfolios, long-term care insurance can help mitigate future family drama. “They can afford to [pay for] most long-term care events, but that can create conflicts among children who have to decide on the quantity and cost of care with the money they expect to inherit. Long-term care insurance helps mitigate these conflicts,” says Michael Kitces, director of wealth management at Pinnacle Advisory Group.
An estate-planning attorney can put wishes for the type of care one wants into an advanced directive, helping to minimize family strife. One option: Create a revocable trust, using co-trustees or an institutional trustee, if there is more than $500,000 in assets, to ensure checks and balances, says Martin Shenkman, an estate-planning attorney in Fort Lee, N.J. Trusts can also facilitate paying a family member for caregiving responsibilities, without giving them control of the entire estate.
Second Phase: The Slippery Slope
What it looks like: Many caregivers assume the role overnight, following a medical emergency like a stroke or fall that has left their loved one unable to walk, talk, or function independently. Their first task may be scrambling to figure out where the person should go after being discharged from the short-term rehab or post-acute-care facility they were transferred to after a hospital stay. “This is where the risk is highest to go back into the hospital, starting a cycle that will exacerbate everything you are dealing with, including costs,” says Tumlinson. “If you try to do it yourself, you’ll make mistakes. Caregiving is like running a corporation in your parents’ life. Treat it like that, and pull in professional advice.”
Medicare generally pays 100% of the first 20 days in a rehab facility, as long as the patient spent at least three days in the hospital prior to that. Afterward, there’s a daily co-pay of $167.50, which may be covered by supplemental policies. But Medicare has strict requirements as to the progress patients must make during this time, and it doesn’t pay for long-term care.
The next step is often a harsh wake-up call. “It’s a period of surprises—about poor customer service, quality of care, and how few options there are, because providers only tell you what they do, not what else is out there—and none of them talk to one another,” says Mike Newell, founder of LifeSpan Care Management, which helps navigate the health system, and advocates for seniors.
Sometimes, this is a time when a family member—usually a female, because women make up two-thirds of caregivers—considers quitting her job and assuming the responsibilities. Karen Van Dyke, a former marketing executive at U.S. Trust, began caring for her then-95-year-old aunt after she broke her arm, thinking it would be a couple of years at most. A decade later, Van Dyke has scaled back the elder-care business she started in San Diego to make time to run her primary business—caring for her aunt and coordinating the nine people who assist the elderly woman, including physical therapists and financial advisors. “Not only did I take a step back from my career, but also from many life opportunities,” Van Dyke says. “For now, it is what it is. I can’t move or travel far, and I can’t focus 100% attention on my business because I am caring for my auntie.”
Caregivers often step back during their peak earnings period, affecting not just their income and career trajectories, but also future Social Security benefits. Advisors recommend scaling back hours or taking a more flexible position if necessary, but keeping the job, even if all earnings go toward hired care. “People say it would be easier to care for mom themselves, but that harms their financial career and retirement security. Often, they can’t return at the same level,” Hopkins observes.
What you can do: Geriatric care managers can help you navigate the caregiving labyrinth, and should be your first stop. Some have a social-work background and are adept at dealing with strained family dynamics, or acting as the eyes and ears of a caregiver who might be away; some even go to the hospital in an emergency. Others hail from a nursing or insurance background. Fees range from $125 to $185 an hour. Though there is no regulatory body, the local area agencies on aging may have a home-care ombudsman. Long-term care insurance sometimes pays for some care management.
Finding paid caregivers is one of the hardest parts of the process. There are three types of helpers: Those who cook, clean, or run errands; home health aides or certified nursing assistants who do hands-on tasks, such as toileting, feeding, and dressing, but can’t administer medications; and licensed nurse practitioners or registered nurses who handle medication management, as well as clinical needs like administering injections or dealing with colostomy bags.
Going through an agency saves you from doing tax paperwork, background checks, and, most importantly, finding backup care when someone calls in sick. But industry turnover is rampant, and there is little oversight. Karen Kendrick of health-care advisory firm PinnacleCare recommends looking for an agency that trains and educates aides, and that will replace a caregiver almost immediately if that person doesn’t work out. Also worth asking: whether the agency offers paid sick days for its aides, which will discourage them from working while they’re ill—a potential hazard for the sick or elderly.
However, for those who need a lot of assistance—like Goyer’s father, who required constant monitoring and a two-person assist to shower—hiring caregivers directly can be 30% to 50% cheaper. “Finding backup is the tricky part, but an agency is going to send someone who has never seen your loved one, and you will have to demonstrate how to do things anyway,” she says.
Most long-term care insurance will pay for certified nursing assistants and home health aides, as well as retrofits to a home that can keep longer-term costs down. But policies don’t kick in until someone needs “hands on” assistance, typically for two daily-living activities (such as bathing, dressing, or eating), which means that people can pay out-of-pocket for assisted living or home care for quite a long time before getting coverage. Plus, long-term insurance covers only a few years of care. And in those few years, it will pay only up to $250 to $300 per day—not a hard number to reach. So it’s worth tapping it strategically, while drawing on community-oriented or veterans’ benefits. Seniors who are still mobile can use adult day-care services, which cost about $70 a day, far less than a home health aide, which comes with a median rate of $135 for a six-hour day. Another option: Some assisted-living facilities are beginning to outsource their caregiving and services.
Reverse mortgages, once the scourge of financial advisors, are resurfacing as a good option for funding caregiving for affluent clients. There are some big caveats: For starters, they are only for people over the age of 62 who can stay in their homes. The amount a person can tap is based on their age; an 80-year-old can access as much as 60% of the home’s value, up to a maximum $679,000. The loan is paid off when the home is sold. But with interest rates on the repayment amount still so low, Wade Pfau, director of retirement research at McLean Asset Management, says it is possible to let the proceeds from a reverse mortgage accrue and then use them to pay for care.
Third Phase: The Caregiver Crunch
What it looks like: Burnout. Depression. And the biggest bills. “It affects everyone involved, and at this point everyone’s life has changed,” Newell says.
This stage tends to be more intense—both in terms of hours needed and the level of actual care. This stage is not for the squeamish: Almost 60% of caregivers perform nursing or medical tasks like unclogging feeding tubes, administering injections, or dealing with catheters—usually with little training.
What you can do: For seniors who need more-skilled medical care, constant supervision because of cognitive decline, or are bed-bound, an assisted-living home may be a better option. One surprise for those who do choose such a facility: Caregivers often have to hire a private health aide to augment the standard services—a shock to those paying $60,000 to $70,000 a year for a higher-end facility, Tumlinson says.
Getting care at home is expensive, too, especially when it is needed around the clock. At the median rate of $21.50 an hour for a home health aide, 16 hours of coverage comes to $344 a day. That’s on top of the long list of out-of-pocket outlays for acupuncture, fabric bed pads, supplements, and other things. Goyer says she probably spends several thousand dollars a month on such costs.
For those running low on money but wishing to leave an inheritance, a medically underwritten immediate annuity is an option. It’s not popular, and only a handful of insurers, like Genworth, sell it, but it’s a way for age and illness to work in your favor, says William Borton, an independent insurance broker who focuses on long-term care. Someone with a life expectancy of three to four years can buy a $150,000 immediate annuity and get $35,000 to $45,000 tax-free annually—not much, but it could decrease the fear of outliving assets.
Toward the end, caregivers recommend getting an assessment for hospice, which is often covered by Medicare. Hospice workers can gauge how much time may be left and the best ways to make someone comfortable, and—just as important—support the caregiver. Ask the provider what the organization’s approach to end-of-life care is; whether the same team will be in place through the end; and, if volunteers are used, how they are recruited and managed.
“They are very fluent in this stage of life. We think of caregiving in terms of the inconvenience, costs, headaches, and heartache, but those who have gone through it get enormous nourishment from it, too,” says Dychtwald, who spent $1.2 million on care over a decade for his parents, with his brother doing much of the hands-on care. “To take this on alone can be devastating.”