Long-Term Care: The Old Way to Handle It vs. the New Way

Halloween is awesome. The candy, the costumes, the opportunity to use genial mockery to take the sting out of things that actually do scare the pants off us. But before the real Grim Reaper shows up to turn you into a ghost, the odds are pretty high that you're going to pass through a major health crisis or two, or develop a chronic condition, and in the aftermath, you're likely to need long-term care. And haunted houses have nothing on the scare factor of opening the bills for that expense -- especially if you haven't prepared for it.

You can prepare though, so for this episode of Motley Fool Answers, hosts Alison Southwick and Robert Brokamp have brought in a special guest to help them guide their listeners through what they need to know about it: Dr. Jean Accius, vice president of independent living and long-term services and supports at AARP.

In this segment, they discuss two very different ways of meeting your needs. First, they talk about long-term care policies, which insurance companies for decades touted as a smart financial move for those heading toward their senior years. Only one problem: They were right. The policies were such a good deal for the buyers that they lost money for the insurers, and the business model went sideways. Second, they review a newish solution that resembles a much older one: "village"-based care systems. They also reflect on elder care as a social justice issue, and suggest a few ways that listeners concerned about their own long-term care planning can start taking action now.

A full transcript follows the video.

This video was recorded on Oct. 23, 2018.

Robert Brokamp: [The policies], for a while, were generally popular except that when people bought the policies, they were often told your premium won't go up.

But that ended up not really being the case and that the vast majority of people ended up having to pay more. The promised benefits didn't keep up with the cost of long-term care, and it's gone from something like 125 insurance companies offering it down to about 15 because it's such a tricky business. What's your take on whether long-term care insurance is a good way to manage these potential costs?

Jean Accius: Currently there's about 7.5 million people that actually have a private long-term care insurance policy. When you think about the overall cost for long-term care, we know that the vast majority of people are getting their care from their families. Family caregivers contribute roughly about $470 billion of unpaid care every year. Private long-term care insurance is an option for those who can potentially afford it. It is a niche product in a sense that, as I mentioned before, 7.5 million people have these options.

What we're seeing in terms of the private long-term care insurance industry is that it's going through a transformation for many of the things that you just mentioned, Robert. That there was an assumption that there might be more in terms of lapse rates, and that the interest rates would actually be viable so that the [insurance companies] could actually make us some money, if you will, in order to be able to pay out claims. And what we've known over the last couple of years is that given the Great Recession, and the drastic rates in terms of declining interest rates, that when people buy a long-term care insurance policy they hold onto it.

So there were some assumptions that were made with that product that didn't bear out, as you indicated before.

Brokamp: There's one stat from an AARP report that I'd never seen -- that for every 1% drop in interest rates, the cost of providing the policy to the insurer goes up 10-15% because when the insurer takes that money in, they invest it.

Accius: That's exactly right.

Brokamp: They're investing the float, but they have to play it safe, and when interest rates are so low they're just not making much money and that's been a big problem for the insurance industry.

Accius: The other thing is there are some challenges both on the supply and demand side. As you indicated, for insurers that's been a challenge. But also, if you think about it from a consumer standpoint, you're asking me to purchase a product that I may or may not necessarily need 30 or 40 years down the line. And the other aspect of that is there's different variations and complexity. And then tag on top of that the increases in premiums.

So I think the industry itself has done a deep look to try to get a sense as to exactly how they can be more responsive to the needs of consumers, and how they can reduce some of the complexity in terms of some of the products while meeting an actual need. And what we're seeing is that while stand-alone policies have gone down, you are seeing an increase in hybrid products. You're seeing an increase in what consumers are looking for, both in terms to address more of long-term predictions in terms of what the need might be, and then also what benefits might actually happen.

Brokamp: By hybrid product, you mean life insurance with a long-term care rider...

Accius: Right.

Brokamp: If for some reason you need it as an acceleration of the death benefit. That's one variation.

Accius: That's one variation, exactly. We just released a report on the state of private long-term care insurance. I would encourage people who are thinking about that as a product to try to get it when you're younger and also when you're healthy, in part because of the underwriting requirements.

The way that private long-term care insurance works is that the younger you purchase the product, the cheaper the premium will be. That's something to also consider. And also think about some of the trade-offs. The private long-term care insurance market is looking at different variations of how to actually provide the product so it's more affordable for some consumers, but I think it's critically important for consumers to understand exactly what that affordability looks like and what does that actually mean should they ever need it.

Is there inflation protection and why is that important? In part because you might not need the product for 30 years, and if there is not inflation protection then the benefit itself erodes over time. What are the issues in terms of lapse rate? And what could you potentially do with getting some of those benefits back?

I think there's questions that consumers should think about as they explore private long-term care insurance which, again, is a viable option for those who can actually afford it. We know that the industry, itself, paid roughly $9 billion in claims over the last two years and we know that more and more people are claiming benefits and they are generally satisfied with the product.

Brokamp: Part of the solution is deciding where to live and the right community for you. One concept you've written about is "the village" movement, not to be confused with The Villages down in Florida, but "the village" concept. Can you talk a little bit about that?

Accius: Absolutely. The villages concept started off in Beacon Hill in Boston. It's really grass roots. It's neighbors helping neighbors. I love to tell this story. We had an opportunity to hear from some of the founders.

They wanted to age in their community, and they were told, "Well, you can't."

They said, "Why can't we?"

So they formed a village. It's really neighbors helping neighbors organize as a non-profit. It's designed to help them age with options. There's roughly several hundred in the United States, and it does a couple of things. One is that it allows you to engage with others and it allows you to age in your home and community for as long as possible. These are non-profits for the most part. They're volunteer-driven. They reflect the needs and preferences of the communities in which they are in. Some of them are staffed with executive directors. The one in Beacon Hill has a full-time executive director and some staff.

They do a range of things. They help with some of the managing of home modifications. Or providing you with a list of providers that you can contact for help in your home. They do a lot of social engagement activities. In the case of Beacon Hill, one of the things they did is work very closely with the healthcare system. One of their members was getting discharged from the hospital. Their family lives in another state.

The hospital discharge planner called the executive director and said, "Ms. Jones is about to get discharged from the hospital and she's going to need some help." And by the time Ms. Jones actually got home from the hospital, the executive director and some of the volunteers had already stacked her fridge up with food and then they would constantly check up on her. So it is really grass roots. It's really that sense of community.

Brokamp: There's one not too far from here -- Mount Vernon home -- and if I understand it correctly, it's a bunch of people [saying], "We're all in this together, so let's help each other out."

Accius: That's exactly right.

Brokamp: Someone can't drive. I can drive, so I'm going to help you with the shopping. Or I'm going to help you get to church. It just connects all the people together.

Accius: That's exactly right. It is a sense of community and it is really looking out for one another. Again, the desire to age with options and to age in your home and community is so strong and something that we've been tracking for about 20 years. It has consistently stayed extremely high. People are looking for options, alternatives that are not as expensive as moving into assisted living or as expensive as getting nursing home care or moving into a retirement care community. And the village movement is playing that meaningful role.

Brokamp: One thing I read about you in an interview with Black Enterprise magazine is you said, "Aging, in my opinion, is a social justice issue. People, especially people of color, are easily marginalized, devalued, and discriminated, just because of their age." To me that nails it on the head, but you don't really hear aging talked about as a social justice issue, so I'd love to get more of your thoughts on that.

Accius: Absolutely. This is a subject I'm extremely passionate about. In fact, this is something AARP, through our work around Disrupt Aging under our CEO, Jo Ann Jenkins, is leading a charge on. It's the idea that how people are aging is drastically different from how they've aged in the past. The notion is the fact that we put labels on people, particularly as they age, and those labels constrain. I think it's extremely important to think about what the value statements are that we're making when society makes these types of statements.

I look at my family and they couldn't wait to get us out of the house. They are actively engaged in their community. They're going on trips with their friends. They're living their best life as best as they can actually do it. However, you don't see those types of images often, and so the question becomes, "What are the stereotypes we see in terms of older adults? And why is it that for all the isms that we have set as a society, that that is not acceptable?"

However, when it comes to ageism, there's a little bit more leniency, and as an organization we're trying to disrupt aging. We want to help people age and live their best life the way that they want to live their best life, realizing that how they want to age is drastically different from what society might think it is.

Sometimes these comments, or these statements, or these jokes are said in jest, but I think there's the potential of some truth behind some of those jokes. We have a great opportunity to think about how we design, innovate, and create both solutions so people can age with options, age with dignity, and with a great sense of purpose. Older adults are not a liability. They want to be great contributors. They want to provide value. There's a great sense of wisdom and excitement, and to the extent that we can work collectively to embrace what it means to be your age.

Many years ago we had a major conference in Miami. It was one of our AARP conferences and our CEO challenged everyone to walk around saying how old you are. It was so powerful to see people walking around saying, "I am 77 years old and I am proud of it."

Just think about that. Your life history has shaped who you are as a person. So rather than shy away from it, embrace it. What we're trying to do is stimulate these conversations, not just in the public sector but also in the private sector. What types of products are we creating? And we're excited to see companies saying, "We're going to stop using the term 'anti-aging.'" That's a good thing, in part because it embraces the full you and everything that has happened that's gotten you to that point.

So that is what disrupt aging is about, and particularly in that clip what I was referring to is the fact that oftentimes it's so easy for society to marginalize people just because of their age. We have some wonderful clips on our AARP website around disrupt aging. We did this with millennials and we said to the millennials, "When you think of an older person, what comes to mind?" And you can see these millennials do different gestures, whether it's the flip-up phones or walking extremely slowly.

And then we paired the millennials with some older adults and we had the millennials teach the older adults something, and then we had the older adults teach the millennials something. And it's an amazing clip to watch because one of the older adults tried to teach one of the millennials how to do a yoga stance and he just struggled. He just struggled. Or a millennial tried to teach one of the older adults how to do one of these hip dances. He showed her once and then she was able to pick it up and did it better than he could.

Then we said, "How old do you think is old? How old is old?" Their response was drastically different once they actually had an opportunity to engage with the person. That is what disrupt aging's about. That is what we're trying to do. That it is a social justice issue. It's the fact that you don't see the individual. You see the person's age. But if you were to actually talk to the individual, connect with the individual [that sense of connection], your perception of what it means to get older will be drastically different. We want to challenge that.

Brokamp: That's great. Let's conclude with a few actionable things that people can do if someone is listening to this and they are concerned about their own long-term care planning. What are one or two things that they should do immediately?

Accius: First of all, visit us at our AARP website. We have a caregiver resource website that has a range of information, tools, tips, and check lists that will give you options in terms of exploring what the cost of care is in your community. We have a long-term care calculator where you can look at your state and you can compare how much the cost of long-term care is by the different types of options that are available. You can have that as a plan.

The other thing is a range of resources for you to think about in terms of your finances, whether it's your 401(k), your retirements, your savings all in one place. Then we have a list of resources in terms of who you need to contact to get a sense as to what options are available in your local community. And hopefully by having that check list, that plan; you're better off in terms of having those options and those choices.

The other thing we would encourage is to have these conversations with your family. Family caregivers are unrecognized and need to be recognized for the hard work that they do each and every day. The vast majority of them are working and we at AARP say, "Either you are a family caregiver, you were a caregiver, or you're likely to become a caregiver," in part because the family caregivers are the ones that are providing the bulk of the long-term care in this country.

So we want to encourage them to think about their needs as a family caregiver and what types of resources and support can be provided to help support you as you care for somewhere else. And part of that is having that conversation. What are your preferences as you get older? What are your preferences in terms of where you would like to receive services should you need them? And then having that conversation so your family can honor those preferences and be in a position in the event there is a crisis they know exactly what to do.