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March 6, 2015
As you age, do you have a plan for if you or a loved one gets Alzheimer’s?
The cost of Alzheimer’s Disease care has risen in overwhelming proportion, but the reality is it’s a cost that many Americans are facing now, and will continue to face in the future.
Recent studies show that the cost of caring for Americans with Alzheimer’s and other related dementias has surpassed the cost of treatment for cancer patients and victims of heart disease.
And as Alzheimer’s cases have soared, so has the spend in treating the disease — for both the government and families.
Looking at the costs, Alzheimer’s currently runs the U.S. population some $214 billion annually and the care for victims will cost federal insurance programs like Medicare and Medicaid $150 billion in the current fiscal year alone, according to findings from an AARP bulletin titled Where’s the War on Alzheimer’s?
On top of these costs, families caring for a loved one with Alzheimer’s spend, on average, more than $20,000 per year for care, according to a 2014 study by Caring.com, an online resource for family caregivers and senior care services referral source.
“And these costs are virtually certain to go up,” writes AARP. “While the deaths from some cancers and heart disease are declining, the number of Alzheimer’s cases continues to increase every year as the population grows older.”
Because Alzheimer’s is slow to progress, the disease can linger for years — even decades in some cases, prolonging the strain on your finances at the same time as you’re trying to care for a loved one.
“A lot of people think that when they’re fighting Alzheimer’s, the expense is centered around the idea of needing long-term care,” says Dave Harris, vice president of the Nationwide Financial Retirement Institute. “That’s a major part of the expense, but it doesn’t really end there.”
That’s why it is important to begin planning ahead and having that conversation on how to best prepare for unexpected life events, especially when it comes to Alzheimer’s Disease and other forms of dementia.
Having “The talk”
The Alzheimer’s Association estimates that 5.2 million Americans had Alzheimer’s in 2014, with the most common victim being women over age 65. With such a sizeable share of the population, it is becoming imperative to have “the talk.”
Not the one about the birds and bees, but rather a discussion on the inevitability of aging and how to prepare financially for the costs of treatment you’re likely to need as you get older.
About 70% of people turning age 65 can expect to require some form of long-term care during their lives, whether that means assisted living, nursing care or treating Alzheimer’s, according to the U.S. Department of Health and Human Services.
“Unfortunately, most people don’t learn about these situations until they are smack-dab in the middle of them,” says Harris, who has witnessed the toll Alzheimer’s can take both financially as part of Nationwide’s research as well as firsthand in caring for his mother who lived with the disease until her passing last year.
“There’s a stigma attached to aging, but the reality is, whether it’s a short-term or long-term need, most people are going to experience a time in their life when they might need some additional assistance,” he says.
Admittedly, while it may be difficult to broach the subject of aging, coming to grips with the reality that one day your needs will surpass the capabilities of yourself or loved ones is the first step in crafting a plan to ensure that not only your physical well-being is secured, but your financial health remains intact as well.
“What helps break down that wall is a conversation that focuses on the idea that as you age, you could need additional assistance as you become more frail,” Harris says. “Once people can slowly begin to start tearing down those walls they’ve built up, the real conversation has begun.”
Paying for Alzheimer’s care
There are multiple ways to pay the costs of treating Alzheimer’s Disease, whether it’s drawing from your own personal assets, savings or through purchasing an insurance policy to cover long-term care expenses. But some ways can be better than others in helping offset costs than others.
If you’ve accumulated enough savings, you may choose to tap into your cash or other assets to cover the expense of Alzheimer’s or long-term care. Certain assets have tax consequences tied into them, and tapping them can increase the taxes you’ll have to pay on those investments.
“You can end up spending a lot more for the care than you would have if you planned differently,” Harris says.
You might also have a family member who is willing to help foot the bill for care, however, depending on the level of care needed, either of these ways puts increased risk on tangible savings. You also run the risk of losing that funding source if something happens to the person helping you.
To defer some of that strain, it might be beneficial to consider a long-term care insurance policy. Depending on the policy you choose to buy into, long-term care insurance can be used to help pay for a number of things, including care at Alzheimer’s facilities, assisted living and skilled nursing settings. It can also be used to pay for custodial care within your own home.
“Long-term care insurance is a wonderful way of really offsetting the risk of having to pay costs out-of-pocket,” Harris says.
While a long-term care insurance plan can provide a way to pay for health care-related costs when you need them most, the caveat is they can be expensive, especially if purchased later in life, and their premiums may also increase as you age. They are also often considered “use it or lose it” plans, meaning that if you end up never drawing on the benefit, you lose it.
“Those are still popular plans, but they are becoming more difficult to pay for,” says Harris, who notes an alternative plan to standalone long-term care (LTC) insurance can be a life insurance policy with a LTC rider.
With a LTC rider, any payout is an acceleration of your life insurance death benefit. If you never need long-term care, your beneficiaries will receive an income tax-free death benefit as long as the policy remains in force.
In the event you do require long-term care, your beneficiaries will still receive the greater of any unused long-term care benefits or 10% of the based policy’s specified amount thanks to the guaranteed minimum death benefit.
“It’s a use-it-or-use-it policy,” Harris says. “You’re either going to use it for long-term care needs, or use it when you pass away and want to transfer assets on to a spouse or someone else. You don’t lose what you purchased.”
While those are just two types of insurance methods to consider, there is a host of ways to pay for long-term care needs. Explore 5 Creative Ways to Cover Long Term Care.
“One of the biggest concerns is the unknown. When talking about dementia, you need to give some thought and attention to having long-term care coverage,” Harris says. “Alzheimer’s is a horrific disease for people that have to go through it and the people who care for them, but at the end of the day it’s a very expensive thing to fight as well.”
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