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Greetings!
Most LONG TERM CARE insurers have left the building. They didn't like the risk. This has created an opportunity in the marketplace for investment advisors. Individuals have or will have a need to self-fund their LONG TERM CARE (LTC). The public sector is cash and resource constrained. The LTC solution will be funded with the help of investment advisors who are aware of the opportunity and know how to implement the solution.
The LTC challenges are in determining how much capital will be required to fund LONG TERM CARE and how to match cash flows from invested capital with the cash requirements for care.
The predictable cash flow from an annuity is only a partial solution because the cost of care can vary dramatically over time.
Seniors can remain healthy and independent at home for many years. During that time, their requirements for cash will be predictable.
However, when there is a need for more care because of a change in health status, then the cash burn rate will ramp up.
Because the cash requirements for care will change over time, the matching will have to be adjusted periodically by the advisor. |
LONG TERM CARE FUNDING:
To determine the total cash required for LTC, Rupert Case Management Inc. (RCM) has developed the following LONG TERM CARE FUNDING algorithm:
Total capital required for LTC = (Cost of care per month * Duration in months) * RCM's Complexity Score * RCM's Risk Score
There are tools, such as the LONG TERM CARE AUDIT (LTC), provided by qualified healthcare professionals. The LONG TERM CARE AUDIT helps to determine the level of care that is required, the resources that are needed and which care facility is best for the client. This gives the advisor the cost of care per month.
Determining duration of care in months can be computed by a medical professional with an understanding of geriatric disease and with access to the client's healthcare records. This can also be aided by using mortality tables.
Many of these clients have multiple acute and chronic healthcare problems, complications, side effects and are taking many medications. RCM has developed a Complexity Score for these clients. The Complexity Score ranges from average complexity of 1 to high complexity of 2. This is a multiplier in the LTC algorithm.
Another factor in calculating total capital is health risk. If the client is medically unstable, then he/she is at high risk of requiring more care. The Risk Score ranges from a Risk Score of 1 for low risk to a Risk Score of 2 for high risk. The Risk Score is also a multiplier in the LTC algorithm. |
HERE IS A CASE STUDY:
RCM was asked to do a LONG TERM CARE AUDIT by the children of an older couple. Mother was 84 and had severe dementia. Father was 82 and had a right sided stroke. Mother was paranoid and would not allow anyone into the home. All the pots and pans had been burned beyond recognition.
Our LONG TERM CARE AUDIT included a comprehensive care plan outlining the appropriate medical management of each client. Once we stabilized the healthcare issues, we were able to determine how much care was required to keep the clients in their home. We suggested an excellent home care provider. The home was staffed up and the kids were able to relax.
Unfortunately, mother required 24 hour per day supervision. So we assisted with the selection of a nursing home with a dementia unit. The family approved the selection. And mother moved into the nursing home. The children decided to sell the family home ($925,000) and father moved into a renovated unit in the children's home. Father had a pension of about $55,000 per year. It is clear from this example, that the advisor would have to work with the family to arrange for funding for the nursing home ($4,795 per month) and for father's care ($3,500 per month). |
Here are some more pointers to help interested advisors gain an insider's understanding of the LTC opportunity:
Unfortunately, some home care providers front end load costs to maximize their profitability. Many consumers are naive and therefore vulnerable to exploitation. For example, we provided a LONG TERM CARE AUDIT for a 78 year old male with dementia who was living at home. The home care provider who had been retained prior to our LONG TERM CARE AUDIT was double teaming the case. They were staffing with two personal care workers not one. This lead to unsustainable costs of over $22,000 per month. That is why a professional trained in LONG LONG TERM CARE AUDITS should work with the investment advisor and the family to determine if the care being delivered is appropriate from a medical and budgetary perspective.
Some families will retain a trustee. The trustee is paid a percentage of funds invested. Some trustees have discretion over expenses for care. During a LONG TERM CARE AUDIT, we found that the trustee did not approve an expenditure for hearing aides for a client because of the $4,000 cost. This client was deprived of his hearing to preserve capital. It is important to have an objective third party such as the LONG TERM CARE AUDITOR reviewing discretionary expenditures for care.
If a client is at the end of his/her life, then the care requirements can be extremely expensive while outside of the hospital. Many clients want to be at home during their last days. If 24*7 care is required, then the care can cost from $15,000 to $25,000 or more per month. There might be a requirement to fund 3 or 4 months of this level of care. The investment advisor might have to sell assets to fund the care at a very critical time in the life of the client. Therefore the client's portfolio will have to be structured for a liquidity event. |
SUMMARY: KEY LEARNINGS
Most LONG TERM CARE insurers have exited the business. This has created a LONG TERM CARE FUNDING opportunity for investment advisors. Clients will need help from their advisors in structuring their portfolios to self-fund the costs of LONG TERM CARE. The care will be delivered either at home or in a private care facility.
Calculating the total capital required for LONG TERM CARE is a function of the cost of care per month and the duration of care in months multiplied by RCM's Complexity Score and RCM's Risk Score.
To assist in doing the math, a LONG TERM CARE AUDIT will be helpful.
The objective is to match the cash outflows for care with the cash inflows from the capital invested.
At times, capital might have to be expensed to cover costs that accelerate quickly. This is especially important at end of life when full time care might be required. These costs can exceed $25,000 per month.
There will be advisors who choose to focus on advising individual clients and/or groups about self-funding for LONG TERM CARE. These advisors will choose to work with healthcare professionals able to provide LONG TERM CARE AUDITS.
These advisors will find the experience of helping families with planning for LONG TERM CARE very meaningful and highly rewarding. |
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