Hidden Cost of Health Insurance

Health care is once again front and center in the public consciousness as the debate in Washington D.C. rages on and costs continue to rise. These escalating health care costs can undermine the best-laid retirement plans. Luckily for Chevron employees and retirees, if you have 90 points (or were grandfathered in at 75 points), Chevron will pick up most of the tab of health insurance for you and your spouse once you retire. While this “free health care” will cover most of your medical expenses, it does not cover the cost of potential long-term care needs. Long-term care expenses can deplete retirement savings after a lifetime of careful savings and investing.

Most Chevron employees (along with the general public) think of long-term care as nursing-home care, but most of the people who need long-term care need it in their own homes or in assisted living. Nursing homes are only one part of the picture. About 70% of the population over age 65 will need some type of long-term care during their lives1 whether in a nursing home, assisted-living facility or at their own home. The latter two alternatives – while usually less expensive than nursing-home care – are by no means cheap. In 2016, the average cost of a private room in an assisted-living facility in the California was $4000 per month.2 Round-the-clock care at home can also add up fast and that doesn’t even compare to the cost of nursing homes. In 2016, the average cost in California for a semiprivate room in a nursing home was $7,604 per month, and a private room was $9,338 per month.2 Many Chevron employees are great savers, but at that rate, it wouldn’t take long to put a sizable dent in the most solid of nest eggs. Even if you’re in good health now, there is no guarantee that will always be the case.

Insuring Against the Cost

Long-term care insurance policies are designed to defray the cost of nursing-home, assisted-living and at-home care – costs that are not covered by your health insurance or even Medicare (except in very limited circumstances). Today’s policies typically offer the same daily benefit for each type of care, and an individual is typically eligible to start receiving benefits when he or she is unable to perform two out of six “activities of daily living.” These activities include toileting, bathing, eating, dressing, being ambulatory and maintaining continence.

If you have $10 million in assets, you may not need long-term care insurance. But $5 million may not be enough, as comfortable as it seems, especially if half of those assets are locked up in illiquid assets such as real estate or if you want to leave as much of your estate as possible to your heirs. The government adds an incentive in terms of partially tax-deductible premiums (the exact amount varies from people age 41 to over age 70).

Long-term care insurance is designed to be flexible where you can control the costs relative to the benefits you wish to receive. Long-term care policies offer various kinds of coverage. Some offer adjustments for inflation, others pay only for a stated number of days, and others offer a life-time benefit. When deciding on a policy, you should compare the benefits of different types of policies, the limitations and exclusions, the types of facilities the policy would cover and the cost of the premiums.

But don’t wait to buy long-term care insurance until after you leave Chevron, because premiums then could be very high. The most cost-effective purchase point is generally from the early 40’s to the early 50’s. Whenever you buy, you should consider a policy that increases benefits to keep pace with inflation. You can also keep costs manageable by electing a waiting period before benefits begin and by limiting the length of coverage to four or five years instead of a lifetime.

We would be happy to sit down with you for a review of your potential long-term care needs and help you determine the best way to protect against this potential devastation of your nest egg. Because we work with many Chevron executives, managers, employees and retirees, we’re very knowledgeable about your various compensation plans and benefit offerings, plus other issues specific to Chevron employees (in addition to the retirement, investment, and estate planning issues everybody faces). In fact, chances are you may know one of our Chevron clients and you can ask them how working with an advisor has helped them.

Please contact us at (925) 659-8020 with specific questions or to schedule a time to meet in our San Ramon, Point Richmond or Houston, TX offices.

1 https://longtermcare.acl.gov/the-basics/

2 https://www.genworth.com/about-us/industry-expertise/cost-of-care.html

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