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The Hidden Cost of Health Insurance
By David Chazin
Health care is causing a huge debate in Washington as health care costs have skyrocketed, and 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), 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 overlooks a very, very big risk - the cost of long-term care. Your health insurance doesn’t cover the cost of long-term care, which can potentially wreak havoc on 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, in fact, most of the people who need long-term care need it in their own homes or in assisted living. This means that nursing homes are only one part of the picture.
About 60 percent of the population over age 75 will need long-term care for approximately three years*, 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. Care in an assisted living unit costs $2,968 a month on average, according to AARP, and even more in California.* Round-the-clock care at home can also add up fast.
And that doesn’t even compare to the cost of nursing homes. According to AARP, the average cost is $5,566 a month for a semiprivate room in a nursing home, and $6,266 a month for a private room*. 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, you can’t guarantee that will always continue.
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,” which 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) 659-0217 with specific questions or to schedule a time to meet in our San Ramon, Point Richmond or Houston, TX offices. Also, follow us on LinkedIn.
David Chazin, Insight Wealth Strategies and Lincoln Financial Advisors Corp are not affiliated with Chevron.