Long term care crisis

We are going to see a crisis for long term care (LTC), period! Due to a fast aging population in the US together with fast increases of healthcare costs in general but particularly for long term care, it will be a nightmare situation for anyone if he or she is not well prepared. Let me give some statistics about the current situation:  The annual cost for a semiprivate room in a care facility is around $82,000. A private room is $92,000. And this is only for the room, folks. The in-patient care can run as high as $182,000 per year. This is just for today’s prices. You will be utterly stupid to even think that 10-20 years down the road, the cost will still be at today’s level! A double or more is very reasonable to expect!!

 

Therefore we can safely assume the LTC costs will skyrocketing in the future. The most obvious option is to buy LTC insurance, but the dilemma we are facing is it is a very costly plan that you are not sure if you will use it in the future. The big upfront payment over years (easily over $70K as accumulated premium paid for a 20 years period) may be wasted if you are not qualified eventually. Even if you unfortunately do need to use it, the current seemingly appropriate coverage may become very insufficient in 10-20 years down the road as the LTC costs may go up much more that you can imagine now.  One evidence we are seeing now is that more and more insurance companies are existing from this LTC business due to fast increasing costs that even make them not affordable. In 80s and 90s, LTC plans typically covered with unlimited stays and no exclusion periods but this gracious time is long gone. Nowadays, most plans limit you to three years of care or less. And even with this much limited coverage, the number of companies offering LTC has dropped like a stone, from 50 last year to only 10 by now. I won’t be surprised to see even less companies or eventually none of them that would like to do this business anymore in the years ahead. We really have to find out some alternatives that can prepare us for the coming crisis.

 

One alternative is to buy a good whole life insurance (WL) with free LTC rider that will allow you to use a big portion of your death benefit when you need due to critical illness. I know currently the hottest and mostly promoted life insurance is so-called Indexed Universal Life (IUL) that is believed to generate a higher return similar to the stock market. Just be aware that there is no guarantee that you will get this kind of return and the risk is certainly there that in 15-20 years later when you need the money, you may not see it available if the stock market is not performing as well as projected. If you want to have some assurance that your money is available when needed in the future, WL will be a much better choice. I certainly know WL has got very bad name as well due to its high cost but most people don’t know is that there is a special type of setup for WL that will cut the cost by 70% or more and it will allow you to use the WL as a saving type of plan with a guarantee that your cash value and death benefit will grow year after year regardless what the market is doing. This is a rather complex topic that I’ll not go into details here but I’m glad quite a few of my friends have taken the time to learn and got it set up. I’m sure they will be happy to have the cash rich policy available when such kind of critical time comes. Relevant to this LTC topic is the great feature it offers that the cash value safely accumulated in your policy over years can be used anytime as you want for any purposes, including of course for medical expenses like LTC. If this is not sufficient, you can then use the option to withdraw money from your death benefit (DB) for qualified illness that usually makes you need LTC. Normally the DB is only for your heirs when you pass away but this clause will allow you to use some of it, e.g. up to 50%  or more of your DB when you are still alive but suffering from some critical illness. Of course, if you don’t need LTC, your money will never be wasted like the LTC insurance but will be either available for your own use for other expenses or passed on to your heirs. What a great alternative for managing the LTC crisis that is for sure to come! At least I firmly believe it!

 

In addition to the WL strategy as one option, I have a wild idea that actually I expect the LTC may become much less expensive than we currently project to be. How so you may ask? As discussed above, one of the major costs for LTC is the need to be cared by a live-in senior care center. Think about it, if in the future the need for institutionalization is reduced and seniors can be more routinely cared at home, this hefty cost can be cut down significantly, right? While it is still like a fantasy, I bet this may increasingly become a reality in our life time, that is to widely use humanized robotics to manage a lot of our daily living, including senior cares. You see, with the fast advancing Artificial Intelligence (AI) technology, a lot of things that couldn’t be dreamed in the near past can become reality in a much faster pace than you can imagine. Just think about 10 years ago without iPhone, we almost lived like in the stone age that no one would think that we now can manage almost all kinds of daily activities with just one small smart phone. Why not just imagine that in 10-20 years from now, we may be able to enjoy “robotic beings” that can learn and master a lot of human intelligence and will be able to take care of daily life to a large extend? If this becomes a reality, seniors who need living assistance currently requires to be hospitalized many just need robotic beings to help for most of their daily activities. Then in the event that they need more direct care by healthcare providers, the robotic can either call for home services or will let the automated driving car simply send the senior to the nearby healthcare center! I know what a wild dream I’m having but I’m seriously thinking this will become part of our life during our life time. Regardless how much you believe me for this fantasy dream, investing in the AI trend will not be wrong at all. I wish I can tell you exactly which companies are the pure players that will for sure thrive along with the advancing AI but I couldn’t as this is still in its infancy. As such, it is way premature to know which ones will be successful as a pure players in AI. One indirect way for AI is via high-tech stocks, including  my beloved stock, Microsoft. Believe or not, MSFT is also sitting at a front seat in advancing the AI technology given it enormous leading power in the software business. Due to its very successful and profitable businesses in many other areas, almost no one is talking about its prospects in the AI development. Someday you will hear more. I’m a happy investor for MSFT for its long term values with high growth dividend. I’ll certainly be more happy to see its success in AI. A more direct but diversified way to ride on the AI trend is to put money into a bunch of relevant stocks. Fortunately there is a dedicated ETF, called ROBO, that includes many companies which are involved in AI one way or the other. Given the substantial uncertainty for this area, this diversified approach will be much less risky but allowing you not to miss the megatrend that is fast growing.