Old vs. New Long Term Care (ft. Alecia Barnette)

Long-term care is the quiet threat that can blow up a retirement plan even when everything else looks “fine.” One health change can turn into years of home care, assisted living, memory care, or a nursing home stay and the monthly costs can be shocking. We want you to hear the numbers, understand the options, and stop treating this as a problem you will “figure out later.” 

We sit down with Alecia Barnette, Senior Vice President of the Care Planning Division at Financial Independence Group, to walk through what has changed in long-term care planning. We compare traditional long-term care insurance with today’s hybrid long-term care insurance and asset-based long-term care solutions that can provide a benefit whether you need care or not. We also unpack why these newer designs often feel more workable for families who hate the idea of paying for something they might never use. 

Then we get tactical: how to fund a plan using income, cash sitting in the bank, CDs, or repositioning older annuities and life insurance. We also discuss using qualified money like IRA assets in more tax-efficient ways, what “easier underwriting” can look like on annuity based hybrids, and the age ranges where leverage tends to be strongest. Finally, we talk about what happens when you do nothing, including the family burden and why writing down a care plan matters before access, passwords, and decision-making get complicated. 

If you care about retirement planning, protecting your spouse, and preserving choices, this conversation belongs on your list. Subscribe, share this with someone you love, and leave a review so more families start long-term care planning before it becomes a crisis.

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Disclosure: Information contained in this podcast is for entertainment and informational purposes only, and should not be considered as financial advice. Financial Planning and Advisory Services are offered through Prosperity Capital Advisors (“PCA”), an SEC registered investment adviser.  Registration as an investment adviser does not imply a certain level of skill or training. Keystone Financial Group and PCA are separate, non- affiliated entities. PCA does not provide tax or legal advice. 

Transcript

Disclaimer And Welcome

Announcer 0:00

The financial huddle does not provide tax, legal, financial, or other professional advice. Let's try first to consult their own advisors in these areas.

Brian Minier 0:06

All right, everybody, huddle up. Play calls. It is the financial huddle. Ready? Welcome everybody to the financial huddle. I'm so glad to be here today. We have a guest, Alicia Barnett, and we're going to be talking about a topic of long-term care today. As always, I am here with my partners, Ryan Fleming. Hey everybody. Ed B. Miller. Hello, hello. And Huddlers. So glad that you made time today. Alicia, we're really uh grateful that you took time out of your busy schedule to talk about a topic that is affecting more and more of our clients. I can say specifically this is an issue that's affecting me personally and some of the family. And we want to just get a better sense of how to approach this and what people should be thinking about and looking for when they think about the topic of long-term care. So Alicia is the senior vice president of the care planning division. Financial Independence Group is one of our business partners, and this is a group that helps some of the top advisors in the entire country. They've been a tremendous help to us as we look at different strategies for our clients, and long-term care is one of those particular strategies. So, Alicia, welcome. And I would just start off by saying, tell us a little bit about what you're seeing in the space of long-term care.

Alecia Barnette 1:27

Absolutely. So thankful to be here, first of all. So appreciate you having me today. I've been at the business for 28 years as it relates to long-term care. So a lot of exciting things over the last couple of decades in my career. We've certainly seen the landscape change when it comes to long-term care planning. There's a couple different ways you can mitigate the risk. In fact, there's more than two ways, but the primary ways have certainly changed, as I mentioned, from when I started originally in the business. First, it used to be traditional long-term care. I like to use the analogy renting your policy versus owning. Traditional long-term care was pretty much the only thing sold 20, 30, 40 years ago. It was mostly nursing home insurance. Then they graduated to have both nursing home and home health care. And it's really the cheapest way to buy the most amount of long-term care. But with that expense comes potential rate increases. There's no death benefit if you don't use it. There's no exit strategy if you change your mind. And now we're seeing innovations to these solutions that are on life insurance or an annuity chassis that cover the same risk, but you have a benefit whether you live, whether you quit, or whether you die. So again, owning your policy versus renting it.

Ryan Fleming 2:42

Yeah, Lisa, uh again, welcome to the Huddle Nation. And um you hit upon something there that is kind of what I call the old paradigm versus the new paradigm. And um I think you and I have had a discussion in the past to say if you don't have a plan for long-term care, your plan is your money. It's your own money. So in your humble opinion, you know, with the new paradigm situation that you just mentioned, where has that been most advantageous for for people trying to address the long-term care?

Ways To Fund Coverage

Alecia Barnette 3:14

Honestly, it depends. It's not a one-size-fits-all approach out there. Everybody is unique in the way that they're made and the way that they're going to fund the plan. And the beautiful thing about these new solutions is there's 101 different ways to do it. That's the bad news and that's the good news. But what I will what I will tell you is you really need someone to help you do the heavy lifting because there are so many options. So as far as it being advantageous, it depends. Uh we typically see ages 45 to age 87. So you're never too old. I think that's one of the things to keep in mind. And there's a lot of different ways that you can fund these plans. So if you're high income earners, you can use income to fund the plan. If you have money sitting in the bank, money sitting in CDs, conservative assets, it's really a better way to self-fund. You're getting tax efficiencies and pennies on the dollar leverage. Also, if you have old annuities or old life insurance policies, you can refinance those into solutions that are going to give you that additional tax-free leverage for care. So another great way. And then, of course, last but not least, many of us have a disproportionate amount of money and qualified funds. You can actually utilize those. Now you're never going to get out of paying Uncle Sam, but we can show you a more tax-efficient way to do that, still get the tax efficiencies, and still get the pennies on the dollar leverage for long-term care purposes.

Ed Beemiller 4:36

Yeah, and Alicia, uh kind of echoing you know the statements you just made is you know, why have the hybrid approaches become so appealing in the marketplace? And I think you've touched upon it where you know we we always hear from our clients you know in responses, well, long-term cares are uh you know too expensive, or they just don't know what options are available out there. And in many cases, just uh the the whole purpose of our podcast is centered around financial literacy. So, you know, with with that being said, you know, how are these hybrid approaches, you know, uh working in in the current marketplace and what advantages do they have over m the more traditional?

Underwriting And Product Tradeoffs

Alecia Barnette 5:23

Absolutely. So the traditional long-term care solutions, they're still great solutions, but they're not the most popular options. I think one of the disadvantages that you'll find with those solutions are the rate increases. So my years and years and years in the business, I've seen some of these older policies increase anywhere from 15% to over 300%. And that's a pretty large pill to swallow if you're on a fixed income. And what we're seeing now is many people are having to reduce their benefits to be able to afford the policy. So even though they thought it was expensive then, now those rates are going up. Now they're having less and less benefits, that's a losing proposition. We're also seeing a shrinking marketplace on the traditional. So you really truly have more options with the hybrid long-term care solutions. Again, you have those benefit whether you live, whether you quit, or whether you die. So people like paying into something where they know you're gonna you're gonna win regardless of one of those three options. The leverage is still good, like the traditional, like the traditional long-term care, but you've got the death benefit. And that's if you don't use it, you don't lose it.

Ryan Fleming 6:33

It's kind of like you're you're you don't get the sensation you're paying into something you're not gonna get that benefit on. So can you speak to the like the differences to our uh listeners about morbidity versus mortality, right? So a lot of these new hybrid approaches are based on mortality, uh, not morbidity. And is is do you find that being a significant difference with people getting accepted or saying yes or no to one strategy or the other?

Using Qualified Money For LTC

Alecia Barnette 6:58

I think uh that's a great point to bring up because they are different from your traditional life insurance solutions or even just your straight long-term care solutions because you're you're essentially using your money first and then you have that additional leverage. So the underwriting leniency, in my opinion, is a lot it's a lot easier to qualify for these solutions versus straight life because you're not buying, for example, a big life insurance policy. Essentially, if you don't ever use it, your pr your premium dollars will go back to your beneficiaries. So unlike the traditional life insurance solutions out there where you might get a heck of a lot more death benefit, this is essentially you're really buying it for the LTC leverage, and the life insurance is secondary. So it's an O by the way, if you don't use it, you don't lose it. And that allows, in my opinion, a little bit more flexible underwriting on the life insurance solutions. Then on the flip side, you also have the annuity solutions. Those are even less underwriting because you don't have the tax-free death benefit. If you use it, you've got the additional leverage, for example, some of the solutions out there, maybe you put in $100,000, you get $300,000 for care. There's no sexy income riders, you're not buying it for accumulation, but you are going to get tax-efficient pennies on the dollar leverage for care, and the annuity will pass to the beneficiaries if you don't use it. So it allows for even more flexible underwriting. You're going to see simplified issue with on all of the annuity hybrid products.

Ed Beemiller 8:31

And something, Alicia, that you that you made mention to, you even nowadays have the ability to take a pre-tax or qualified asset and fund it into one of these hybrid long-term cares. Now, are a lot of carriers doing that, or is that very much limited in terms of which long-term care providers are allowing that?

Alecia Barnette 8:51

That's a great question. Right now, there's only one carrier that will take qualified money directly. I like to call it the McDonald's Happy Meal of Long-Term Care Solutions. You can buy your hamburger fries and drinks separately. So we can still structure it similar to that one carrier. What that one carrier does, it's kind of a Roth conversion on steroids for long-term care. So you're taking the qualified money, but you're also you can't put qualified dollars directly into a life contract. So it's a combination of an IRA and a 10-pay life insurance solution. So you're able to spread the tax liability out, but day one dollar one, you get tax-efficient long-term care solutions or long-term care leverage, so to speak. And if you want to do it yourself, as far as buying your hamburger fries and drinks separately, you could fund that a number of different ways. You can do a SPIA, a single premium immediate annuity funding a 10Pay. You could take distributions from your IRA or qualified dollars and just fund a policy over time. I mean, there are a lot of ways to stick as to skin a cat, so to speak. So you have a lot of flexibility whether there's only one carrier or ten carriers that have uh qualified dollars as a solution.

Ed Beemiller 10:04

Do you see more companies offering that as a solution here in the next three, five years?

Alecia Barnette 10:10

Absolutely. I know of a couple of different carriers right now that are working on solutions. And because we all have a disproportionate amount of money in qualified funds, I think we'll see new carriers enter the space and I'll see old carriers offer that type of solution because it is a great way to put a plan in place.

Ryan Fleming 10:29

Well, there's going to have to be adaptation. I mean, it's just it's such an insidious potential risk on our culture. I mean, it could, yeah, as we all know, it can be just devastate portfolios. Uh, but I'm curious, in your years of experience, would you say that there's like a sweet spot uh based on age when people should be considering whether that's the hybrid approach or the old types of policies? Do you see that as an important point?

Alecia Barnette 10:54

Absolutely. You've never been younger and healthier than you are today, so I recommend obviously starting as early as you can.

Ryan Fleming 11:01

Yeah.

What Care Really Costs

Alecia Barnette 11:02

As we age, we become uh, you know, we we become more frail, we bec have more health issues, and certainly we have uh long-term care solutions with limited underwriting and even a guaranteed issue chassis. It's gonna cost you less if you're younger. And again, you're gonna get more leverage, especially on the life insurance chassis. So I would say the sweet spot on the life insurance side of the house is going to be 70 or below. Um, I don't think we're gonna convince an 18-year-old to buy long-term care, but certainly if they had the ability to, it would be a great idea. You know what I mean?

Ryan Fleming 11:38

Yeah, I do. And the the other thing I thought you might be helpful for our listeners is just I know it's different all throughout the country, but the different levels per month that people are faced to maybe try to solve, whether it's like an assisted living type of situation or a memory care type of situation.

Ed Beemiller 11:53

Or it could even be home care. Home care, a lot of these.

Ryan Fleming 11:56

What ranges are we seeing here that people are going to have to think through to kind of solve half of it, solve all of it, things like that?

Alecia Barnette 12:03

I think that's a great point to bring up. I never recommend covering 100% of the costs. We we'd all be insurance poor, not to mention the fact that we have other assets that can supplement uh the care needs. So what I typically recommend is let's cover at least 50% of the high-end risk, which is nursing home. That's typically going to cost a lot more. And that will in most states cover almost 100% of home care and assisted living. It's a reasonable place to start. I know that me personally, I want to receive care in the home, so I'm not as quite as concerned about a facility, and I can probably cover some of that cost. It's like co-insuring on health insurance. So that's really uh what I recommend. If you want to know what the cost of care is, there's a great website. If you go to longtermcare.gov listeners, there it's got a lot of great general information, like who needs care, how long you might need care, the type of care service is available. And then, of course, there's a cost of care link, and it's going to redirect you back to the Care Scout cost of care survey. You can plug in any numbers in the country, city, zip code, and it's gonna pull up those local costs. So please, I recommend looking at that. Absolutely. And it is again it's gonna help you as have a starting place. For example, in North Carolina, I'm in the Charlotte area. It's running around almost $12,000 a month for nursing home, and home health care is around six thousand. So it's typically about half the cost, and that's where I like to start.

Ed Beemiller 13:34

So in that case, would you recommend getting six thousand of coverage or three thousand?

Alecia Barnette 13:39

Six thousand dollars a month. Because I want to try to cover as much of that home care cost as possible because that's where my my preference is for care setting.

Ed Beemiller 13:48

Right.

When Coverage Feels Unaffordable

Alecia Barnette 13:48

And and hopefully I won't go into a nursing home, but if I do, it'll at least cover half, and then I'll I'll be able to supplement with my income and my other athletes.

Ed Beemiller 13:57

Yeah. And you know, we we do a lot as for financial professionals having you know, Keystone Financial Groups, so we do a lot of retirement income and distribution planning. So the concept and the topic of long-term care is something we talk a lot about. We get a lot of pushback on, well, I can't afford that. I can't afford long-term care. If I look at my assets, I need them to provide my lifestyle, provide the cash flow necessary in my lifestyle. So if someone says, okay, I'm I'm not interested in a long-term policy in and of itself a standalone, uh how do you respond to that? You know, in because obviously if they don't do anything, then what's their solution, right?

Brian Minier 14:46

Which which we talked about.

Alecia Barnette 14:49

Absolutely. So and I always say this too, if you haven't haven't allocated something, you've allocated everything. So it's important to really have that discussion. I think the biggest thing for self-funders is to know if something were to happen tomorrow, which asset would you liquidate first? Because if you don't have a plan, you're going to have to pay for it or your family's going to have to step in. And let me tell you, long-term care doesn't bring family families together, it tears families apart. So it's really important to put a plan of care down and share it with your family. So if you decide to not insure against the risk and you're self-funding, maybe tell your family or write a plan of care down, you know, again, how are you going to pay for it? Where do you want to receive your care? And I I say this jokingly, but if you don't have a plan, your kids may take you out back and hose you off. And I'm I'm partially kidding there, but you know, it's helpful.

Brian Minier 15:42

Don't do that, Huddlers. Don't do that. Treat your parents better. You know that that's so funny. I had my my late father-in-law used to say, hey, if if something happens where I'm not with it mentally, you know, wheel me somewhere and just leave me. And leave me there, right? Obviously, that's not gonna happen. But in all seriousness, what what I see happening a lot of times is people they don't have a plan, and then you'll hear somebody say, Well, when I'm at that age, just figure it out then. And what you realize it's too late at that point in time. Well, right. You can't get into you can't get into internet sites, uh, you need verification, the two-step verification. People aren't have sound mind at that time to tell you, hey, this is where this thing is, this is where this password is. Can you sp have any stories or speak to that so that listeners can understand how important it is to really start that plan now versus waiting until you see a decline in mental health?

Family Care Can Divide Siblings

Alecia Barnette 16:37

Absolutely. Um take my family, for example. My my mom is 82, she's been uh twice widowed. Uh my biological dad died when I was four. My stepdad passed away at the beginning of the pandemic from a short illness. So she's alone. Um my older brother's about 10 minutes away. I'm about an hour and 15 minutes one way. And I have a sister in uh western North Carolina about four and a half hours away, and a brother in Hildenhead. She didn't buy a plan because we were in a car accident and she couldn't qualify. So guess who is mom's plan? I'm mom's. Absolutely. And and let me give you an example of what this looks like. She got sick. It's been a little over a year ago. I drove down every day for two weeks. I took her food, I took her medicine, I gave her hugs, I made sure she was mom was okay. Guys, ask me how many times my older brother, who was 10 minutes away, went to go help mom.

Ed Beemiller 17:34

Was it one of the th I was giving her the benefit of the doubt? I hope I I thought maybe one.

Brian Minier 17:39

But it's usually reliant on one of the siblings. And like you said, that doesn't bring families together. That tears them apart.

Ed Beemiller 17:47

And B, you talked about what you're going through with with your mother-in-law. And my mother-in-law lives with us and has since six months into COVID, we moved her out of assisted living. So believe me, you know, the burden falls on the family.

Ryan Fleming 18:04

Yeah. And that's why we're doing this episode. It's just too important of a topic. It's it's too real.

Ed Beemiller 18:09

Yeah. And the one one last thing before we kind of close things up, you know, within within planning, we do uh a lot use a lot of different strategies. Um what are your thoughts on you know if we use using life insurance as a quote unquote supplemental long-term care? What do you how do you feel about that?

Ryan Fleming 18:32

Like the accelerated death benefit writers on traditional long-term or life insurance chassis, excuse me.

Alecia Barnette 18:39

Absolutely. So I what I'll tell you is the best plan to have in place to have is the one that's in place when you need it. So those are still solutions. Uh what I will tell you is if you're really buying those for long-term care purposes, it it might not be the right solution. It's a great supplement.

Ryan Fleming 18:55

Right.

Alecia Barnette 18:55

Those are generally going to be death benefit first, so life insurance first, and the long-term care is secondary. Whereas some of these hybrid or asset-based LTC solutions, they're really built for long-term care first. You still have a death benefit, but that's secondary.

Ed Beemiller 19:10

Right.

Alecia Barnette 19:11

So what I will yeah, so what I will tell you is there's still solutions, uh, just like annuities with income doublers and chronic illness riders, accelerated death benefit. They're all solutions. But which one is the best solution? So if you have a solution, I would recommend reviewing it. If it is your long-term care plan, it certainly uh would be helpful to know how much of a benefit you're going to get. Is it going to be enough? Uh, and again, are you truly buying it for long-term care or are you buying it for life insurance? It's a great supplement, is what I'll tell you.

Are Traditional LTC Policies Still Available

Ed Beemiller 19:45

Yeah, I call it the AFLAC of uh long-term care. Right. The supplemental benefit. That's right.

Brian Minier 19:51

At least we talked a lot about the hybrid approaches, and obviously those are more prevalent in the industry now. Can somebody even get a traditional long-term care policy, the ways that they were structured years ago? Are those still in the marketplace?

Alecia Barnette 20:06

So there are currently four traditional long-term care uh insurance companies in the independent space. There are not a lot left. They are uh they're dinosaurs, right? But you can still get them. Again, they're not bad contracts. I think they're priced uh better. We're not gonna see as many rate increases, but you do not have the guarantees you have with the asset base, which is why you're seeing less carriers in that space and more carriers on the hybrid side.

Subscribe Share And Send Questions

Brian Minier 20:33

Makes sense. Super helpful. It makes sense. Super helpful. I I I said in a prior podcast that when I first got into this industry, I never thought long-term care was the need that it actually is. And now I'm experiencing it with multiple people in my family, and it's real. And I think that is true for a lot of our clients, people that we work with. And if it's not real yet for some people, it will be real in the near future. We always say if you don't have a policy, you better plan for it somehow. Segment assets, whatever that is. So this was really helpful having you on today. Absolutely for bringing some clarity with our listeners. Thank you for your partnership and and what you do for our firm. We we find it extremely beneficial. Uh-huh. So, Alicia, with that, thank you. Thank you so much for taking time out of your busy day. Huddlers, thank you for your time today and and for listening. Uh, make sure that you subscribe, make sure that you uh you share this with with people that you care and love about. Yeah, like and follow. Yeah, and if you have other keep tuning in. And if you have other questions that you want things that you want us to talk about, please let us know. Yeah. Thank you, Alicia. Have a great day. Have a great day. Thank you so much.

Alecia Barnette 21:41

Glad to be here.

Brian Minier 21:42

Take care.