Wealthy need to worry about health costs, too

Retire Well: Managing healthcare costs
Retire Well: Managing healthcare costs

When it comes to planning for long-term health-care costs, the rich are a lot like most Americans—they haven't given it much thought.

Nearly half of wealthy individuals polled by U.S. Trust say they haven't done much planning for the potential need for long-term care.

However, the wealthy do feel secure about medical costs now and in retirement, with 70 percent saying they feel financially prepared for those costs, according to the new survey. (Tweet this)

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In past surveys, health issues have been top of mind for the wealthy, but even the rich tend to put off planning for long-term care, which is difficult for many of us contemplate, said Chris Heilmann, a managing director at U.S. Trust.

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The wealthy are willing to invest in maintaining their health, he said. More than half expressed an interest in getting full-body scans and genetic screening in order to assess their health, according to U.S. Trust's 2015 "Insights on Wealth and Worth." The survey questioned 640 individuals with more than $3 million in investible assets.

The trend toward testing was especially pronounced among high net worth millennials, who were the most likely to explore testing and have a doctor on retainer through concierge medicine.

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However, scans and screenings can only go so far. When it comes to long-term care health care in retirement, 32 percent of those surveyed expect to stay in their homes with private home care, while 1 in 5 expect to be cared for by a loved one in their homes.

Long-term care can come with a hefty price tag, which is why U.S. Trust urges wealthy clients to consider elder care planning assistance with third-party providers who assist with issues like home care services and nursing home selection.

"It's a bigger financial impact and a bigger toll simply because the costs of health care and long-term care continue to escalate," Heilmann said.

Independent wealth advisor Debra Brede said many of her clients expect their wealth will allow them to effectively self-insure their long-term care health costs. But even for a couple with assets of $2 million, the toll of long-term care can derail financial plans, she said.

"The drag is on the remaining spouse, the one that's not sick," said Brede, president of DK Brede Investment Management outside Boston. "When the other one passes on and uses up a lot of the funds, the one that hasn't gone through it is the one that's going to suffer later."

"Don't look at long-term care or health issues as just financial," concurred Heilmann. "Look at them in terms of your family and the social dynamics that would result from that."

Long-term care options

Financial advisors say long-term care insurance can serve as an important way to help finance home care and nursing home costs. But a number of insurers have limited coverage in recent years, after losing money on mispriced policies over the last two decades.

It is easier to gain coverage when you're young and healthy, often through an employer group plan, but it requires paying in for years and possibly never seeing the benefits.

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For high net worth individuals, another option is a hybrid life insurance plan that allows withdrawals for long-term care.

"There are an array of products from a life insurance standpoint … where you can look at death benefits and you can look at life settlement benefits" to pay for health costs, said Heilmann.

For older individuals, some universal life insurance plans will provide a way to set aside health costs, while offering a way to preserve part of their estate.

"You take a certain amount of money, $100,000 or $200,000 out of your portfolio, and they'll give you a certain amount of coverage," said Brede. "If you don't use it, your heirs will get it back."

"People look at this in terms of 'Yes, I want to be cared for in terms of my long-term care health needs, but I also have an interest in passing assets on to family members.' They also want to engage in philanthropy," said Heilmann. "In other words, they want to do it all."