What happens when your spouse’s care drains your savings

What happens when your spouse’s care drains your savings

Garry Marr | January 11, 2014 7:35 AM ET
It’s the end of the line for you, so who cares if there’s nothing left and you actually owe money? How about the lifelong partner funding the expensive care you require in your last days — their own retirement plans now in jeopardy?

We develop more health problems as we age — so why aren’t more people buying this kind of insurance? Read on

The scenario of a still healthy retiree caring for a dying spouse is all too common in Canada and with it comes a tough moral and financial question — put someone into a retirement or nursing home or try to keep them in the marital home. The cost is enormous physically and financially.“We do see people [go bankrupt trying to support their spouse]. They resort to credit card cards, cash advances, etc. to try to keep the household running with a sick partner,” said Chris Mazur, senior vice-president of BDO Canada Limited.

While it depends on the province, the government will provide you with long-term care in your old age, but the type of place you’ll end up living in could be limited and part of your income is likely to be clawed back.

“You get into the higher end nursing homes and they are not cheap,” said Mr. Mazur. “Often a couple’s pension cannot match a higher end retirement home, I can tell you that. Most people want to do the best for their spouse and sometimes they do overextend themselves.”

The Canadian Life and Health Insurance Association says the cost of a private room in a retirement residence, not covered by any government subsidy, could run anywhere from $850 to $6,700 a month. Home-care can easily run $35 per hour and skilled nursing rates are up to $85 an hour in some provinces. The Association says paying for that higher standard of care could cost anywhere from $35,000 to $65,000 annually.

A study released by Sun Life Financial last fall found 40% of Canadians face some type of financial hardship after a serious health event and Mr. Mazur said for seniors it’s obvious there is a greater propensity for that to happen.

The issue is ultimately how much do you want to save for it based on what you think the government will supply and are you prepared to let your partner foot the bill for any shortfall.

The tricky part of all this is we don’t know how much of [long-term] costs will be downloaded to people down the road

The Sun Life survey found that 47% of Canadians do not expect to pay for a retirement home residence while 60% do not expect to pay for a nursing home residence.

The CLHIA says that over the next 35 years the cost of providing long-term care will be $1.2-trillion with only half of that covered by current government programs. By 2036, a quarter of the country’s population is expected to be over 65 and one million Canadians will have dementia.

Despite the potential shortfall, a poll done by Leger Marketing for the CLHIA found 74% of Canadians have no plan to pay for their long-term care.

Colin Busby, a senior policy analyst with the C.D. Howe Institute, says there is a perception in many Western countries that the government will simply provide for you when you are old and sick.

He co-wrote a paper on long-term care for the elderly and found for countries in the Organization for Economic and Cooperation and Development, about 50% of the population over 80 needs institutional or home care for a chronic condition. And while only about 4% of the Canadian population was over 80 in 2011, that figure will rise to 10% by 2050.

 

“You’ve got high degrees [of care] in there and low degrees in there. You might need long-term care because you are not physically capable of cooking a meal or dressing yourself, a low degree of need, and then high degrees like full-blown dementia,” said Mr. Busby.

People looking for government support can usually expect more funding, if they are in a facility. There are set private fees in each jurisdiction, annual, monthly or daily and the recipient is expected to pay for it. If you don’t have the income, you’re covered, but the subsidy is bigger.

“Theoretically, the public component is meant to pay the cost of care in an institution while private is intended to cover lodging and food costs, things you would be otherwise forced to pay for in the community.” said Mr. Busby, adding what each province pays is all over the map.

Governments try to emphasize choice but the reality is you need to be in a facility that has negotiated an agreement with the government. It’s worth noting that as land costs have skyrocketed in cities and, with private facilities getting the same funding no matter where they locate, the incentive to be in dense, expensive urban areas won’t be there under the present funding solution.

Mr. Busby says the difference between long-term care and typical health care is you can pay out of your own pocket. “Generally when you think about health-care, you can’t pay out-of-pocket for physicians and care. The choice doesn’t exist,” he says. ”It does exist in long-term care.”

He agrees planning for your dying days is difficult to do given some of the uncertainty about what government will pay for in the future.

“The problem is the needs are so different for individuals who need long-term care and the probabilities are very different for each person,” said Mr. Busby.

There are products out there you can buy to make sure you die on your own terms and don’t leave your partner with a lot of debt. Long-term care insurance is the most obvious one but even the insurance industry says it has yet to take off as a product.

“It’s not really widely sold in Canada,” said Sue Simone, living benefits product director, retail markets with Manulife Financial. “I think there is an awareness issue among Canadians.”

She says many people are still relying on family for care if they decide to remain at home with a chronic illness, even though there is some government funding available for home care. A long-term care policy would pay for a caregiver in the home or supplemental care in a facility.

An alternative would be to buy an insurance policy on each spouse. Your resources might get depleted paying for care not provided by the government but would be restored once they die. Some life policies allow you to get some of the face amount up front.

A critical illness policy pays out a lump sum after you are diagnosed with certain illnesses but is usually sold to people who are much younger than the audience for long-term care. Some critical illness policies are permanent but they are generally more expensive.

Manulife also has a clause that allows you to transfer your disability coverage into a long-term care policy. “There are a lot of these conversion-type policies being developed,” said Ms. Simone.

Certified financial planner Clay Gillespie, of Rogers Financial, sees people save their entire life for retirement and they don’t end up fulfilling their dreams to travel because one person gets sick.

“They can’t, because they are busy taking care of them,” says Mr. Gillespie, noting the savings ends up going for care instead of the dream vacation. “The male usually goes first and he tends to stay at home longer because there is a healthy spouse to take care of him.”

Can you budget for any of this? Mr. Gillespie says long-term policy premiums are almost too pricey for his liking. He says what many people are ultimately doing to pay for a dying spouse is dip into their home equity.

“That works where I am in Vancouver but maybe not in North Battleford, Saskatchewan,” he says. “The tricky part of all this is we don’t know how much of [long-term] costs will be downloaded to people down the road.”