Misconceptions around the Affordable Care Act may derail boomers’ plans for funding long-term care costs

The Affordable Care Act (ACA) continues to be a hot topic and a recent Nationwide Financial Retirement InstituteSM survey reveals that financial advisors who know the regulations of the ACA will have a chance to distinguish themselves from their competition.

According to the survey, nearly three-quarters (72 percent) of affluent baby boomers mistakenly believe the ACA will pay their long-term care (LTC) costs in retirement and are not adequately planning for those costs or not planning at all. Likewise, 76 percent do not know their personal benefits under ACA and 37 percent do not know what the ACA exchanges are.

Financial advisors can play a critical role in helping America’s workers realize they can’t count on someone else to fix this problem and that they will have to fund their own health care costs in retirement. With more than 60 million baby boomers reaching retirement by 2030, there’s a lot of planning and education that is needed. However, the implementation of the ACA provides a perfect opportunity to discuss with clients how they will pay for health care and LTC during retirement.

According to the poll conducted by Harris Interactive of 801 Americans over 50 with at least $150,000 in household income, three quarters of pre-retirees say their top fear in retirement is their health care costs spinning out of control. However, of those who have talked with an advisor, only 22 percent discussed health care costs in retirement.

The annual survey shows boomers’ estimates for their own LTC costs dropped by more than 50 percent in one year. Boomers now expect their annual LTC costs to be $36,220. That is less than half of what they estimated in 2012 ($78,920). This drastic drop could be due to their misconceptions about what the ACA covers. The reality is by 2030 – the year the last of the boomers will retire – the costs of a nursing home is expected to reach $265,000 per year (Life and Health Advisor).

How to shape the conversation
Boomers desperately want to receive LTC in their own home. In fact, 54 percent say they would rather die than live in a nursing home. But few are adequately planning for the costs – and many are not planning at all. Unfortunately, only one in 10 have a plan in place to pay for long-term care costs in retirement (EBRI).

The most common mistake a financial advisor makes is his or her approach to the discussion. When an advisor says the words “long-term care,” the client often hears “nursing home.” This often causes the client to shut down. Instead, advisors should say: “Let’s talk about ways we can keep you in your home longer.” 

The next step is to get a fact-based estimate of what those long-term care costs may be and work to build a plan from there. 

In Summary
A big mistake many boomers are making is waiting for someone to fix the problem of paying for health care costs in retirement. America’s workers need to realistically plan to be responsible for their own health care in retirement and need advice from financial advisors who understand health care costs’ impact on retirement. Four in five advisors say they know if they can have these discussions, their clients will be more likely to stay with them.

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The views and opinions expressed here are those of the writer and do not necessarily represent the opinions of Nationwide.

Nationwide Investment Services Corporation (NISC), Member FINRA. In MI only, Nationwide Investment Svcs. The Nationwide Financial Retirement Institute is a division of NISC.