As a result of declining interest rates on certificates of deposit. many of your valued customers have closed their accounts in search of instruments that pay a higher yield. If you have alternative investment products available, then your customers are likely to remain with the bank.
Deposit erosion is also caused by older customers who spend huge sums for long-term care, such as extensive stays in a nursing home. Such costs can range from $30,000 to $80,000 per year. In 1992, costs for nursing home care reached $50 billion dollars; costs for home care of the elderly reached $ 1 0 billion.
It is easy to see what will happen to those costs when the baby boom generation becomes the elder boom: We could be spending $500 billion a year for long-term care.
Do you know what impact the cost of long-term care has had on the erosion of savings deposits? How about valued customers who use trust services? According to government statistics, there is a one-in-two chance that someone in your family will spend time in a nursing home.
The average nursing home stay is two-and-a-half years. How long would your customer's savings last if faced with those kinds of costs?
Managed care appears to be the direction that Hillary Rodham Clinton's task force on health care reform will take. Long-term care will not be a part of President Clinton's health care reform program.
Costs are the primary reason for failing to include long-term care. This places greater emphasis on including long-term care planning as part of the financial planning process. It also places a greater emphasis on long-term care insurance.
Changes in Medicaid
President Clinton provided more flexibility on running Medicaid programs to the states. That means that the Health and Human Services Department will streamline its process for granting waivers from federal rules.
Medicaid is the fastest-growing expense for most state budgets. Last year alone, a quarter of the state Medicaid funds went to nursing homes. Medicaid supports two-thirds of all nursing home residents.
Each state is in the process of seeking relief by making it more difficult for people to qualify for Medicaid. For example, in Maine, according to the Maine Sunday Telegram, Gov. John R. McKernan "wants children to take financial responsibility for their aging parents.
"He has proposed tightening laws on asset transfers to prevent well-off retirees from making themselves paper poor so that the state picks up their health care costs."
The governor "also wants to give the state power to attach a family home or other assets after the individual dies, so the state can be reimbursed for the cost of care. He wants adult children who can afford it to care for parents in their homes, pay for their nursing-home care or buy long-term care insurance."
In Wisconsin, the state can already attach the family home and freeze assets until it has been reimbursed for any outstanding long-term care debts.
Outlining Options
Medicaid was a program developed to help the poor. Yet, the rising cost of long-term care has forced many middle-income American families to become dependent on the system to pay for the cost of catastrophic care.
Long-term care costs, in addition to causing bank deposits to erode, confuse and frustrate customers. There are several things banks can do to help customers understand what their options are to protect themselves from the tremendous cost of long-term care.
No matter how the Medicaid laws change in your state, now more than ever, older bank customers should be aware of the various types of trust agreements that can help protect the estate from the cost of long-term care.
Develop a Seminar
These trust agreements include the living trust, the Medicaid trust, a revocable trust, and an irrevocable trust, Several professionals in the trust department should be familiar with these agreements. Develop a bank-sponsored seminar on trust agreements.
Invite not only valued customers, but also customers of the various senior centers, the Older Women's League and the local American Association of Retired Persons Chapter.
You might want to not only have a financial planner run the seminar, but also invite an attorney who specializes in elder law.
Role of Bank Newsletter
Develop a series of articles about trust agreements and their advantages and disadvantages for the bank newsletter. If you want to establish yourself as an authority on this topic, also provide an article to the local newspaper about the importance of trust agreements.
The most valuable document for all your customers to have is a durable power of attorney. Simply stated, this document allows someone you appointed to act in your behalf should you become incapacitated.
Again, every state has its own set of rules governing a durable power of attorney.
Helping Them Understand
The older generation, our parents, generally do not want to discuss long-term care. They hope that they will not need nursing-home care. They have planned for their retirement by making regular deposits in the various savings accounts. They do not want to become a burden on their family.
Yet, with the financial planning process, no one really told them about the catastrophic cost of long-term care and how their savings could be wiped out in one or two years.
The bank can help aging baby boomers better understand how they can help their parents protect their savings and home with information in the newsletter about probate, a will, a durable power of attorney, a health-care proxy, and a list of assets.
This information can also be done with a special seminar, at a health fair, or in cooperation with another organization, such as a hospital.
Slowing the Erosion
American society uses private insurance to protect itself against loss from catastrophic events such as hospitalization, accidents, home fires, theft, and early death. Insurance against the potentially devastating cost of long-term care, however, is relatively rare.
Since long-term care insurance policies have been offered, a little over 2 million have been purchased. The Health Insurance Association of America reports that the average annual premium for 15 of the better policies is $1,395 if purchased at age 65, rising to $4,199 if purchased at age 79.
Banks interested in generating income to augment the bottom line should consider offering long-term care insurance to valued customers.
Offering long-term care insurance to customers provides a means to protect a bank's core deposits by climinating the need to pay for nursing-home and home-care services out of the depositors' savings. This can slow deposit erosion.
Research the Providers
If you are considering long-term care insurance as a product offering to your customers, be sure you research the companies offering programs. There are now more that 150 companies offering at least one long-term care product. The products have to be modified to comply with various state insurance codes.
If your bank is considering long-term care insurance, be sure to understand the variables common to all long-term care policies.
According to Zack Sochacki, president of Sochacki & Associates, a Chicago-area long-term care insurance consultant, "Only a few banks can sell insurance directly. This means that an outside agent must actually sell the long-term care policies to your customer base. Your bank may not be able to receive commissions, per se, but a client list user fee or a finder's fee is permissible."
A Key Role for Banks
The bank has a unique opportunity to play a key role in the area of long-term care with its customer base. Since it is not likely to be a part of the health care reform package, there will be a lot of confusion and uncertainty.
It will become more important than ever to have an understanding of the planning techniques that are available to help your customers make informed long-term care decisions.
As stated earlier, it can be as simple as communicating the information in a newsletter, seminar, or health fair. It can even include the introduction of a new product called long-term care insurance, which can also be a source of income to the bank.
Don't miss the opportunity to de an invaluable service to your customers and be a viable source of information on a topic that is confusing and potentially costly to them.
