According to a 2004 research paper released by the National Bureau of Economic Research (NBER), economic theory would suggest that individuals would purchase Long-Term Care insurance to protect themselves against the risks associated with custodial care costs. The private, nonprofit, nonpartisan research organization found that, “long-term care expenditures represent a significant financial risk for the elderly. A 65-year-old woman has a 44 percent chance of entering a nursing home during her lifetime and, upon entering, faces an average stay of two years. Long-term care is extremely expensive – the average rate for a semi-private room in a nursing home was over $50,000 per year in 2002.”
You might guess that an article almost 10 years old would no longer be valid. Yet, about the only thing that has changed is the financial hit from a nursing home stay. In 10 years that hit has nearly doubled. In Washington state, for instance, a semi-private room in a nursing home averages about $90,000 (the Seattle-area is considerably more expensive). Surprisingly, the market for Long-Term Care insurance continues to be quite small.
About 70 percent of adults 65 and older will need some sort of assistance with Activities of Daily Living (ADLs). Those ADLs generally will not qualify you for Medicare. However, most Americans incorrectly believe Medicare will provide help when they need it as they age. Medicare covers only medically necessary, skilled care and will cover at-home custodial care only when provided in conjunction with skilled care.
That leaves Medicaid as the fall back if you are hoping that government benefits will pay for care. The problem with Medicaid is that as the tsunami of Baby Boomers reaches a time in their lives when they need assistance with their care, Medicaid is undergoing immense strain. That strain may eliminate Medicaid as a fallback position for all but the truly needy.
That leaves family. But counting on family shouldn’t be the only plan. For one thing, family size has shrunk considerably. In 1960, the average American family was 3.33 people. In 2013, family size had decreased considerably to its lowest point ever, 2.54 people per household. Currently, 66 million Americans provide care for family members or friends. There are high costs associated with choosing to become a caregiver. As people find they are unable or unwilling to pay those costs, those costs are likely to return to haunt the person needing care.
Which means many of us will need to join the 7.4 million Americans already covered by Long-Term Care insurance. If you’ve looked at premiums previously and discounted purchasing Long-Term Care insurance, you might consider taking another look. Here’s why:
- Long-Term Care insurance has been around since the 1970s and has evolved considerably. The days of being able to purchase a policy for an unlimited benefit period are quickly disappearing.
- Some policies pay for care provided in the home (although often the caregiver cannot be a family member).
- Some companies responding to concerns that premiums get forfeited if the coverage isn’t needed have responded with options that return the unused premium to heirs upon the death of the beneficiary.
- The IRS considers some Long-Term Care policies to be a medical expense. Those individuals aged 51 to 60 can deduct up to $1,360 per person in Long-Term Care premiums in 2013. Deductions go up as you age.
Regardless of where you stand on the idea of purchasing Long-Term Care insurance, you need to spend some time planning for your eventual need for care. That may mean counting on family, buying a Long-Term Care insurance policy or making an effort to self-fund your future care needs.
Come to a free seminar to see what other options exist for your future care needs.
Additional articles about Long-Term Care insurance:
In 2014, the cost of LTC insurance dropped—for men
Commission fails to answer big question: “How does America pay for Long Term Care?”
Deciding whether or not to buy long term care insurance needs to happen in your 50s
