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The Long-Term Care Insurance Gamble

A good friend in Houston recently emailed me to ask whether she should buy long-term care insurance. Let me be very clear about my answer: I have no idea.

This writer is like baby boomers everywhere trying to get a grip on this long-term care stuff. Where to start?

First, let’s look at the prices for long-term care. Squared Away used data from Genworth, one of the nation’s largest insurers in this market, to generate a U.S. map with the median cost in each state of a semi-private room in a nursing care facility.

Genworth’s goal is obviously to sell insurance. But I ran its data by a few people, and it held up well, with a few observations and caveats discussed later.

On the question of whether you should buy long-term care insurance, I read a Wall Street Journal article quoting two experts, pro and con, and had a conversation with an economist here at the Center for Retirement Research. Here’s what the decision boils down to: If you’re rich, insurance is unnecessary – you can pay for the facility or home visits if the need arises. If you’re poor, Medicaid often pays. If you’re middle-class, it’s a difficult decision.

Researchers have identified long-term care as “one of the largest uninsured financial risks facing the elderly in the United States.” Yet only 10 percent of people over age 60 were covered in 2000 – surely, some of the 90 percent simply couldn’t figure out what to do.

Here’s why it’s so difficult to decide whether to buy long-term care coverage: There are so many unknowns. What’s the long-term care insurance you’re paying for now going to buy you in the future? If you do need it, how long will you need it and at what age? Will the premiums go up so much you’ll be forced to drop the policy?

Premiums are already going up – between 6 percent and 17 percent last year, according to the American Association for Long-Term Care Insurance, a trade group for insurance agents. Prudential and MetLife are among 11 of the top 20 insurers that have stopped selling individual long-term care policies in the past five years, according to the trade organization, Limra. Others are paring back products: Genworth, for example, is suspending sales of lifetime policies and will instead offer long-term care policies with 10-year limits on benefits.

For middle-income Americans, good reasons to get long-term care coverage may include preserving your hard-earned savings to bequeath to your child, niece, or the spouse who may out-live you. People without children may have more need for coverage than do parents who may move in with their offspring; on the other hand, a single person is free to sell the house to pay for assisted living since there’s no spouse remaining at home.

Many Americans in nursing homes eventually deplete their money and are forced onto Medicaid – you may want to try to avoid that. The majority of nursing home stays are for only a short period of time – say after surgery – and Medicare pays for the first 100 days. But there’s a copayment, which can deplete one’s savings if he or she is unlucky enough to have a couple of medical crises.

Bob Bua, president of Genworth’s Care Scout customer division, urges people to keep two things in mind: Neither Medicare nor traditional health insurers cover long-term care in a facility. “There’s no one else on your side other than long-term care” coverage, he said.

About the map: the data are based on a survey of 15,300 U.S. nursing homes, assisted living facilities, adult day health facilities and home-care providers. The interactive map on Genworth’s website also has loads of state and city price data for adult day care and health aides and caregivers who will come to your home.

Here are some ways to gauge Genworth’s price data:

  • The median national price for a private room – $222 per day, or $81,030 per year – can be compared with data from the National Investment Center for the Seniors Housing & Care (NIC). NIC estimates the average daily cost for a private room is higher, at $98,000; the disparity could be partly explained by NIC’s survey pool, which covers only 100 large markets. (NIC does not track the semi-private room cost featured in Squared Away’s map.)
  • Location does matter: prices vary widely from state to state, so long-term care may be a reason for some boomers to move to lower-cost states when they retire. Hiring a home health aide for full-time care, such as help with bathing or medications, can cost anywhere from $34,000 in Louisiana to more than $50,000 in Massachusetts, Washington, and New York.
  • Genworth’s estimates for both home health and personal care aides, who shop, do laundry, and cook for the elderly at home assume they work full-time. However, the typical person needs a home visit three to four days per week, or an average of 15 to 20 hours per week, according to Jesse Slome, executive director of the American Association for Long-Term Care Insurance. Genworth’s costs estimates represent a worst-case scenario. The federal government’s National Clearinghouse for Long Term Care Information also says women need more care – 3.7 years – than men – 2.2 years.

After scratching the surface on this issue, something became clear to me: long-term care insurance is not like car insurance, which will definitely pay to fix your entire car, even replace it, if you’re in an accident. With long-term care, there is no easy fix.

For information about buying long-term coverage, Kiplinger’s provides some tips.
To learn the reasons people say they buy coverage, read this blog post.

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