   |  | | By Mike Magee, MD
The average cost of one year in a nursing home now exceeds $70,000, but the average net worth of 65 year olds is only $110,000.1,2 This means you could blow through everything you have, including your home, in 18 months or less. Maybe you’re only in your 40s now and hardly think of your golden years? That’s trouble – the estimated average cost for one year in a nursing home in 2030 is $190,000.3 Of course, when you’re in your 40s, 50s, or 60s, it’s difficult to predict how much care you’re going to need down the line. But you shouldn’t let that stop you from making financial plans. Currently, only 7% of American seniors have enough saved to cover even one year of nursing home care.2 Thus, 70% of single people and 50% of married couples who require long-term care become destitute.4
Now, many of you might be saying to yourselves, “But I don’t want to go to a nursing home” … and you’re not alone there. No one wants to think of themselves as incapable of their own care or consider having someone else run their lives. But the reality is that 60% of current 65 year olds will require some kind of long-term care in their lifetime – either at home, in an assisted living facility, or in a nursing home.4 That’s why so many people are looking with renewed interest at long-term care insurance, a safety net concept for seniors that has been around for quite some time, but is now suddenly more relevant than ever.
What is long-term care, exactly? It’s different from what most Americans think of as health care, and it usually isn’t covered by health insurance policies, HMO plans or Medicare supplemental policies. Long-term care can range from basic help with tasks around the house to more essential assistance with activities of daily living – like bathing, eating or getting dressed.
Many think they will be able to fall back on family members or friends if they get into trouble, and age in place at home. This might work for some -- if you’re lucky and aren’t disabled or markedly ill, if you don’t have Alzheimer’s or dementia, and if your family is supportive. But looking ahead, this safety net is likely to weaken. With the size of the American family getting smaller, there are fewer adult children to do the care giving. Also, children live farther away from their parents than they did a generation ago. And lastly, many more women are a part of the workforce now.4
In addition to family and friends, Medicaid has traditionally been another fallback for long-term care. Through a variety of legal loop holes, a failing senior or his/her family can “spend down” their assets, basically causing themselves to go broke on paper and then qualify for government payments to a nursing home. But as our society has aged and costs have risen, Medicaid, a partnership between state and federal government, is feeling the strain. Medicaid expenditures now account for about 25% of the average state budget.4 In response, the Deficit Reduction Act of 2005 modified the rules, making it somewhat more difficult, though not impossible, to qualify for Medicaid coverage.5
So unless you can afford to pay $70,000 a year now, or an estimated $190,000 per year in 2030, you need to think about long-term care insurance. The policies are increasingly common and flexible, but, of course, they’re not free. It can cost a 55 year old $5,000 per year for a plan that provides $200 per day for a lifetime with an annual 5% inflation adjustment and an initial 60-day waiting period. That probably puts this type of insurance out of reach for a good number of people. But here are a few things you can do to bring down the cost.
1. Limit the benefit period. Only 8% of seniors require coverage for more than five years. If you go with 5 years of coverage versus lifetime, you’ll save $2,000 per year.3
2. If you’re married, consider a shared policy. Plans now allow couples to buy two policies almost for the cost of one, and you can share the years of coverage.3
3. Don’t be penny wise and dollar foolish on key benefits. Since costs can be unexpectedly enormous, be careful with waiting periods.3
4. If you’re in your 50s and healthy, look for an individual policy versus a group policy. Otherwise, you’ll be factoring in the actuarial cost of individuals who are less well than you. And compare prices from a few insurers, including name brands like Genworth Financial, John Hancock, MassMutual, MetLife, New York Life, and Prudential.
The bottom line? You’re not going to be young forever. Set aside some time and money to ensure you’ll have the care you need when the time comes.
For Health Commentary, I’m Mike Magee.
References
1. Genworth Financial. 2006 Cost of Care Survey. March 2006.
2. United States Census Bureau. Net worth and Asset Ownership of Households: 1998 and 2000. May 2003.
3. Lankford K. Insurance you need now more than ever. Kiplinger’s Personal Finance. Fall 2006; 94-99.
4. House Committee on Ways and Means. Statement of Buck Stinson. Testimony Before the Subcommittee on Health. 19 April 2005.
5. Congressional Budget Office. Deficit Reduction Act of 2005. 21 Dec. 2005.
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