Is Long-term Care Insurance Worth It ?
I believe it was Bette Davis who said, “Old age ain’t no place for sissies.” I was reminded of this recently as I visited a friend in a local nursing home. It wasn’t one of those posh facilities where patients are pampered through their declining years. This nursing home was, for lack of a better word, sobering. It was clean and the caregivers were genial, but it wasn’t the kind of place I would want to live.
If you are wondering about the value of long-term care insurance, you might find it instructive to visit some of the local care facilities. But before you do, here are some things you should know about long-term care insurance.
Long-term care refers to a wide range of support services that help those with functional impairments cope with daily life. These support services are most often provided by family members. However, when family members are not available or when the impairments become more than the family can handle, professional help may be needed.
Professional long-term care is expensive. According to Genworth Financial’s 2018 survey of 15,500 nursing homes, assisted living centers and home healthcare providers, the cost of long-term care in assisted living facilities has risen 64% in the past 15 years—about twice the rate of inflation. In the same period, the cost of nursing home care has increased 54%. The median cost of a single room in a nursing home is now $100,375 per year.
These costs help explain why 50% of married couples are impoverished within one year of one spouse entering a nursing home. For singles, the rate of one-year impoverishment increases to 70%. The purpose of long-term care insurance is to protect individuals and families from these crushing financial burdens.
Typically, long-term care insurance policies require that a person be unable to perform two or more of what are called “activities of daily living.” Activities of daily living include eating, bathing, dressing, toileting, transferring (being able to get in and out of bed or a chair without assistance), and maintaining continence.
Age is not a determining factor in long-term care, though often the conditions that lead to long-term care are associated with the elderly. The U.S. Administration on Aging estimates that 40% of those receiving long-term care services today are between the ages of 18 and 64. According to the same source, half of individuals turning 65 today will require some type of long-term care during their lifetime.
Many people mistakenly believe that Medicare will pay for any long-term care needs that arise. Unfortunately, Medicare does not pay for “custodial care,” the kind of care most long-term care patients receive, and pays for nursing home care only in very limited circumstances. In fact, less than 2% of current long-term health care expenses are paid by Medicare. In those instances when Medicare does pay, the benefits are limited. For example, Medicare covers 100% of the bill for the first 20 days. For days 21 to 100 the patient pays $170.50 per day and Medicare pays the rest. After 100 days, Medicare pays nothing.
Medicaid may provide help with long-term care, but the cost to get that care is steep—basically everything you own. Medicaid places stringent income and asset limits on the patient. Most people don’t qualify until they spend down their life savings. And the kind of facility that accepts Medicaid may not be the kind of facility you want to be in.
So, is long-term care insurance worth it? Visit a few nursing homes and decide for yourself. As for me, I’m going to talk with my insurance agent.
Steven C. Merrell MBA, CFP®, AIF® is a Partner at Monterey Private Wealth, Inc., an independent wealth management firm in Monterey. He welcomes questions you may have concerning investments, taxes, retirement, or estate planning. Send your questions to: Steve Merrell, 2340 Garden Road Suite 202, Monterey, CA 93940 or email them to firstname.lastname@example.org.