Retirement Income Blog

Paying for long term care (LTC) poses a serious dilemma for seniors according to a recent study  by Boston College’s Center for Retirement Research. Who needs LTC, what’s the cost, who’s supposed to pay for it, and who can afford a long term care premium are all issues addressed in the study. Let’s see some of the findings and what seniors can do as long term care issues are an essential part of your retirement plan.

Table 1 shows that three of four 65 year olds (in 2005) are projected to need LTC in their future showing the imminent importance of LTC planning.

Directly paying for long-term care is expensive with average assisted-living facilities costing $30,000 to $40,000, home health costing in the $16 - $20/hour range and private nursing homes costs beginning at around $70,000 per year. Such costs can make a senior citizen retirement miserable.  A long term care premium for insurance is the less expensive way to go.

Table 2, overall funding sources for LTC as of 2005, shows that 18% of dollars spent come from direct out-of-pocket payments by individuals. Medicaid pays most but only for those who have almost no assets, have spent down what assets they had, or had earlier divested themselves of their assets.

Only 7% of dollars were paid through private insurance. long term care premiums for insurance are not inexpensive.  Annual long term care premiums are nearly $2,000 per person at age 65. And the expected LTC insurance dollar benefit for each premium paid is only $0.56 for men and $1.04 for women.

The study concluded that 91% of Americans can’t afford to pay LTC insurance premiums.  It also concluded that many Americans mistakenly think government will pick up much of LTC for everyone. This confusion and competing expenses prevents Americans from purchasing long term care insurance long before 65 when it costs much less. Lastly, long term care insurance will remain a costly dilemma until government provides universal long term insurance or enough Americans purchase LTC insurance to spread the risk and lower long term care premiums.

For now, seniors may try to see if they qualify for LTC insurance to see if it remains an option. They should arrange for transferring their assets long before needing LTC to qualify for Medicaid. Lastly, they can look for LTC with other insurance combos that make paying premiums more palatable.

Check rates for a long term care premium using the long term care calculator.

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Study shows long term care - though needed - is often too costly for seniors

Paying for long term care (LTC) poses a serious dilemma for seniors according to a recent study  by Boston College’s Center for Retirement Research. Who needs LTC, what’s the cost, who’s supposed to pay for it, and who can afford it were issues addressed. Let’s see some of the findings and what seniors can do to afford long term care rates.

Table 1 shows that three of four 65 year-olds (in 2005) are projected to need LTC in their future showing the imminent importance of LTC planning.

 
Directly paying for long term care is expensive  with average assisted living facilities costing $30,000 to $40,000, home health costing in the $16 - $20/hour range and private nursing homes costs beginning at around $70,000 per year. Such costs can wipe out a person’s savings and legacy.  No one will argue that the long term care rates are not affordable by most.

Table 2, overall funding sources for LTC as of 2005, shows that 18% of dollars spent come from direct out-of-pocket payments by individuals. Medicaid pays most but only for those who have almost no assets, have spent down what assets they had, or had earlier divested themselves of their assets.

Only 7% of dollars were paid through private insurance. Long term care insurance rates are high.  Annual premiums are nearly $2,000 per person at age 65. And the expected LTC insurance dollar benefit for each premium paid is only $0.56 for men and $1.04 for women.  For the latest figures, use the long term care calculator.  To check the percentage of your income that long term care costs could consume, use the retirement income calculators.

The study concluded that 91% of Americans can’t afford to pay current long term care rates.  It also concluded that many Americans mistakenly think government will pick up much of long term care cost for everyone. This confusion and competing expenses prevents Americans from purchasing long term care insurance long before 65 when it costs much less. Lastly, long term care insurance rates will remain a costly dilemma until government provides universal long term insurance or enough Americans purchase long term care insurance to spread the risk and lower premiums.

For now, seniors may try to see if they qualify for long term care insurance to see if it remains an option. They should consider, through consultation with an elder law attorney, transferring their assets long before needing long term care to qualify for Medicaid. Lastly, they can look for long term care rates with other insurance combos that make paying premiums more palatable (e.g. life/long term care combination policies).

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Long term care premiums are not cheap but these recommendations may help you get a policy with an affordable long term care premium.

While it would be ideal to have complete coverage (inflation protection, lifetime coverage, at least $160/day benefit), it is better to have at least a basic policy than to have none at all. In other words, a minimum policy is better than being uncovered for the high cost of long-term care. In order to help you minimize your long term care premium, below are five ways to help you reduce costs and yet provide basic coverage. No one knows when a health catastrophe can strike. An onset of a heart attack, stroke, cancer, Parkinson’s and Alzheimer’s are debilitating illnesses, which give no advance warning. Protect yourself and your family financially.

Here are five ways to get covered at a lower long term care premium
:
1. Reduce the coverage period. For example, reduce the term of the policy from five years to four years. Statistics indicate that a four-year policy has historically covered 88% of the long-term care cases. Of course, there is no guarantee that this pattern will continue on in the future.1

2. Reduce the daily benefit. The actual cost of nursing care averages $208/day.2 If you cover just $130 or $160 per day with insurance, some people can make up the difference with other income sources, such as Social Security or interest income.3  Since use of benefits from a long term care policy may not be needed, it makes financial sense to keep your long term care premium lower and supplement your actual costs with other resources should you have a long term care need.  The retirement income calculatorcan help determine if this option is suitable for you.

3. If you are age 75 or over, consider omitting the inflation protection. Although you will hopefully never need long-term care, if you do, you could need it within 10 years-by age 85. Therefore, you do not need to protect for inflation over as long a period of time as, for example, a 65-year old would need to prepare.  Omitting inflation protection accounts for a BIG drop in a long term care premium.

4. Consider partial home care coverage. Many companies offer, as an example, $100/day benefit for nursing home payments and $50/day for home care payments (home care costs can be less expensive if you have family or friends who can help with care). By reducing the benefits for home care, you can lower your long term care premium.

5. Many people have a spouse or friends or relatives who can assist them in the home. Depending on the hours of needed care, the costs of a home health aid ($19 per hour on average) can be less than the costs of round-the-clock nursing home care.4 With this in mind, the most important coverage area for many is the care provided outside the home.

To approximate your long term care premium with modifications for the above options, use the long term care calculator.
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1 Met Life Market survey of nursing homes, 2007. 
2 Average daily rate for a private room is $77,745 annually or $6,478 monthly. Average daily rate survey of all 50 states and the District of Columbia. MetLife Market Survey of Nursing Home and Home Care Costs, 2007. 
3 If you have sufficient interest income or Social Security income, it may be better for you to insure for a majority of the cost of long-term care and self-insure for the remainder. This has the effect of lowering the current cost of the insurance premiums without subjecting you to being unable to cover the costs of long-term care, if and when they arise. 
4 Average hourly rate, MetLife Market Survey of Adult-Day Services and Home Care Costs, September 2007.
Other Options and Ideas

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