Fewer Need Long-term Care Insurance
Years of confinement to a nursing home is everyone’s worst fear for old age.
With a semi-private room now costing about $81,000 annually, the prospect of a lengthy stay is also a popular reason for buying a long-term care insurance policy to cover it.
Undercutting this rationale is a new study led by senior economist Anthony Webb of the Center for Retirement Research, which sponsors this blog. He finds that U.S. nursing home stays are relatively short: 11 months for the typical single man and 17 months for a single woman. There’s some unpleasant news in the study, too, because the risk that an older person may one day need nursing home care is 44 percent for men and 58 percent for women.
The significance is that nursing home stays are higher-probability, lower-cost events than previously thought, which reduces the appeal of purchasing long-term care insurance. This finding helps to explain why so few older Americans – 13 percent – buy the coverage to protect their financial assets from potentially being drained by nursing home bills.
The biggest reason for the lack of interest in insurance had already been well-documented in the research: Medicaid pays for a long-term stay in a nursing home for those who can’t afford one. The upshot for individuals weighing whether to buy the private insurance is that the benefits of doing so often accrue not to the individual who bought the policy but to the government, in the form of reduced Medicaid payments.
But the new study added an assumption absent from previous attempts to estimate how many people might benefit from having insurance: Medicare also sometimes pays for shorter nursing home stays, accounting for about 15 percent of total long-term care spending.
Taking all of this into account, just 31 percent of women and 19 percent of men benefit from buying long-term care insurance – far fewer people than previous studies had estimated.
The Center’s new, lower estimates of Americans’ willingness to pay for the insurance combine the best methods used in a pioneering 1996 study and a 2014 study. The Center used monthly – rather than annual – probabilities of transitioning between various levels of care, from healthy and requiring home health care to residence in an assisted living facility, a nursing home, and death. These probabilities were applied to an economic model estimating a single person’s willingness to pay for long-term care insurance. The Center also used fresh data on the actual lifetime patterns of care use revealed in a nationally representative survey of older Americans.
Everyone’s circumstance is different, but this research strengthens the take-away from prior studies: buying long-term care insurance does not make financial sense for many people.
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Yes, Medicaid pays initially, but the article does not mention that Medicaid later goes after your home/estate to recover what they paid, and looks back 5 years. If you own a middle-class home in a blue state, where home prices are high, your heirs will be the ones to “pay” in the end. LTCM is not suitable for many people, but the fact that so few people are buying it because they think that Medicaid/Medicare will bail them out looks like a problem to me. I wish this study were clearer on that point, as many people will use it an excuse to not purchase needed coverage.
I remembered this when, last week, I took the well-publicized American College of Financial Services retirement literacy test. One of the questions asked how many people will someday need long-term care. I said around 50%. They said around 75% and marked me wrong. So I was robbed. I could of scored an 84.
You have neglected the fact that long-term care insurance can be used in some cases for assisted living care, especially for those with cognitive impairment. This is an important consideration.
LTCI is not only for nursing home issues. What is ignored in this blog is the need for frail elderly that live alone (widows or widowers) who cannot perform all the duties of daily living, such as driving to the doctor, maintaining a household, cooking and generally trying to live alone without being a danger to themselves or others.
Your writer probably hasn’t experienced dealing with caring for an elderly person, and fails to understand that LTC insurance is rarely used for the “skilled care” and is rarely the reason for buying it. Largest use is for in-home care, followed by assisted living care. Caring for my mother-in-law in assisted living (13 yrs) with policy benefits is still very taxing; without the policy, I am certain it would destroy our family — quantify that! If it weren’t a problem that insurance helps, why would the IRS allow a tax deduction, and states integrate policies with Medicaid? I own a policy because I do not want my wife or my children to HAVE to change my diapers…
If what you are saying is true, then the cost of LTC insurance should be dropping in the future. Everything I have read indicates the opposite. I hope the study is correct.
Where to start? First long-term care insurance is not just for nursing homes. LTC insurance covers in-home care. That is always private pay. That can be as expensive as a nursing home. I agree with the arguments regarding Medicaid, etc. Try to find a good nursing home that will take a Medicaid patient. And what about a spouse, who is living in the community?
Finally, my 94-year-old mother has been in a nursing home for over 4 years! The article did not deal with conditions like dementia or Alzheimers. We can expect the number of patients with this disease to dramatically increase with the aging of baby boomers. And these folks are not short-term. I was taught that we cover our risks with insurance up to the point we are willing to pay.
Please do not state Medicaid pays for nursing home care. It only pays for those who QUALIFY, and to do so, one must be near destitute. As usual, the middle class is the segment that must pay, either through LTC insurance or out-of-pocket. How many can afford out-of-pocket?
Being disabled and cared for at home is a higher probability than a long-term stay in a nursing home. A good LTC policy will have some coverage for home health care.
This study clearly shows why Medicare is at risk and payments to caregivers are being curtailed. Medicare is primarily providing short-term high cost emergency care to the severly ill and incapacitated. Based on my own family experience, the turnover in census in skilled nursing is consistent with the one year or less mark. Those who stay longer generally are transitioned to Medicaid due to the exhausting of private and public (Medicare) resources. My family would prefer to provide in-home care for our loved one, but the rules are written so as to make that impossible – even though it would result in a significant cost savings to taxpayers in the long run. Both Medicare and Medicaid are set up to profit mainly corporate, lean providers who survive on economies of scale and billing efficiencies – or just small scale crooks. Seen them all, and the system is horribly broken.
Agree, the conclusions in the article can further mislead about the need for financing long-term care. By focusing solely on nursing home care, it misses all those other settings where such care is delivered. One stat I still see is nursing home stays are preceded by about 8 months of home care for men and 7 months for women. Now we’re talking 19 months for men and 24 months for women. Now what would the study conclude?
Also, saying that the new study shows just 31 percent of women and 19 percent of men actually benefit from buying long-term care insurance is another misleading statistic. First, the whole concept of insurance is many sharing in the losses of a few…there is safety in numbers. What would the author propose instead? Having everyone collect? That upsets the whole idea of insurance. Frankly, that’s a lot of folks who collect. It also neglected to point out the total dollars paid out…it’s about how many dollars collected vs. how many paid out. The insurer’s loss ratio on these contracts is pretty high.
Another misleading element: Statistics are meaningless when you or your family member are the one needing care; your probability is now 100 percent. Small consolation that the overall risk was less.
Last: I contend buying LTC insurance and not needing it is a blessing for multiple reasons: You were healthy and avoided the care, while you had peace of mind knowing you had provided for your own care and weren’t relying on others (family members, typically) to do so for you.
Don’t let cost-benefit-analysis, statistics or a well-meaning friend to deter you from purchasing insurance, if you can afford it. If you can afford it and don’t need it where is the harm? I doubt anyone’s fiancés will be disrupted. On the other hand, not having it could cost dearly. Someone always pays when this happens, so better the insurance company pays and not you or your children.
There’s a lot of ways to afford LTC insurance, it is all in planning and saving your finances. I’m sure there LTC insurance companies that will be able to help anyone who wants to get insured and protected by the insurance.
People should not be discouraged to get insured, instead help them find solutions to their problems so that they will be able to get protection and face their future without worries.
Full nursing is rarely used – true. But the need for home care, or assisted living is likely higher and since many don’t have the insurance, perhaps the stats are masked by relatives struggling to to provide the care since there was no money to pay for help.
I bought LTC from GE 16 years ago for my wife and me and have been paying the premiums every year. Several years ago Genworth bought the LTC business from GE. Last year they raised the premiums by 18%. Genworth lost $800 million dollars last quarter.
Be careful who you pick to buy LTC from! You have no recourse and you may have no LTC that you have paid on for many years.
This study can be misleading. Of course long-term care insurance comes with a high price tag, but relying on Medicaid – which isn’t a free program – has several drawbacks. This government program requires you to pass the poverty criteria, which is, of course, under strict and limited conditions. You need to spend down all your assets first, and once you qualify, your home (the only substantial property left for you) will be subjected to the program’s asset recovery procedure. It is mandated to recover its expenses. In addition, another common misconception is that long-term care means nursing homes; it doesn’t. Long-term care refers to the custodial care/personal assistance given to people in performing the ADLs. In fact, long-term care statistics (http://www.longtermcareprimer.com/basics/ltc-statistics/) shows that around 43% of claims for long-term care insurance went to home care. LTCI is wonderful product, but it needs careful planning, even http://www.longtermcare.gov encourages purchasing the product. The more people who realize the significance of having one, the more people will purchase it. It might be the answer to the looming crisis of LTC funding.
Those interested in LTC insurance need to know that most policies have three month exclusionary periods, meaning they don’t pay out until you have been in a facility for three months. Also, they pay a limited amount per day (usually $150) and the resident pays whatever balance is owed to the facility (per day). Is it worth it? At $150 a day man staying in a facility for 11 months would get $36,000 (the policy kicks in after 3 months and pays $150 for 240 days). Since the average annual premiums are about $2,000 and, according to Morningstar ‘Must-Know about Long Term Care,’ the average age upon admission to a nursing home is 79. If you started buying LTC insurance at age 50 you’d have been better off self-insuring.
Discouraging and misleading. This article may lead people to unsecured future and higher risk of financial devastation. We all know that people may need any form of long-term care at any point of their life, and so preparing for it and having long-term care insurance will not hurt them. People should remember that neither Medicaid nor Medicare will cover their long-term care needs all the time.