People Don’t Save for a Nursing Home Stay
About 13 percent of the older people in a recent study – average age 74 – who were initially living independently moved into a nursing home within five years.
Perhaps because they know their vulnerabilities, their expectations of whether they would one day need nursing home care helped predict their actual nursing home use, the study found.
In fact, the researchers said, the accuracy of the predictions showed that the older people must have taken into account personal information that went beyond what was apparent in the 1998-2016 survey data used in the study, which included details about their health, ease of functioning, and other influences on whether they need care.
However, foresight did not translate into facing up to the financial implications of a nursing home stay.
Nursing homes are expensive, currently averaging $7,700 per month for a room that is shared with another resident. The 10 percent of older people with a private long-term care insurance policy can pay for their care. Poor people’s nursing home expenses are covered by Medicaid.
It’s the people who fall outside these two groups who aren’t always clear about how to pay for a nursing home stay if they need it. Their lack of preparation for this expense was underscored in another of the study’s findings: the people who say they’re more likely to go into a nursing home were no more likely to have built up their savings to pay for it.
Of course, Medicaid is also a backup plan for nursing home residents who start out paying for their care but run through all of their savings. This study helps to explain why Medicaid covers six in 10 nursing home residents.
To read this study, authored by Padmaja Ayyagari and Yang Wang, see “Nursing Home Use Expectations and Wealth Accumulation Among Older Adults.”
The research reported herein was derived in whole or in part from research activities performed pursuant to a grant from the U.S. Social Security Administration (SSA) funded as part of the Retirement and Disability Research Consortium. The opinions and conclusions expressed are solely those of the authors and do not represent the opinions or policy of SSA, any agency of the federal government, or Boston College. Neither the United States Government nor any agency thereof, nor any of their employees, make any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of the contents of this report. Reference herein to any specific commercial product, process or service by trade name, trademark, manufacturer, or otherwise does not necessarily constitute or imply endorsement, recommendation or favoring by the United States Government or any agency thereof.
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Nobody dreams of ending their days on Medicaid. But if you want to avoid that fate, you have to forego consumption earlier in retirement. For many, the cost in terms of foregone consumption may be greater than the benefit of being in non-Medicaid care multiplied by the probability of ending up in care.
This highlights a huge gap in the American healthcare “non-system.” We are focused on hugely expensive high tech activities while ignoring home care, care for the elderly in general and such factors as social support. We need to rein in the exorbitant spending on things of limited value and do more to help broader societal needs. Medicine has moved away from being a calling to being just another way for a few executives and shareholders to get rich.
We were fortunate to have purchased LTC insurance when premiums were less. The first 10 years of the policy cost $1000 per year per individual. Currently the premium is over $3000 per person.My wifehood a kidney transplant in 2015 plus had two strokes in 2017 and also a very bad shoulder break that is non repairable.The combination of these items is that she requires in-home health as she can not dress or fully bathe herself nor can she manage her medications or safely prepare meals.Our policy has an inflation rider plus the stipulation that if her policy runs out she can use my policy. The initial policy paid $100 a day maximum but by the time we turned it on it paid $225 per day. today that policy is paying out about $65000 a year for care.We are very thankful that the salesman convinced us that it was a good policy. Also once my wife started drawing on the policy the annual premium is forgiven.
I am sorry to hear of your wife’s health issues. Ex-post you seem to have made the right decision. Ex-ante, the right choice is not so clear. Many people lapse their policies forfeiting premiums paid. Even those who stay there course find, as you have, that the insurance company has doubled or tripled the premiums. It is not obvious that people are better off by exchanging an uncertain obligation to pay out of pocket health care costs for an uncertain obligation to pay insurance premiums.
I realize that the policies offered by your insurer have changed, but please name your insurer! I’d be interested in investigating any insurer who EVER offered a policy this good! Unfortunately, in my case, the stories of dramatically increased premiums or companies canceling after years of receiving premiums has made me think that the better “bet” may have to be saving my money and crossing my fingers!
My vision of this problem is that people are very often not ready for this, they have money for some kind of living in everyday life, but at a critical moment they have no choice left, only because they could not postpone or they simply did not have money for insurance. I think the state could better subsidize people to live in nursing homes.
Getting older is an inescapable part of life for both humans and other organisms. A person is in their prime until they go through the process of the elder years.