Is Long-Term Care Insurance Necessary?
BOSTON (CBS) - Long-term care is a variety of services that includes medical and non-medical care to people who have a chronic illness or disability. Most long-term care is to assist people with support services for activities of daily living such as dressing, bathing, and using the bathroom. Long-term care can be provided at home, in the community, in assisted living facilities, or in nursing homes.
According to Genworth Financial's 2012 Long Term Care Survey, the national average annual cost of a semi-private room in a nursing home is $73,000, with it costing over $117,000 here in Massachusetts and in Alaska; the same room goes for $274,000.
You may never need long-term care. This year, about nine million men and women over the age of 65 will need long-term care. They are predicting by the year 2020, twelve million older Americans will need long-term care. Most will be cared for at home; family and friends are the sole caregivers for 70% of the elderly. There are 1.7 million nursing home beds and only 1.5 million are currently occupied.
A study done by the U.S. Department of Health and Human Services found that people who reach age 65 will likely have a 40% chance of entering a nursing home. But those that enter may only stay a short while.
For example a 70-year-old gets a knee replacement and can't take care of himself at home. He might spend several weeks in a nursing home to receive rehab after his surgery. He becomes part of that 40% statistic. About 10% of the people who enter a nursing home will stay there five years or more.
According to the Census Bureau, slightly over 5% of the 65+ population occupy nursing homes, congregate care, assisted living, and board-and-care homes, and about 4% are in nursing homes at any given time. The rate of nursing home use increases with age and almost 50% of those 95 and older live in nursing homes. In 2007, 7.4% of Americans over age 75 lived in nursing homes, compared to 10.2% in 1990.
So does Dad need long-term care insurance? It depends. If Dad has very few assets and it would be a financial hardship for him to pay the premiums for the insurance, then he probably doesn't need it. He will be eligible for Medicaid should he need long-term care. Also, he will be eligible for community home-care services for a small fee because they charge on a sliding scale. LTC insurance premiums have increased in cost close to 30% over the last five years.
If Dad has assets over $100,000 and a home, buy the insurance. It's really cheap protection. If dad does not want the insurance and the kids want to protect the house they can buy the insurance for dad.
If his invested assets exceed $1.5 million, he may not need long-term care insurance because he can self-insure at that level.
One more thing: A good resource: The National Clearinghouse for Long-Term Care Information
Kiplinger magazine also has some good information on long-term care:
More information on Long Term Care Insurance
If you choose to buy long-term care insurance, the younger you are when you purchase it, the cheaper the premiums will be. The average stay in a nursing home is under two years. For a lifetime benefit your premium is almost double. The decision as to which policy is a personal choice. I have no magic formula to help you make that decision. Consider purchasing a policy with a 3 year benefit.
The premium for most policies remains the same each year that you age. This is referred to as a level premium. Many factors affect the premium price: where you live, your health, if you smoke, the type of policy you purchase, and the range of benefits.
Uncle Sam is encouraging you to purchase long-term care insurance. Part of the cost of the premium will be treated as a medical expense and will be deductible if you are over age 40. The benefits will be generally excluded from gross income. The government would like to get out of the business of funding long-term care through the Medicaid program.
You can find help at the Health Insurance Association of America's site at www.hiaa.org. They have a Guide to Long-Term Care Insurance that is worth downloading. The Centers for Medicare and Medicaid Services (CMS) is the federal agency that oversees Medicaid. Visit their website to learn about what your state requirements are for Medicaid eligibility and to help in your search for a nursing home.
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