One of the biggest unknown factors retired people face is long-term care costs -what can you do to plan for them? A recent story in Time says long-term care insurance may not be the right solution.
As we’ve reported here at Passare, 70% of Americans over 65 will need some form of long-term care in retirement. While one seemingly popular option is to purchase long-term care insurance, why are only 13% of those eligible doing so?
It’s a problem researchers call the “long-term care insurance puzzle.”
A new study by Boston College’s Center for Retirement Research says long-term care insurance makes far less financial sense for more people than originally estimated, only about 20% of those eligible versus earlier estimates of 30% to 40% – why?
One reason is it’s high price. Another reason is “previous research overstated the financial risks of going into nursing home care,” said study co-author Anthony Webb, senior research economist at The Center for Retirement Research.
Webb explains the odds of having an extended, expensive stay in a nursing facility are lower than previously thought.
The study found most elderly people do not have extended stays in nursing facilities; they usually transition through different care stages, from living independently at home to needing some assistance to spending time in a nursing home (and often back again).
When it comes to paying for long-term care, the Center believes it makes sense for most people to spend down their assets to quality for Medicaid rather than buy a long-term care insurance policy.
Many people mistakenly believe Medicare pays for long-term care costs but it only covers short-term care. Medicaid, on the other hand, pays for nursing home stays and in-home care (for those with low incomes).
While each state has its own rules for eligibility, most families will be forced to spend down their assets before qualifying for Medicaid. This is not an appealing option but the Center believes for most people, it makes better sense than buying a long-term care insurance policy, which is becoming a far riskier purchase.
Many long-term care insurers have recently raised their premiums or stopped selling the product completely after underestimating the number of policyholders they thought would file claims.
The study clearly shows better options are needed. The study found more people would be interested in purchasing a “supplemental policy that would transform Medicaid into a more comprehensive, means-tested insurance.” While “other experts are pushing for an expanded form of social insurance for long-term care.”
Unfortunately, it’s unlikely any major changes will happen soon.
While we wait for better solutions to arise, your best option is to plan ahead with your family, consider factors like living in a home that is easy to get around. Also do your best to live a healthy life, it’s one proven way you can help reduce your chances of needing expensive long-term care in retirement.
Read the story here.