Long-Term Care Crisis is Coming

By Richard A. McGrath, CIC, LIA

Today’s financial crisis could pale beside the potential crisis the baby boom generation will face during retirement.

The Social Security system and Medicare are in danger of becoming insolvent, and the national debt is rising by trillions of dollars.  Retirement savings, in many cases, have been depleted by the current bear market, and unemployment is at its highest rate in decades.

The U.S. Census Bureau says there are more than 77 million baby boomers and the oldest are already in their 60s.  In the coming decades, a large number of them will need long-term care.

The National Clearinghouse on Long-Term Care Services (NCLTCS) estimates that 70% of people over the age of 65 today will need long-term care services.  Baby boomers are living longer and the percentage needing long-term care may be even higher.

Long-term care is not covered by health insurance, Medicare or any other government program.  That means most baby boomers will have to use their personal savings to pay for long-term care.

Nationally, long-term care costs an average of $187 a day for a semi-private room and $209 for a private room, according to the NCLTCS.  In Massachusetts, the average cost is $279 for a semi-private room and $296 a day for a private room, which comes to more than $100,000 even for a semi-private room.

As baby boomers age and demand for long-term care escalates, prices will likely surge higher.  Medicaid pays for long-term care when an individual becomes virtually destitute, but the net result will likely be that many in the next generation will lose their inheritance and the Medicaid system will be under a tremendous financial strain.

You’d think businesses would be lining up to build more nursing homes, but regulations governing the industry are complex and it is difficult for companies to operate profitably.  Medicaid does not pay enough to cover the cost of care, so an increase in Medicaid patients will not help matters.  Labor is also an issue, as there is already a shortage of qualified nurses and aides.

Addressing the Crisis

In years past, elders often gave away their assets to their children so they would be eligible for Medicaid and could avoid depleting their wealth to pay for nursing home care.  Today, there is a five year look-back period and other provisions designed to prevent Medicaid abuse.

To qualify for Medicaid, recipients cannot have more than $500,000 in equity in their homes and they are also required to disclose any interest in annuities.

Those who fail to qualify for Medicaid are faced with spending down their personal assets – unless they have long-term care insurance.

Long-term care insurance is expensive, but if you buy it when you are young and healthy, you can purchase it for a relatively low cost.  Purchase a policy that has fixed premiums and is guaranteed renewable for life, and you will be covered as long as you pay your premium – assuming the company you choose remains financially stable.

There are many variables to consider in a long-term care policy, such as the type of care covered, the level of coverage and any exclusions.

Some policies cover only care in a nursing home, some cover only home health care and some cover both.  Consider the cost, but ideally the policy should cover skilled, intermediate and custodial care in your home, an assisted-living facility and a nursing home.  Your policy should not exclude coverage for dementia, which is a very common reason for needing nursing home care, and it should provide increases in coverage adjusting for inflation.

You may be able to reduce costs by extending the waiting period before benefits begin, but make certain you can afford to pay for care during that period.  A policy with unlimited days and unlimited stays is ideal, but may be expensive.

Given the complexity of long-term care insurance, be certain to seek assistance from your insurance agency representative and other professionals.

Richard A. McGrath, CIC, LIA is President and CEO of McGrath Insurance Group, Inc. of Sturbridge, Mass.  He can be reached at rmcgrath@mgrathinsurance.com.

This article is written for informational purposes only and should not be construed as providing legal advice.