Haims column: The basics about long-term care insurance
March 20, 2017
Over the past few years, I have written about long-term care insurance (LTCI) several times. However, it has been a while, and I have been asked with greater frequency about how this insurance works, what it covers, how much it costs, and when would be the best time to buy it.
I've seen the need firsthand how outrageously expensive long-term care is and have learned that Medicare generally doesn't cover it. My grandparents paid out of pocket for homecare for many years, and my mother uses a homecare; however, she has an LTCI policy.
Long-term care insurance is just one more insurance policy most of us will have to decide if we can afford to buy. Unfortunately, it is not a type of policy many people are too familiar with. As such, I will attempt to enlighten you. LTCI, or another financial plan, is needed by anyone who believes they may live into and beyond retirement age.
Located in Virginia, George Mason University faculty have won the Nobel Prize in economics twice. They know business and have obviously been recognized for their economic programs. When I read that Mark Meiners, a professor at the university's health administration and policy department said, "70 percent of those who reach 65 will need long-term care. With long-term care costing as much as $250 a day, it doesn't take long to completely deplete a lifetime of savings — even if you're 'lucky' enough to only need it for a relatively short period of time," I'd pay attention.
Cost versus benefits
If you think that sounds like a lot of money, I hope you'll sit down for this: $250 a day equates to $7,000 a month or $84,000 a year.
Establishing the potential costs of long-term care is difficult because costs vary so much depending upon provider, type of care needed, and part of the country in which care is needed. For the past 13 years, Genworth has provided an annual report called the Genworth Annual Cost of Care Study. The care study details care costs on a national and state-by-state basis across the spectrum of long-term care settings. According to the 2016 report, the national median hourly cost for an in-home care provider is $20 an hour. As per the report, here are some state averages:
• Arizona: $21/hour
• California: $24/hour
• Colorado: $24/hour
• Iowa: $23/hour
• Minnesota: $26/hour
• North Dakota: $28/hour
• Washington: $25/hour
While the above numbers are national averages provided by Genworth's study, I believe that the actual costs many people pay are closer to an average range of $25/hour with a high-end of $35/hour to $40/hour an hour. A MetLife Market Survey from 2012 provides homecare cost information detailing that Arkansas, Alabama, Mississippi and Louisiana seem to have the lowest hourly costs ranging from $17 to $19 an hour. However, the same report states that Indiana, Iowa, Alabama, Mississippi and Colorado locations can have hourly costs as high as $40 to $50. As you can see, rates vary dramatically.
Here in the mountains of Colorado the cost for assisted living facilities (ALF), nursing homes, and private duty homecare is more expensive than the national average. Senior care in Summit County and senior care in Eagle County is limited to medical and nonmedical homecare with costs ranging from $30 to $35 an hour. Eagle has an ALF, but neither has a nursing home. In Glenwood Springs, Carbondale and Aspen, our homecare service offerings are far greater. In these towns, we have medical and nonmedical homecare providers whose homecare costs range between $30 and $40 an hour. Assisted living and nursing home costs vary depending upon needs and level of care. Their costs can range from about $4,000 to over $13,000 a month.
For 2016, The American Association for Long-Term Care Insurance put out its annual National Long-Term Care Insurance Price Index. While rates vary among providers and states, the report indicates that a policy providing a 55 year-old person $150 daily benefit at inception of plan (at age 80 about $300/day) with a 90-day elimination period, is estimated to cost:
Single male age 55: $2,035 a year ($179 month)
Single female age 55: $2,580 a year ($215 month)
Per the report, such a policy would have about a $325,000 value of protection at 80 years of age. This means that should you use the full daily benefit of $300 at age 80, you would have coverage for about three years.
What if you need 24-hour care? How would you pay for homecare costs that exceed $300 a day? Based on the hourly costs of homecare provided from Genworth and MetLife, 24 hours of care could average $480/day — that's a $180/day of uncovered cost.
The question is whether to go ahead and spend money on LTCI insurance, or just assume the risk is a difficult one. When considering if LTCI is an appropriate fit for you or a loved one, you need to consider if you can afford the premiums until the time you may need insurance coverage. The alternative option is to consider if you can afford the cost of care yourself from savings and/or investments.
At some point in our lives, we all may need to learn about the potential costs associated with private duty homecare, assisted living, or a nursing home. Waiting to educate yourself until the time you need assistance is a bad idea.
Next month I will follow up with additional information about LTCI.
Judson Haims is the owner of Visiting Angels Home Care in Garfield and Pitkin counties. His contact information is, http://www.visitingangels.com/comtns, 970-328-5526.