Long Term Care Update


Genworth Financial released its long-term care Cost of Care Survey for 2013 and the results are sobering. The cost of home care providers, adult day health care facilities, assisted living facilities and nursing homes has been steadily rising over the past 5 years. However, depending on what type of service is necessary, the pace of increase varies. For example, in 2008 the median annual rate for a private nursing home room was $67,525, compared with the 2013 median annual rate of $83,950 (prices vary widely across the country). This increase represents a 4.45 percent compound annual growth rate, more than twice the annual rate of inflation during the same time period.

However, the news a little better if you don’t need a facility: the national hourly median rate for a licensed home health aide rose by just 1 percent annually over the past 5 years to $19. The slower rate of inflation is attributed to increased competition among agencies and the wider availability of unskilled workers during the recession.

Those are the numbers, but how likely is it that you will need care? According to the U.S. Department of Health and Human Services, about 70 percent of people over age 65 will require some type of long-term care (LTC) services during their lifetime and more than 40 percent will need care in a nursing home. Of course your personal health history may increase or decrease your chances of needing long-term care. (One surprising fact: if you live alone, you’re more likely to need paid care than if you’re married, or single, and living with a partner. Maybe Match.com should incorporate this detail into their sales and marketing materials!)

One of the big misconceptions about LTC is that services are covered by Medicare. However, Medicare only addresses short-term skilled services or rehabilitative care. The only government-provided insurance that provides LTC coverage is Medicaid, but to qualify you need to deplete most of your assets.

For those who have a total net worth, including a house, of under $300,000, it makes sense to rely on Medicaid for future LTC costs. On the other end of the spectrum, if you have more than $1.5 million, you can choose to “self-insure,” where you would tap into your assets to pay for care.

The folks that fall in between Medicaid coverage and self-insurance are the ones that should be considering how to protect against a long-term illness eating away at their financial health. These “LTC tweeners” should consider purchasing long-term care insurance.

One problem with long-term care insurance is that it is expensive. It can seem hard to justify spending thousands of dollars a year on insurance that you may never need. But then again, do you kick yourself for buying auto insurance and not totaling your car?

Another hurdle is that lately, it’s been hard to find a highly-rated insurance company that opts to stay in the business. Prudential Financial, MetLife and Unum have all decided to exit the individual long-term care insurance business. While the companies have said that they will honor all existing contracts, which will be guaranteed renewable, they will no longer write new LTC policies.

Why are these companies leaving what would seem to be a highly profitable business? The answer is clear: insurance companies are very good at pooling and insuring certain types of risks, like homeowners and auto coverage, but they are less confident about projecting how many people will need long-term care and the cost of that the care.

Unfortunately, the more insurance companies that exit the LTC business, the fewer options there are for consumers. As you shop for LTC providers, stick with the highly rated companies that have a proven record of being in the business and not hiking premiums. Check out the American Association for Long Term Care Insurance for more information.