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We’re in mass denial of long-term-care reality

Updated: May 3, 2013 12:14PM

Originally published: October 7, 2004

I’ll say it again. The next great financial crisis facing our retirement assets is not another bear market. It’s the cost of long-term care. A new study released this week by Met Life shows that the cost of care in a nursing home now averages $70,000 a year!

I know you don’t want to think about it. On a personal level, I don’t want to think about it either. No one wants to believe that living longer eventually will require help doing some of the basic activities of daily living. But statistics show you have a 40 percent chance of needing that type of care once you’re over age 65.

In the same way, you don’t like to think about your house burning down or your car being wrecked. But you buy homeowners and auto insurance to protect against that risk. So why have so few people purchased long-term-care insurance when we’re 10 times more likely to need it than fire insurance, once we reach age 65?

Long-term care IQ test

That’s why Met Life commissioned a poll, called the Long Term Care IQ Test which you can take online.

The results were presented in New York and Washington this week, and I was invited to participate in a panel of experts on demographics, aging, retirement planning and government programs.

The results of the national poll were startling. Only 2 percent of the individuals who took the test received a grade of B or better -- and 63 percent failed, revealing how uninformed people are about what life will look like if they live long enough.

More than half of the people between the ages of 40 and 70 incorrectly thought of long-term care strictly as a function of nursing homes.

In fact, most long-term custodial care currently is received at home, much of it given by unpaid family members. In fact, one out of five households -- 44 million Americans -- is providing care to an adult family member or other loved one.

And many people mistakenly believe that some government program will pay for their long- term custodial care. But Medicare doesn’t pay for any extended long-term-care costs.

State Medicaid programs do provide nursing-home care to the impoverished. But that option virtually eliminates the choice of remaining at home. And those Medicaid programs are already overwhelmed and cutting back on services. In the future, they’ll be hunting for hidden or transferred assets, looking back as long as 10 years.

The poll revealed how little people know about long-term- care insurance policies, especially the costs.

Few knew that a policy purchased at age 65 is nearly three times more expensive than a policy purchased at age 45.

Today there are 7 million people living in nursing homes, a number that will nearly double in 15 years.

At that point, the leading edge of baby boomers will be turning age 75 -- and increasing the demand for those services.

Still, last year only 9.1 million people purchased long- term-care insurance policies.

The aging of the population is a financial and social crisis that isn’t being discussed in this election campaign. In fact, Congress is scheduled to recess tomorrow without having touched any of the excellent and bipartisan bills that would provide incentives for purchases of long-term-care insurance.

The Johnson-Pomeroy bill would provide a tax deduction for long-term-care insurance premiums, allow the premiums for these policies to be included in company flexible-spending programs, and even give a tax credit for caregiver costs. It’s estimated that bill would cost $33.5 billion over 10 years -- far less than the potential burden of providing custodial care to uninsured people.

A far less expensive bill like the Long Term Care Partnership bill, with 38 bipartisan co-sponsors, can’t seem to get passed. It would expand a plan that allows the elderly to receive state services without spending all their assets, if they purchase a basic long-term-care policy to cover first costs.

What can you do?

The first step is to press our political leaders of both parties to confront this oncoming crisis with legislation that encourages advance planning and personal responsibility through affordable insurance.

The second step is to buy your own long-term-care insurance policy now! That’s the subject of next week’s column.

Ignoring this issue won’t make it go away. It will just make it more expensive. And that’s The Savage Truth.

Terry Savage is a registered investment adviser, and appears weekly on WMAQ-Channel 5’s 4:30 p.m. newscast. Distributed by Creators Syndicate.

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