Cost of long term coverage rising, but it's still good deal
TERRY SAVAGE email@example.com Nov 15, 2010
The cost of care at home or in a nursing home is on the rise, and Medicare won't cover it.
Updated: May 3, 2013 12:14PM
Stop what you're doing, and answer this question: Will you care for your parents -- and your in-laws -- in their old age? Will you invite them into your home, to use the bedroom your college kid just vacated, and will you provide them with help dressing and bathing?
Or let's reverse the situation: Who will care for you in your old age? Will your children invite you into their home and help you shower and take you to your doctors' appointments?
Think about it -- because one way or another, we're all going to be faced with this problem. If you're all alone, the situation might be even more dire.
The one answer to all these questions is long-term care insurance. I've been recommending it for years. I thought it was a great deal. And now I have proof.
Long-term care insurance policies have been such a great deal that one of the top underwriters -- MetLife -- has just announced it will no longer sell these policies. (Of course, it is contractually required to keep its existing policies on the books and stand behind them when payout is needed.) And another top LTC insurance underwriter, John Hancock (a division of Manulife), has just announced an intention to raise policy prices an average of 40 percent!
These policies were such a good deal that the companies were losing money on them. If you had followed my advice to limit payments to 10 years, you'd have a fully paid-up policy now -- a valuable asset.
Fortunately, a third major provider, Genworth, told me: "Genworth is committed to the long-term care insurance market. We've been there since 1974 and plan to maintain a leadership position in the industry going forward, with our over-all goal of growing the industry, and not just Genworth's share."
But the real question is whether it's too late to buy a long-term care insurance policy. The answer is no -- with some caveats. Your policy will be more expensive -- but less likely to have the premiums increase in future years because the companies remaining in the business have more experience, which makes current pricing more accurate. You might have to settle for three years' coverage, instead of lifetime -- but that certainly would be a help if the need arises.
Ask your agent to help you find a policy with premiums you can afford. Compared with the cost of care, which is increasing much faster than the consumer price index, the premiums are moderate.
Long-term care costs skyrocket
Long-term custodial care is not covered by Medicare or Medicare supplements -- but may be covered by Medicaid if you have spent down most of your assets.
Long-term care is costly. A recent MetLife survey shows the cost of care rising at 4.6 percent a year for private room nursing homes.
*The average private room nursing home now costs $83,585 a year.
*Assisted living facilities now cost nearly $40,000 a year, more if you have a cognitive problem.
*Home health aides cost nearly $21 an hour. If you needed care 9 hours a day, 5 days a week while your family caregiver is working, it would cost $49,140 a year.
So let's get back to the question of how you will pay for care for your parents, or yourself. It's not a burden any generation wants to put on the next.
And don't rely on the government. Medicaid provides care primarily in state-funded nursing homes, taking away your choice of care providers. And those stressed state budgets mean that those nursing homes are already woefully underfunded. The same baby boom generation that crowded into mobile classrooms in the 1950s and 1960s will now be crowded into whatever facilities can be found to provide care cheaply.
A woefully small long-term care benefit was included in the health-care reform bill -- with provisions that mean private long-term care insurance is a better deal, if you can get it.
That's why you need to purchase long-term care insurance. You'll find four chapters -- an entire section -- on the subject in my latest book, The New Savage Number.
You'll want to learn about inflation protection and other policy features. But don't let the details overwhelm you.
And a final piece of advice: Don't wait until you're older to buy. Remember, even Superman, Christopher Reeve, needed long-term care in the prime of his life. The need for care could happen to you at any time. And that's The Savage Truth.
Terry Savage is a registered investment adviser