If you have a loved one who needed end of life care, you’re probably well aware of the high costs of long-term care services. Long-term care generally refers to the help needed when people cannot perform two or more so-called activities of daily living, such as dressing and bathing. This care includes home based assistance, assisted living, and more intensive nursing home care.
Help does not come cheap. The 2016 survey by Genworth reports that in the Boulder area the average annual cost of a home health aide is $55,485, assisted living facility is $54,000, and a semi-private room in a nursing home $95,265. Most retirees don’t have the resources to pay out of pocket for these services for an extended period.
Many assume that Medicare, our national health care system for those 65 and over, will cover long-term care expenses. In fact, Medicare pays for very little – just up to 100 days of skilled nursing care subsequent to a hospital stay for an illness. It’s the federal-state Medicaid program that covers nursing home expenses. Because it’s a program for the indigent, you must document a lack of resources before Medicaid will step in. While there are proactive steps through “Medicaid planning” that could help you qualify for benefits, most financially comfortable retirees will find it a challenge.
Private long-term care insurance covers reimbursement for assisted living, in-home, and nursing home care. When it was first widely available in the 80s and 90s, the premiums were reasonable because the insurance companies didn’t accurately predict future long-term care costs. Many policyholders were told to expect stable premiums.
When the reality of the true costs hit the insurance companies, they petitioned state regulators to raise their premiums to ensure their solvency. Price increases of 10 to 60 percent were sprung on policyholders, or they were forced to accept much lower benefits. This packed quite a financial wallop as long-term care policies usually cost thousands per year.
Even with the recent increases on existing policies, a new policy today costs significantly more than ten years ago. As an example, Mutual of Omaha in Colorado offers a policy for a 60-year-old couple, $4,500 a month of benefits for 3 years, 3 percent compound inflation per year, with a 90-day elimination period (essentially a deductible) according to Dian Haider of Greenwood Village based Ryan Insurance Strategy Consultants. With this coverage you get up to $162,000 that can be used for each spouse’s long-term care expenses, plus inflation adjustments. It’s a shared benefit policy, which means you can use one spouse’s benefit, and then draw down on the other spouse’s benefit. This coverage if you’re in reasonable but not perfect health could cost $4,450 a year to cover both spouses.
While insurance companies now have better insight into costs, there are no guarantees that premiums will not continue to increase. In that event, your only real choices are to reduce or eliminate coverage, or pay the higher premium. Ten years ago you could limit this risk. Lifetime benefits with inflation protection were available, rather than a limited term of coverage. There were policies that limited premium payments to ten years or to age 65. These policies have largely disappeared from the marketplace, meaning the policyholders have to accept the risk of premium increases and limited benefits.
Fortunately, there have been recent developments including hybrid long-term care and life insurance policies from several insurers that allow you to control costs. Recently single and policies that require one annual premium be paid for 10 years have come into the Colorado market from a new entrant, National Guardian Life. These offer hope that new policies could be improving after years of premium increases and off-loading risk to the consumer. In the next column, we’ll take a closer look at these policies.
David Gardner is a certified financial planner with a practice in Boulder County and can be reached with questions at dave@confluencefa.com and on Twitter @Dave_CFP
