Long-Term Care Insurance: Is it Necessary or Affordable?
Sep 05 '00
We've all seen the bumper stickers on retirees' cars: "We're spending our children's inheritance!"
Usually they give me a laugh, and a lift. I'm glad that retirees are enjoying themselves after years of hard work. Retirement, ideally, should be a time when people have the time, money, and energy to fulfill their dreams. I picture retirement as a time filled with travel (and grandchildren), meaningful volunteer work (and grandchildren), continuing education (and grandchildren), and a deepening relationship with my husband (and grandchildren.)
But I disagree with the bumper sticker. I do want to leave something to my children (and grandchildren) when I die. I just don't know whether I need to purchase long-term care insurance in order to do so.
I also feel that the true financial inheritance we give our children is the desire to work and achieve and the knowledge to save, invest, and budget, and that if we've given them those skills, a cash inheritance is like icing on the cake, nice but not necessary.
But, having reached the age of 50, I am reading all sorts of articles that tell me I'm dead wrong. They tell me I should be buying long term care insurance right now, and that if I don't, I won't have enough of an estate to bury me. (I think of the terrible scene at the end of Amadeus, when Mozart's plain wood coffin is hoisted on to a cart and driven out to an open pit. The bottom of the coffin snaps open, and his body is ignominiously dumped into the pit! I'm very glad the insurance companies haven't found a way to put that into long-term care commercials yet.)
And so I decided to investigate the costs and benefits of long-term care insurance in order to determine whether it's something we should be thinking about.
Long-Term Care Insurance--What It Costs, What It Covers
There can be over 3,000 different premium levels for long-term care insurance, depending on the age it is first purchased and the level of coverage desired. Typically, "minimal coverage" would cost $80 a year if first purchased at age 50, $150 a year if first purchased at age 60, and $355 a year if first purchased at age 70.
Minimal coverage would provide coverage only for care in licensed assisted living or skilled nursing facilities, with a $50 a day maximum benefit, a two year benefit period, a 90 day elimination period, and no inflation adjustment.
"Generous coverage" would cost $1500 a year if first purchased at age 50, $2600 a year at age 60, and $5000 a year at age 70.
Generous coverage would provide care received both in licensed facilities and at home, an $140 a day maximum daily benefit, a lifetime unlimited benefit period, a 90 day elimination period, and a 5% inflation adjustment.
I'm 51 and my husband is 52. If we both decided to purchase a "generous coverage" long-term care insurance policy today, it would cost us over $3,000 a year.
Under the Kennedy-Kasselbaum Law, passed in 1996, qualifying long-term care insurance premiums would be tax-deductible as a medical expense. Generally, medical expenses are tax-deductible to the extent that they exceed 7.5% of gross annual income.
$3,000 a year in premiums wouldn't put us into tax-deductible territory. The premiums, which, at this point in my life, I would term "burdensome", would all be on our dime.
On the other hand, benefits provided by the minimal coverage plan probably would not make much of a difference in an elderly person's need to liquidate assets and to eventually go on Medicaid.
Nursing Home Care: Expensive, But Tax Deductible
Looking at IRS Publication 502, I learned that most components of nursing home care, including "necessary diagnostic, preventative, therapeutic, curing, treating, mitigating, and rehabilitative services, and maintenance and personal care services" are tax-deductible, after all medical expenses have exceeded 7.5% of gross annual income.
This year, annual nursing home expenses for a semi-private room cost $33,600 per year. If a senior citizen were in, let's say, the 30% tax bracket (combined federal and state), his effective nursing home expenses would be "subsidized" to that degree, considering that, if the money were used for other purposes, it would be fully taxable. (I am assuming that Medicare premiums, prescription medications, and deductibles would help him meet the 7.5% threshold.)
The tax deductibility of nursing home care makes the idea of purchasing long-term care insurance less attractive to me. Should a couple in their early 50's pay $3,000 a year for long-term care coverage if they have a good income, and good income prospects in retirement? Neither of them may ever enter a nursing home, and, if one does, one-third of his expenses will be returned in the form of a tax refund.
How Many Senior Citizens Eventually Enter Nursing Homes? What is the Average Stay?
The average stay in nursing homes depends on a patient's presenting illness. Here are the most common presenting illnesses, along with the average length of care for each one:
Alzheimer's Disease - 8 years
Cancer - 3 years
Cardiac Disease - 1 year, 4 months
Diabetes - 4 years
Pulmonary Disease - 3 years
Stroke - 1 year, 9 months
According to Business Week, 60% of people over the age of 75 need long term care, and many stay in facilities for three years.
The Wall Street Journal reports that "For a couple turning 65, there is a 70% chance that one of them will need long-term care."
Gender and lifestyle can also affect the need for long-term care. Women, who usually outlive their husbands by seven years, are more likely to go into long-term care.
Single people are at greater risk for entering a nursing home because, if they become sick, they are less likely to be living with someone who can help care for them.
Family history has an influence, too. Neither my nor my husband's family has any history of Alzheimer's Disease. Three of our parents have passed away. My mother died, at age 83, suddenly, in her home. My father-in-law passed away peacefully in his sleep at age 74. My mother-in-law died, at age 72, after three months in a cancer hospice.
My father is 83, healthy, and active. He has never had an overnight stay in a hospital, and never even had outpatient surgery until he was 70 (when he had a clogged tear duct.)
So What's Our Decision?
Having looked into long-term care insurance for ourselves, I am passing for the moment.
Comprehensive insurance is, I feel, too expensive. Since the average age of admittance into nursing homes is 82, I would rather invest that money for 30-something years, using it if I need to, and having it to pass on if I don't need to.
In addition, the fact that nursing home care is tax-deductible increases the possibility of it being affordable on our retirement income, should it ever become necessary.
I would rather put the premiums into things that would help us stay healthy and active longer, such as our membership in a fitness center.
Our family history is free of Alzheimer's Disease, and out of all our parents and grandparents, only one was ever in a nursing home, although most lived into their 80's.
I'm not convinced of the need for long-term care insurance yet, but I hope that this review will help you learn a little more about it, and to make your own decision, based on your gender, lifestyle, income, and family history.
Some companies which issue long-term care insurance policies are:
Continental-General Insurance agency@continentalgeneral.com
TIAA-CREF www.tiaa-cref.org
General Electric Capital Assurance www.gefn.com/longtermcare
Blue Cross of California 888-209-7969
CNA www.cnaltc.com
New York Life www.newyorklifeltc.com
Mutual of Omaha www.mutualofomaha.com
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