A recent national newspaper article shared alarming statistics on the cost and probability of long-term care. The information was gleaned from a reliable Website and contained data provided by an insurance agent (thus including an inherent bias), and outlined these facts: one out of every two Americans will need long-term care and more than 40 percent of Americans will need some type of nursing home care. In reality, these numbers are misleading and not as burdensome as some may have the public believe. However, long-term care costs can be substantial and it is imperative for investors to assess the potential costs for long-term care and forecast the impact on their investment portfolios.
Yes, it is true that 70 percent of people may, at some point, need long-term care-but only for what will really be a short time period. Let’s look at a possible scenario. An 80-year-old male is being treated for Non-Hodgkin’s lymphoma. He receives chemo treatments and becomes sick as a result of a compromised immune system. Now he suffers from pneumonia and is admitted to a nursing home until he can recover in a week or two. Our patient is now within the 70 percent statistic of people who receive long-term care and also the 40 percent metric of someone who needs nursing home care. And this 80-year-old’s medical needs would be covered under Medicare for two key reasons: skilled nursing care is covered and his condition is improving as he recovers from the pneumonia. (What Medicare does not cover is the inability to conduct activities of daily living like feeding yourself, toileting,or getting dressed.) But then the unexpected happens: This 80-year-old patient suffers from complications and does not recover from the lymphoma. He dies within a few months. He never spent a penny of his own money or filed a claim for long-term care benefits. In other words, he did not need long-term care coverage.
Medicare states that only one out of 10 people will be in a nursing home for five years or longer. For the majority, the current average stay in a nursing home for those over age 65 is 2.5 years, according to the National Association of Insurance Commissioners(although as people live longer, that average is increasing). This is not to say we should be cavalier about the risk of long-term care-we just need to understand the reality of the statistics and the severity of the liability. The truly scary scenario, although the exception, is the person who has a cognitive disorder, such as Alzheimer’s Disease, spends 15 years or more in a facility.
The prudent and smart advice to give is this: Plan ahead for the possibility that long-term care is needed. But how do you measure the impact of long-term care costs on your finances? The first step in the evaluation process is to find the average cost of long-term care in your area and then analyze the impact of this annual cost on your investment portfolio. For example, if you live in Texas, the annual cost of care would be approximately $68,000, by today’s standards. Would this prematurely deplete your resources? If the answer is no, you may not want to insure this risk. On the other hand, if you live in Manhattan, the cost for care may be a multiple of $68,000, making insurance a necessity for your situation.
When planning for the future, another consideration is the type of care you would prefer. There are big cost differences between in-home private care and in-facility care. But with either choice, the overall expenses can double or triple over time. As a safeguard, it is imperative to closely review the impact of this cost against your personal financial situation.
People buy insurance for the practical implications as well as for the peace of mind that comes from knowing you and your loved ones are covered. If owning a long-term care insurance policy gives you that assurance, then the premium is well worth the cost. The bottom line is to be informed of your options, future costs, and potential portfolio impact. This is the best way to avoid being surprised later on.