The Long Term Care Problem

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Long term care is a big deal right now in Congress.  Yet, most Americans don’t really understand it:

…a Thrivent Financial for Lutherans survey about long-term care planning conducted by Ipsos reveals that 51% of respondents think this kind of insurance is “too expensive,” while another 24% don’t even know what long-term care insurance is. (Source)

Is that even possible?  How can 75% of Americans not understand the importance of finding a way to fund long term care?  For those who suggest that long term care is too expensive, here’s something to think about:

  • Insurance reflects the cost of providing the care. How do you think insurance companies price their policies?  Here’s a simple formula: Anticipated cost of providing care + overhead (paying for administration of the policy, etc) – returns on invested premiums.  That’s basically the way that all insurance policies are priced.  Stock market returns aren’t expected to be spectacular in the coming years, and there’s only so much that companies can do to decrease their overhead.  Still, compared to other forms of insurance, most of the cost for long term care insurance comes from the cost of providing care.
  • Care isn’t cheap. Maybe people don’t spend a lot of time thinking about old age because it makes them uncomfortable, but it’s to their own detriment.  If there’s one immutable truth in senior housing, it’s that senior housing isn’t cheap.  Assisted living can run between $40,000 and $75,000 per year (depending on level of care and amenities).  Nursing homes can cost up to $100,000.  If you spend more than a few years needing higher levels of care (like assisted living or nursing), you’re looking at almost half a million dollars on care. Even if you plan to stay home, save a small fortune to pay for home health aides, housekeepers, and assistants.
  • Someone will be paying. Since most people aren’t saying for their long term care needs (either via insurance or their own personal savings accounts), the government or adult children will likely be picking up the tab for care.  This might mean multi-generational housing where granny lives with her adult daughter.  It might also mean that older Americans are forced to move into government-run assisted living facilities (which don’t really exist now, but may become more common as the population ages).  At the end of the day, those who save for their long term care needs will have more choice in who provides their care and in what setting.

Some scholars suggest that long term care is the biggest problem our country faces right now.  As Boomers age, more and more will have to rely on safety nets like Social Security and Medicaid to survive.  The viability of long term care insurance is a big wildcard in our future that, unfortunately, may turn out to haunt us.

G’ma’s hospital bed before she got there” © 2008 dreamingofariz, Attribution 3.0 Generic http://creativecommons.org/licenses/by/3.0/