I expect some takers but not a lot. Forty- and fiftysomethings have other things on their minds, like college tuition and retirement savings. At 65, your odds of spending a year or more in a nursing home are only one in four–a risk that many are willing to run, especially if they can hire help or live near willing daughters or daughters-in-law. If you do come up against heavy expenses, public programs often pay–even for people who could afford to cover part of the cost themselves.
Nevertheless, you should prick up your ears at the message behind the new LTC laws. The government wants you to plan on paying more toward your own late-age expenses. If you won’t, you’ll have to pay more taxes to keep the public programs afloat.
Medical welfare: Today, private money accounts for a bit more than half of the $66 billion spent on nursing-home care for the elderly. Almost all the rest comes from Medicaid–a welfare program designed for the poor and financed by the federal government and the states. The middle-class elderly rely on this program, too. If you can’t afford the $28,000 to $70,000 a year that a nursing home in your city may cost–or if you pay for a while and then run out of money–Medicaid will pick up the bill for the rest of your life.
But Medicaid can’t go on this way. Over the next 25 years, the elderly nursing-home population will probably rise by close to two thirds, says health researcher Joshua Wiener of the Urban Institute in Washington, D.C. The cost of their care will butcher state budgets unless new sources of financing can be found.
Long-term-care insurance is one of the straws that the Feds have clutched. Starting next year, taxpayers who itemize will be able to tax-deduct part or all of their premiums. You’ll lump this write-off with the rest of your medical expenses, deductible to the extent they exceed 7.5 percent of your adjusted gross income.
That’s not a huge incentive to buy, nor an efficient one. Most of the tax break will go to people with policies already–and people who earn enough to pay the premiums without help. Still, more employers will make LTC plans available and affordable. That should add to the insured population by some marginal amount–and ease the burden on Medicaid by a tiny bit. Employees’ parents and spouses may qualify for company coverage, too.
(There’s an even juicier deduction for people who are already paying for long-term care. You’ll be able to write off the cost as a medical expense. In some cases, that might wipe out your tax.)
No dipping: You’d buy LTC insurance today for a single reason: to save yourself from having to dip into personal savings to cover your bills. The policies pay a daily amount, capped at $40 to $300, depending on the size benefit you want. You’re insured for life or for a certain number of years. Some policies cover just nursing homes; others include some home-care costs, too. There’s inflation protection, at a price.
The older you are when you first buy, the higher your premium will be. As an example, take a four-year policy for home-health and nursing-home expenses, paying $80 a day with inflation protection and a 100-day waiting period for benefits. At John Hancock, it costs $536 a year when you’re 50 (provided that you’re in good health), $912 when you’re 60 and $1,848 when you’re 70. Group coverage costs less. Premiums should stay level for life–although an insurer can charge everyone more if the policy isn’t profitable enough. Retirees might lower their costs by joining an HMO and applying any premium savings to LTC coverage, says Marc Aaron Cohen of LifePlans in Waltham, Mass., which evaluates long-term-care risks for insurance companies.
LTC insurance is evolving fast. Policies today offer many more choices than seniors had five years ago, including custodial coverage at assisted-living communities. Policies tomorrow will try to bring younger people on board. You’ll see coverage that starts out as life insurance when your family is young, then morphs into flexible LTC at a later age, says John Hancock vice president Gail Schaeffer. Unum Life already offers a disability policy that converts to LTC.
But buyers will never flock to long-term-care insurance as long as people believe that the government will pay. In theory, you have to use up your assets before you can get onto Medicaid. In practice, seniors with modest assets generally qualify right away. Wealthier seniors can see a lawyer and turn up ““poor’’ in 30 days, says Stephen Moses of LTC, Inc., in Seattle, which markets nursing-home insurance. The ethical elderly do indeed use their money to pay their own nursing-home bills. But growing numbers just say no–egged on by their adult children who don’t want to see their inheritance slip away.
No one knows how many seniors actually abuse the rules. Brian Burwell of the MEDSTAT Group, a health-care-research company in Cambridge, Mass., puts the loss to the system at about $1 billion this year. Another $2 billion or so in housing assets belong to unmarried nursing-home residents who die, Wiener says. Federal law requires the states to take over such assets, to reimburse Medicaid for the money it spent. But this infuriates heirs, who often hire lawyers to protest. Few states have successful asset-recovery programs. Oregon does it best, yet recaptures only about 2.5 percent of its nursing-home costs. Texas and Michigan downright refuse to try.
Earlier, I said we’d be spending more for late-age costs. Taxes might intrude, to keep Medicaid from falling apart. Before they’re imposed, however, the program’s quality may decline. The best reason for private insurance is to buy your way out.
