Last Updated: November 16, 2009
Price rollbacks throughout the U.S. economy during the past year did not apply to long-term care service providers, according to the 2009 MetLife Market Survey of Nursing Home, Assisted Living, Adult Day Services, and Home Care Costs.
Private room nursing home rates rose 3.3 percent to $219 per day or $79,935 per year, while assisted living also rose 3.3 percent on average to $3,131 per month or $37,572 per year. Home health care aides now cost an average of $21 per hour, a 5 percent increase; adult day services run $67 per day, a 4.7 percent increase.
What should you do given the rising cost of long-term care costs? FPA board member Michael A. Branham, CFP®, a financial planner with Cornerstone Wealth Advisors, Inc., offered the following thoughts: "First, you should take seriously this potential road block to your financial security. An appropriate supplement to work alongside Medicare in retirement, and addressing the potential needs for long-term care, can make the difference between a healthy financial future and a disastrous one."
"Medicare supplements, such as Medicare Part B, Medicare Advantage and Medicare Part D, are highly regulated and a potentially easier purchase for most consumers," he said. "They are also more readily accepted by the consumer as a 'need.' But understanding the nature of each policy is still important. What type of coverage do you have? What are the policy limits? Is your drug coverage included, or are you expected to enroll in the Medicare Part D coverage? Do you understand what Part D coverage entails? Most importantly, do you understand when you must apply for "Medigap" coverage in order to be guaranteed acceptance? My advice, if you have trouble answering any of these questions, is to seek help from professionals including a financial planner, a health insurance specialist and the Social Security Administration." Learn more about Medicare.
Now, with regard to long-term care costs, Branham said what's important is knowing if you should be considering this coverage, and where to go for help. "If you are using a financial planner, have an at-length conversation about how much of a long-term care need you could cover with your personal resources, and what part of that risk you should transfer to an insurance company. Do you need to cover the full cost of care in a nursing home, assisted care facility, or in your own home? Will your assets cover a portion of that, with insurance covering the balance of your need? How do your legacy goals fit into the picture? The issue is too complex to give blanket advice, and this is one issue that I would suggest everybody have a conversation with a professional on."
When, and if you do buy a policy, Branham suggested the following guidelines:
- Make sure you include the compounding cost-of-living arrangement (COLA) rider in your coverage, which is usually 5 percent and which will automatically cover you year-by-year as long-term care costs continue to rise. "It is an expensive addition, but well worth the cost in keeping this coverage ready to protect you," he said.
- Be sure the policy coverage for home health care is at least 100 percent of the "in-facility" care coverage. "Many states, like Minnesota, have a moratorium on new nursing home beds because it is a rising expense the state doesn't want to expand," he said. "This likely means more people will get care in their home, or in a private assisted living facility. Having the same amount of coverage for these other options — as you would for nursing home care — is important."
- Pay attention to the benefit period. "Many companies are getting creative and offer 'shared' benefit periods between spouses," he said. "Each spouse would buy a similar policy, and between them would share a 10-year benefit period, for example. This would allow either of them to use three of the 10 years, leaving the other spouse the remaining seven. This is a big difference from two separate five-year benefits that would over-insure one spouse while potentially under-insuring another."
- If you don't need the "Cadillac" policy, that is full coverage, don't buy it. "Transfer only the risk you must, and realize that some of your financial assets can be allocated to the cost of providing care if necessary," Branham said.
- Be wary of the myriad of 'cash available' policies out there. "Making $50 to $100 per day of cash available in a benefit adds cost," he said. "For many, these policies are not intended to be a windfall policy. The traditional indemnity approach is all that is needed in most cases, so don't be persuaded by the promise of 'free money.' This type of benefit can be useful in a select amount of cases, but in general isn't as appealing."
- The same can be said for the 'premium return' options on many policies. "They sound great at first, but in reality just add cost to the policy," Branham said. "The insurance is there for protection, and is an expense one pays. At a minimum, be sure you understand the mechanics of how your 'premium return' works, and the associated costs."
- Finally, buy from a reputable company that is financially strong. "One of the major issues with long-term care insurance is that insurance companies are still learning how to price this," he said. "The truth is, they probably won't know for sure until they go through a cycle or two of benefit payouts. Given that the 'baby boom' generation will be the first round of learning, and that there are millions of them, it could be a costly lesson. We are already seeing some of the companies that were big players in the world of long-term care insurance from the beginning, in trouble. Some are selling their long-term care divisions, some are treading water, and others have just flat out failed. And almost all of them have raised premiums on existing policy classes several times — and significantly — over the years. This is another area where a professional with some background in long-term care insurance can be very useful."
Find a financial planner who can help you plan for long-term care costs.