I posted a Forbes article on Twitter a few days ago on people not understanding the cost of needed services and Long Term Care insurance. The article, by Howard Gleckman a Forbes contributor, included some research findings I want to comment on.
The article indicated more than 15,000 adults age 40 to 70 were surveyed in 2014 for the US Department of Health and Services. The findings revealed these interested things about people’s thoughts on long term care:
- Want lifetime coverage
- Low premiums
- Want to stay at home if on-going assistance is needed, make needed modifications, and rely on family and friends.
- Had little idea about the cost of long term services and support.
- Believe [2/3 of participants] the government needs to make an effort to promote Long Term Care insurance and there should be tax subsides to encourage people to buy.
Note: A problem with the suggestion in # 5 was brought out – over 2/3 of all individuals could not take advantage of it, if it were now available, since they do not file an itemized tax return.
My post today is to share a couple comments on these findings. First – on the cost of these special services here in CT:
- Having a certified home health aide in the Hartford area for six hours 4 times a week could grow to be over $5,500 a month in just 15 years.
- A Assisted Living Facility can now cost up to $6,600 a month in the Hartford area; to $6,900 in the New Haven area; to $6,600 in the New London/Norwich area; and to $8,000 in the Bridgeport/Stamford area.
- Skilled nursing facility costs in Connecticut are next to the highest in the U.S.! A semi private room is now over $146,000 a year.
Looking to the future in say 25 to 30 years when many may need on-going services with personal activities they may be three times higher. Paying directly would cause many people to quickly use up their savings nest egg and become poor!
Second – people expressed a desire for full coverage at a low premium. The facts however, tell us the cost of this special coverage, which I like to call long term health insurance, is high especially here in CT. Why? The need for one going help is high today and will increase significantly:
- Over 80% of us have a relative, or know someone, who is or has received help. Some because “parts wore out” and others who were having trouble with mental ability.
- 70% or more of us will need help by age 75! People by then have, on average, 2 or 3 chronic conditions and some as many as 10 or 12.
An observation about the cost of insurance vs the need for coverage:
When the risk of a claim is high the cost of insurance is high. For example, the cost for home owners insurance on a large home would be higher than coverage on a very small home. The large home has much more structure to replace and more things in it to cover if it burned down. However, the risk for a home to burn down is low so home owners insurance is not that expensive.
Long Term Care insurance on the other hand is expensive because the risk help will be needed is quite high as mentioned above. But even though it costs a lot say in comparison to home owners insurance no matter how much your plan costs the amount you pay is just pennies compared to how much you would have to pay directly, based on the above costs, for all the help you need.
Want to also share an example of paying for coverage over time and then receiving benefits:
- If a person buys a Long Term Care insurance plan with a four year benefit period and certain coverage at age 55 and then say at 80 needs help all the money they paid over this 25 year period could come back in benefits in just 7 1/2 months! (227 days).
The overall findings in the survey reveal a big need for more education on the need to plan and prepare for long term services and support. This communication effort needs to be made by private organizations and state and federal level government.
The Forbes article I posted on Twitter can be found here.
Quick answer – buy what I like to call long term health insurance.
Why? Owning this special kind of financial protection is much better than “just paying” for this help yourself and quickly using up most of your savings nest egg.
How much protection to buy? We are able to buy a certain amount of homeowners insurance because we know the value of our home. With long term services and support we do not know how much help might be needed or for how long they will be used. Here are some points to think about:
- Cost sharing is a way to have more protection at a lower cost. Look at what amount of help you could pay from say social security or income from investments and what amount would you want your Long Term Care insurance plan to pay.
- These special services are forecast to double in cost over 12 to 15 years. To protect against this it is important to have a plan with inflation protection. Even though this option is expensive it must be considered.
- We are living longer, which in many ways is great. Longevity however raises the probability we will have a change in health or develop frailties later in life. This in turn increases the need to protect your financial nest egg.
- One idea for funds to pay your plan’s premium is to use some dollars from income and some from the interest you earn on financial investments.
- Paying for your plan on an annual basis may be 8% lower than monthly.
- The premium for this important insurance is lower than the cost vs risk of our homeowner’s coverage and the other kinds of insurance we have! This is just one of the many reasons to buy this special kind of financial protection.
Questions – contact John C Parker, RHU, LTCP