According to the United Seniors Health Cooperative, the estimated risk of a 65-year-old individual entering a nursing home at some time during the rest of his/her life is approximately 40 percent. However, the risk that this stay will be more than one year is only about 20 percent, and the risk that the stay will be more than three years is only about 10 percent. Therefore, the significant majority of people will not incur a large nursing home expense. The cost for nursing home care, however, can be $50,000 to $75,000 a year or more.
Estimates for the need of home health care are much less precise since most home health care is provided by family members. Informal studies seem to indicate that less than 30 percent of the elderly pay for home health care and only about three percent receive only paid home care. For those individuals who do receive paid home care, the cost typically ranges from $5,000 to $15,000 per year but can be even more than nursing home care for those limited individuals receiving daily or constant home care or supervision.
Although these statistics make it clear that not everyone will experience significant nursing home or home health care expenses, the probability is high enough to warrant assessing the financial options for its payment. The default option is to pay for these health care services until assets are depleted and then have Medicaid (medical aid for the poor) pay the remainder. Although Medicare (medical insurance for the elderly) has certain home health care benefits, these benefits are limited. In addition, the Medicare nursing home benefit is short-term and limited.
The additional options for individuals not already entitled to Medicaid are long-term care insurance or transferring their assets (to make themselves poor) to gain eligibility for Medicaid. The federal and state laws surrounding Medicaid are designed to discourage people from making themselves poor to qualify. In order to qualify, an individual must have extremely limited assets and income. In addition, generally s/he must not have transferred his/her assets within three years of the application date (five years if the transfer was to a trust). In any event, making oneself poor is seemingly not a desirable prospect.
To determine if long-term care insurance makes sense, various factors should be considered. These factors include health and life expectancy, financial resources, attitude regarding Medicaid, and the availability of family care and support. Long-term care insurance is usually purchased to protect an individual's assets. If an individual does not have enough assets to protect or does not have a reason to protect assets, should the need for long-term care arise, insurance should be carefully assessed. Unlike life insurance, long-term care insurance may not result in an insurance benefit. Therefore, for an individual with a modest net worth, the cost of long-term care insurance should be weighed against using that net worth if the need for long-term care arrives. For a wealthy individual able to pay for long-term care from investment income, long-term care insur-ance proceeds would not be protecting assets, only income. In this case, perhaps long-term care insurance is not needed.
Once a list of quality insurance companies is chosen, purchasing long-term care insurance should be an analytical process. Policy premiums can vary widely with such policy features as medical qualification for benefits, levels of care covered, services covered, elimination period (number of days the individual pays before the insurance company begins paying), maximum benefit per day, length of benefit period, maximum benefit amount, inflation protection, premium payment structure, and nonforfeiture protection (reduced benefits if full premiums are not paid). Because many features can vary, it is important first to determine desired features and then to compare policies with the same features. The most inexpensive policy may not be the best one suited for anticipated needs.
Although the desired features of long-term care insurance will vary with each individual, an individual should keep the statistics in mind when deciding on the length of the benefit period. Insuring for nursing home stays in excess of two or three years may be overinsuring unless specific or unusual circumstances exist.