The present financing of long-term care has significant shortcomings for both individuals and policymakers. Medicaid pays for two-thirds of all Maryland nursing home residents at a cost exceeding $700 million annually (50 percent state funds/50 percent federal funds). Medicaid only covers individuals who are indigent, thus it pays for nursing home care for the low income population as well as those who have "spent down" their assets to an impoverishment level in order to qualify.
The United States Census Bureau estimates that the over age 65 population will double by 2020. Researchers indicate that 40 percent of that population will spend some time in a nursing home. Already the population of those 85 and older is growing three times faster than the population as a whole. With these demographic trends that include 77 million aging baby boomers, policymakers will be grappling with how to pay for long-term care as those needing it doubles in the next two decades.
Long-Term Care Insurance Can Be Part of the Solution
It is entirely possibly that Congress and the president will reform the present financing of long-term care and the need for individuals to participate in long-term care planning will no longer be necessary. However, unless and until that occurs, individuals should consider long-term care insurance and policymakers should provide major incentives (tax credits/ deductions) to both employers and employees to encourage people to actually pay for this type of insurance.
Long-term care insurance would generally pay most or all of the cost of such care for various time periods. Such a policy may pay a substantial percentage of the total cost of nursing home care. For example, a policy may pay $100 a day or $36,500 a year towards the annual cost of $45,000 (actual cost could be higher or lower). Thus the individual and their family in this example have to only pay the difference of $8,500. Should the person need three years of nursing home care, the individual would pay only $25,500 of the $135,000 total cost thereby preserving $110,000 for that person's estate.
If, on the other hand, the individual needed three years of nursing home care and had no assets, then Medicaid and the taxpayers would have to pay these costs which would well exceed $100,000. Federal and state policymakers therefore are starting to realize that it is good policy to provide incentives that would encourage people to purchase long-term care insurance. Unfortunately, for the most part, government tax incentives have not yet been sufficient to actually encourage large numbers of people to purchase the insurance. Nonetheless, under the present system of long-term care financing, long-term care insurance will most likely be utilized more, as individuals seek to protect their assets and government seeks to reduce its costs.