Why we don’t need long-term care insurance

Bloomberg
November 12, 2014
Maybe You Don't Need Long-Term Care Insurance After All
By Ben Steverman

The biggest threat to a retiree's nest egg isn't a stock market crash.
It's a long illness requiring round-the-clock care.

The statistics behind that scenario -- $81,000 a year for a nursing
home, $184,000 for 24-hour home care -- are what sells long-term care
insurance policies. But while past research suggested that many more
people needed the coverage than bought it, a new study suggests that
most people should just skip it.

The study, by Boston College's Center for Retirement Research, focused
on singles, who now make up the majority of Americans. Long-term care
insurance makes financial sense only for the richest 20 to 30 percent of
unmarried people, it finds. For the rest, it makes more sense to go
without. If they need care, spending down their assets and then letting
Medicaid pick up the tab is the most practical solution.

Long-term insurance can pay off for wealthier singles, even under the
Center's new math. It takes $260,405 in assets, or about $90,000 in
annual income, to put a household in the top 25 percent, the Russell
Sage Foundation and the Congressional Research Service estimate. These
affluent customers can afford the premiums, and insurance can protect
their heirs' inheritance if that's a goal. The same logic works for
couples, but only if they're even wealthier. Webb warns that forthcoming
research will show long-term care insurance makes even less sense for
married couples than it does for singles.

http://www.bloomberg.com/news/2014-11-12/maybe-you-don-t-need-long-term-care-insurance-after-all.html

Report from Center for Retirement Research at Boston College
http://crr.bc.edu/briefs/long-term-care-how-big-a-risk/

Medicaid.gov - Community-Based Long-Term Services & Supports
http://www.medicaid.gov/affordablecareact/provisions/community-based-long-term-services-and-supports.html

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Comment by Don McCanne

The Affordable Care Act included Senator Ted Kennedy's Community Living
Assistance Services and Supports Act (CLASS Act) which would have
provided long-term care. Unfortunately the specifics of the CLASS Act
proved to be unworkable and thus it has been suspended. But according to
this new study, unless you are wealthy, you do not need long-term care
insurance anyway. Most of us can simply spend down our assets and then
Medicaid will take care of us.

Think about how that could apply to the increasing use of patient
cost-sharing, especially the ever-higher deductibles. We could eliminate
individual health insurance coverage. When individuals are faced with
expensive acute or chronic conditions, they could simply spend down
their assets and then go on Medicaid to cover their future health care
costs.

The obvious flaw in all of this is that it would require near
destitution for us to have our heath care expenses covered. Other
nations automatically cover these expenses for everyone without forcing
them to relinquish their assets. It is a sad commentary that we accept
the policy that a person must go broke before we will provide them with
long-term care. This should not happen in a caring society.

But what are we doing with moderate-income individuals and families
right now? We are requiring cost-sharing, especially deductibles, at a
level that wipes out liquid assets for many of them, if they even have
such assets. Financial hardship has become an expected consequence for
far too many people who have significant medical needs. It is primarily
wealthier individuals and families who have the assurance of being able
to obtain health care without losing their assets.

Long-term care should be covered by our health care financing system,
and significant cost-sharing should be eliminated. A single payer system
would ensure that all of us could get the care we need, including
long-term care, without adverse financial consequences.

If we really do expect that people should use their personal assets to
contribute to the financing of health care, do it through estate taxes,
but make the taxes equitable, that is, progressive. Do not take away
from our seniors what little they have in the final years of their lives.

And do not charge the estate specifically for the amount of health care
that was given. We shouldn't deprive families of their modest
inheritances just because medical bills were high late in life. Estate
tax rates should not apply to smaller estates, but then the rates should
increase with the size of the estate, unrelated to whatever health care
costs the family faced. Yes, the rich would pay more, but that's the way
it should work in a caring society.