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Jim Lentini: Baby boomers and long-term care

Business Commentary

Posted: December 20, 2010 7:08 p.m.
Updated: December 21, 2010 4:55 a.m.
 

The health care reform signed into law in 2010 is structured to have many changes in 2011. But with the new changes in Congress, and recent lawsuits pending from 20 states, we can expect delays to the federal health care structure before it affects our individual and group health coverage.

In another area of medical care, Long-term care insurance — which will affect 3 out of 5 individuals over age 65 — is of concern and needs better attention from baby boomers.

A recent survey from the insurance industry shows that participants wrongly assume they will be able to use government funding to pay their long-term care bills (currently Medicare only covers 100 days of nursing home with limitations). And only 27 percent of boomers can generally estimate the annual cost of nursing-home care. This is of great concern considering that the cost of long-term care has risen significantly during the past few years.

The average cost was somewhere in the range of $80-$90 a day in 1990. Daily rates today can run $180-200 or more, which fits the expected 5 percent increase in annual costs. An inflation rider in a long-term care policy however can address unexpected rising costs in a policy.

In a separate October study, one of the major insurance providers of long-term care insurance indicated that private-room nursing-home rates rose 4.5 percent in 2010, increasing to an average of $229 per day or $83,585 per year; while assisted living rose 5.2 percent on average to $3,293 per month, or $39,516 per year. Both price increases come on the tail of a 3.3 percent increase in price for both nursing home and assisted living facilities from 2008 to 2009.

Baby boomers, or adults age 46-64, may recognize the value of long-term care insurance, but that doesn’t mean they are taking out a policy. According to another major insurance carrier providing long-term care, while four in 10 boomers (42 percent) say their parents’ experience with or without long-term care coverage made them more inclined to purchase coverage, only 9 percent actually secured a policy.

The reluctance to purchase a policy seems to persist despite the fact that a majority of boomers believe there are financial and emotional benefits to having long-term care insurance.

Eighty-seven percent of the respondents said they believed a policy would help protect their children from having to pay for their own parents’ care. And an overwhelming majority believes that owning such policies would provide peace of mind (87 percent), while ensuring their retirement savings remain intact (85 percent).

Yet nearly half (47 percent) of the survey participants said they would hold off on purchasing a policy because they felt they will never need it, and many Americans struggle with having to pay for something they may never use.

The surveys revealed a disconnect with Americans and point to the need for the insurance industry to educate the public on the beneficial impact of long-term care on savings and retirement assets.

Since those over age 65 are more likely to experiencing a long-term care insurance claim than a claim on their homeowners insurance or car insurance, it is a subject that needs to be addressed. Depending on personal estate value, the long-term care discussion should be part of financial planning process.

Jim Lentini, CLU, ChFC, IAR is president of Lentini Insurance & Investments Inc. He can be reached at (661) 254-7633. His column reflects his own views and not necessarily those of The Signal.

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