If ever there was a reason for buying long-term care insurance (or being very, very wealthy or very, very poor) it’s this: The cost of a private nursing home rose 3.3% to $219 per day or $79,935 a year, according to a 2009 MetLife survey. Given that the average nursing home stay is about 2½ years that means you’ll need about $200,000 set aside to pay for those costs. In Manhattan, my friends, you will be spending approx $400 to $500 per day. If you do the math, that is more like $15,000 per month and $180,000.
Now, truth be told, that’s the average. The real cost of staying in a nursing home varies greatly from state to state, with Alaska having the highest costs ($584 per day) and Louisiana having the lowest ($132 per day). Just for comparison’s sake, on Priceline.com you can book a 3½ star hotel for about $127 a night in Anchorage. I don’t think it comes with skilled nursing, but you might be able to arrange for a hotel health aide.
The other truth is this: You might not end up in a nursing home. At present, some 1.5 to 2 million Americans go to a nursing home in any given year, but it’s quite possible you might need a home health aide or move into an assisted living facility at some point in your life.
The costs of those services aren’t cheap either, according to MetLife. The price for an assisted living facility rose 3.3% on average to $3,131 per month. And home health-care aides now cost an average of $21 per hour, a 5% increase; adult day services run $67 per day, a 4.7% increase.
So, what’s a person to do? The answer is: It depends. For those with sufficient assets, it might make sense to self-insure (that is, pay for such costs out-of-pocket). For those with insufficient assets, well, there’s Medicaid. And for those in between, the answer seems to be long-term-care insurance. To be sure, it’s a complicated product, a product for which — just as with car insurance or homeowners insurance — you might not ever file a claim. But for some it might make sense, especially when you think about the cost of the premium relative to the worst-case effect on your net worth.
For example, it now costs a 52-year-old federal government worker about $127 a month to buy a long-term-care insurance policy with a $200-a-day benefit for three years plus a 4% inflation-protection rider and a 90-day wait period. The maximum lifetime benefit is about $200,000. That means paying about $1,524 per year for as many as 30 years of premium payments. Call it $45,000 out-of-pocket in today’s dollars.
It’s hard to say whether that’s a good bet or not — spending $45,000 to protect $200,000 of your hard-earned money. Could you invest that very same amount over 30 years and generate $200,000? Not likely without taking on some great risk. So, from this vantage point, it’s certainly worth having the talk with your accountant, actuary, bookie, insurance agent (though I know what he might say) and perhaps your physician. After all, there are few things that can damage your financial plan like long-term health-care costs.
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Christian and Claudia