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Baby-Boomers and Long-Term Care: When Will the Two Connect?
You insure your home against fire and your car against an accident - and never complain if that money is "wasted." Why not insure against one of the most expensive realities of life - long-term care? As our lives lengthen and new treatments are developed, you - or your parents - are more likely to require some type of senior care.
With a little planning, you can buy long-term care insurance - either for yourself, or as an annual gift for your now-healthy parents. And you can encourage your company to provide this coverage as an employee benefit. Otherwise, you may become one of the 7 million Americans who, according to the National Council on the Aging, now provide or manage care for a friend or relative aged 55 or older and not living with them.
Long-term-care insurance is a product that catches the attention of seniors, but the ideal time to buy it is actually when you're in your early 50s and in good health. At that point, premium costs are lower, and you're less likely to have a pre-existing condition that disqualifies you. But a society that values a youthful appearance seems unwilling to recognize these expensive facts of life.
The costs of long-term care are staggering today, and should soar higher in the coming years when baby-boomers retire. Even the GenXers won't escape the impact. Your parents will either spend your inheritance on nursing-home care, or you may find yourself taking care of your elderly parents out of your own retirement funds.
In fact, the U. S. General Accounting Office says that nearly 40 percent of people age 65 now will spend some time in a nursing home. The federal Health Care Financing Administration projects that spending on nursing-home care will rise from about $94.1 billion now to $125 billion a year by the end of 2005, and $330 billion by 2030.
If you're thinking about buying long-term care insurance, here's what you should know first:
• The cost of a long-term-care policy depends primarily on three basic factors: your current age, your current state of health and the location of your residence. Unless you move, you can't control any of these things. But you can control such questions as the amount and length of coverage, the elimination period ("deductible"), and whether you've chosen an inflation rider.
• Good health now pays off later. Once you've locked in an annual premium, it can't be raised if your health changes. But insurance companies can ask state regulators to raise premiums for an entire age group, depending on claims experience.
• Where you live affects costs. That's because nursing costs are typically higher in major metropolitan areas than in smaller communities.
• Length of coverage: The average stay in a nursing facility is 2.5 years, so some people opt to limit coverage length to cut costs. But if you're purchasing a policy in your mid-50s, you'll find that lifetime coverage is not much more expensive.
• Elimination period: This is like a deductible and works like one. You agree to pay for the first 60 days or 90 days of needed care; then the policy kicks in. Having a 90-day deductible can cut premium costs substantially.
• Inflation rider: Even a 3 percent inflation rate can cut the value of your dollar in half in 25 years. Plus, assume health-care costs will rise more than the general inflation rate as boomers age. So it may pay to buy an inflation rider.
• Benefit payments and triggers: A qualified physician must certify to the insurance company that you need the benefits - and those benefits will be paid only to qualified caregivers. A daughter who simply does your shopping and prepares meals wouldn't qualify as a caregiver, but she might if she's a trained professional.
Most policies require the inability to perform at least two activities of daily living to trigger the benefits. The activities include being able to dress yourself, bathe yourself, move from a bed to a chair, use toilet facilities or eat unassisted. Policies will also pay out if you can't pass certain mental-function tests. (Look for a policy that specifically includes coverage for mental or cognitive impairment.)
Most policies no longer require a hospitalization before benefits start, but check the wording anyway.
Insurance companies may pay benefits using one of two methods:
• Expense-incurred benefits: These are paid either to you or to your provider up to the limits in your policy.
• A daily benefit or indemnity: This will be paid directly to you. But be sure your policy offers a "pool" of benefits on a daily or weekly basis allowing you to pay for covered services as needed, as well as nursing-home care.
• Tax-deductibility: You may be able to deduct part of your annual premium as part of a medical deduction. But remember, you can only deduct medical expenses that exceed 7.5 percent of adjusted gross income.
People over age 61 can deduct $2,510 (assuming they meet the 7.5 percent threshold). Almost all policies sold before Jan. 1, 1997 were "grandfathered," and are considered qualified.
The need for long-term care can occur at any time of life. Of the 12 million Americans who need long-term care, nearly 5 million are working-age adults.
I hope that you'll be inspired to do some planning soon, long before the need arises. After all, that's what insurance is all about.
Craig Langweiler is president of the Langweiler Financial Group, in Newtown. He can be reached at 215-860-8066 or at: clangweiler@ americanportfolios.com.