That OTHER insurance you should worry about

 I just got a lovely letter yesterday from Blue Cross informing me that my current health insurance would soon be defunct and I better get online today and pick out a new one. And, what a surprise, replicating my existing coverage is going to cost more. I’m not going to get too worked up about this one, because we all knew something had to change with health insurance, right? But what everyone in the country seems to be trying to ignore is the other big health care crisis—long term care.

Thinking about this is hard, painful even to try to imagine yourself feeble and incapacitated. But, with modern medicine, it’s probably going to happen. As a dog trainer once said to me—if your pet doesn’t get killed in a freak accident, you’re probably going to be faced with some day putting them down. Been true with 2 dogs and 9 cats. The few accidents were the worst. Difficult circumstances are easier to handle with some sort of rational plan. You need one for the point when you’re no longer able to roar around on your motorcycle. It appears, given the fight over basic health insurance, that it’s going to be a long, long time before we get any kind of national consensus about taking care of the very elderly.

Think Medicare will take care of you? Ha-ha. Theoretically, Medicare can cover 100 days of service. Getting that service in actuality is pretty difficult—you have to be making progress on rehab, and you have to have spent 3 nights in a hospital. An awful lot of hospitals will park you in the lobby if you’re not out in two, and extreme old age and frailty is not something you can be rehabilitated out of. And even if you (or your loved one) can work the system, what’s your plan after 100 days?

Wowie-zowie it’s expensive. Think $250-$300 per day at the joints around here, and I’m not talking luxury apartment. Assisted living can be less, but real full-blown nursing care is usually a small room that you may be sharing with at least one other person. The more you can pay, the less you share, but some places don’t even have space for single rooms. Can you pay $100K a year in today’s dollars? Will you have a spouse that still needs to live on your savings and your Social Security? And really, when you need it you really need it.  Unless your retirement portfolio plus Social Security generates at least $100K per person in today’s dollars (or you’re willing to liquidate it all and don’t outlive it), you need long term care insurance. Okay, there are some more factors, but your personal set of facts should be discussed with a financial planner—I’m just giving you the pep talk here.

I’ve seen quotes for LTCI that range from $1,500/year (probably inadequate) to more than $8,000 per year, so I’m going to list the key factors that seem to influence cost. These are the basics you will need to think through:

1. When to get it. The younger you are, the cheaper it will be, the longer you will pay, and the more likely you can still qualify. People in their 40s may be too young (depends on family history, whether your workplace offers it as a group benefit) and after 60 an awful lot of people develop health problems that make it difficult to qualify at a decent rate.
2. How long you’ll wait before it kicks in. 90 days? 180 days? How long can you afford to cover 100% of the costs before you cry uncle? Lately, 180 days doesn’t seem a whole lot cheaper than 90.
3. How much per day it will cover. Establishing your personal minimum and maximum requires some work with a calculator—taking into account other sources of income, and who else (your spouse) might need that income while you’re being cared for. Here’s where the cost of insurance starts to really break out—choosing a higher benefit preserves future assets but eats up current ones.
4. Whether the benefit goes up with inflation. Nursing home costs have gone up much faster than the Consumer Price Index. What seems like a generous benefit today may be chump change in 30 years. I mean, my tuition at the University of Chicago in 1977 was $3,600/year. No, I don’t believe it either. Plans offer 3% inflation, 4%, 5%, and you also need to choose whether compound or simple.
5. How long it lasts. Tell the agent when you’re going to croak and you can get the perfect term. Statistics say that most people kick off a little less than 3 years after entering a nursing home. If you’ve ever eaten their food or heard some of the entertainment, well…but, 3 years does give your family time to sell the house and re-arrange other investments if necessary. On the other hand, my daughter volunteered at the Mather for 5 years, and there were plenty of residents who had been around 5-7 years. My unscientific observation from her experience was that people who were single with no family to care for them tended to move into residential care earlier, at a point when they were relatively more healthy and lasted longer. People who had an involved spouse or children tended to be able to put off the move until they were much frailer. So weigh your support network as you select a term.

Do take a look at your own health and family history. But keep in mind that your personal habits and modern medicine might keep you alive much longer. For example, my mother’s siblings and parents all died in their 70s. My mother, who gave up smoking in 1963, kept her weight down, was happily married, and ate pretty well (none of which was true for the rest of the clan) made it to 90. Dad, with a very long-lived family, lived on his own until 8 months before he passed away at 96. I think it’s a pretty good bet I’ll collect on that long-term care insurance. Like most of us, I hope I’ll clutch and keel at an advanced age. But I won’t bet my money on it. Which is why I think LTCI is a pretty worthwhile investment.