Financial Planning and Long Term Care Insurance

by katie George

Every American must plan for the consequences of risk becoming reality. Some risks decrease as we age, while others increase. And we insure against these risks to protect our families and our assets.

As Americans’ life expectancies continue to rise due to the benefits of modern medicine, the likelihood that we will need long term care increases as well.

Despite the fact that long term care is a growing reality for a number of Americans, particularly baby boomers, most are still reluctant to ponder becoming old and infirm, let alone paying for such care.

Now, more than ever, Americans should consider looking to financial planners for advice regarding long term care and the financial pitfalls they could face.

Asset Protection

In this context, the financial well being of baby boomers is cause for particular concern. In addition to their sheer volume (the number of elderly is expected to double to 77 million by 2030), the aging boomers face longer life expectancies and dwindling social support programs to sustain their long term care demands.1 Although studies indicate that baby boomers may have saved enough for their retirement, it is evident that they have not sufficiently prepared financially for their future long term care needs.

For those concerned about protecting their assets should they ever need to enter a nursing home or assisted living facility, purchasing long term care insurance is the best deal one can make. Consider this: No matter what age you are now, if you were to buy a mid-priced long term care policy, chances are you would pay out less in premiums for your lifetime than you would for just one year in a nursing home.

The Financial Planning Market Today

The majority of long term care insurers continue to market policies primarily to individuals. The number of providers in this market remains limited, however, and therefore highly concentrated. This could have a deleterious effect on premium costs and accessibility to potential consumers. The HIAA estimates that, at the end of 1996, only eleven sellers represented approximately 80 percent of the individual policies sold.

Employers are beginning to offer long term care insurance as part of their employee benefits packages, just as they offer disability and retirement benefits. Yet there is still much to be done. Despite the billions of dollars lost annually on both sides-in missed days and decreased productivity-employers have enjoyed very little success encouraging their employees to participate. Of the firms offering long term care insurance in their benefits packages in 1996, the HIAA estimates that less than six percent of employees participated in the program.

Public-Private Partnership

Government does play a role in the financing of long term care, but only to a limited extent and only after strict conditions are met. Contrary to popular belief, Medicare coverage for nursing home care is limited. Medicaid covers more long term care services, but in order to qualify, individuals must “spend down” their assets to the poverty level.

The private sector alone cannot realistically meet society’s entire long term care needs. There will always be a significant need for government participation to ensure that a safety net exists for society’s most destitute. The American Health Care Association is committed to working with Congress and other policymakers to craft a viable public-private partnership that will expand the availability of long term care insurance for those who can afford it, while at the same time leaving the social safety net intact and financially secure to meet the needs of those who cannot afford long term care by themselves.

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