Long-term care plans remain a hard sell

PHOENIX – As longevity rises and more people near retirement age, long-term care coverage is becoming increasingly relevant.

Such care also is becoming more expensive. Private nursing homes cost an average of $76,460 a year nationally, according to a study by Genworth Financial. Assisted-living facilities are more reasonable, at an average cost of $36,090.

But even that’s enough to put a serious dent in someone’s finances, especially for the roughly half of seniors expected to require care totaling at least two years over the rest of their lives.

For these people, a long-term care policy can offset most of the financial blow.

But if insurance is so great, why don’t more people buy it? Only 2 percent to 3 percent of Americans are covered by long-term care policies, and recent sales have been flat to lower, according to a 2007 study by Howard Gleckman, of the Center for Retirement Research at Boston College.

There are a couple of key impediments.

The main one is the cost of premiums. For a 60-year-old in 2005, Gleckman found the typical annual premium around $1,700, with a range from about $1,400 to $2,200 yearly.

But that might be too conservative. Fidelity Investments suggests a married couple nearing retirement age should plan on spending about $85,000 in long-term care premiums over their remaining lifetimes. Specifically, that figure is the present value of roughly $6,700 in annual premiums for two 65-year-old buyers spread over 17 years.

Younger buyers would pay much lower premiums, but they usually aren’t thinking about long-term care.

Another hurdle involves qualifying. Many people can’t obtain a long-term-care policy, at least at reasonably affordable premiums, because of pre-existing medical conditions.

Yet another impediment deals with Medicaid, the federal/state health program for the poor. It funds a lot of long-term care – about half of the national total of paid assistance – compared with around 7 percent of total costs paid by insurance, according to Gleckman’s study. Most of the rest is paid out of pocket or funded by Medicare.

Many people rightly view Medicaid as a benefit to which they’re entitled. But the problem with Medicaid is that patients usually aren’t eligible until they have spent down or exhausted most personal assets.