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Paying For Elder Care, Without Insurance - Seniors Long Term Care & Nursing Home Issues - SeniorSite.com
Paying For Elder Care, Without Insurance - Seniors Long Term Care & Nursing Home Issues - SeniorSite.com

Paying For Elder Care, Without Insurance

With the average price of a private room in a nursing home approaching $90,000 a year, usually with no reimbursement from Medicare, families are understandably anxious about what a prolonged late-life illness might do to their financial well-being. But insurers have also been hiking prices and reducing benefits on long-term care policies, with the average premium up about 20% in the past year, making that coverage a less appealing option. So some financial advisers are suggesting that families with means take a different approach: Preparing for possible costs while skipping long-term care insurance altogether.

Going uncovered amounts to a calculated risk that may not be as reckless as it may sound. Some research suggests that the number of people who will face really big nursing-care costs is relatively small. As investment adviser Kevin McKinley notes this week in an article on WealthManagement.com, one study suggests that about one-third of retirement-age people will never incur any nursing-care costs. That same study estimates that due to the various ways that families economize on elder care – by arranging for at-home services, by acting as caregivers themselves, and by falling back on Medicaid if worse comes to worst and they deplete their own assets – only about 6% of retirees are likely to incur more than $100,000 in care costs in their lifetime, while 2% would incur $250,000 or more.

It’s worth noting here the research McKinley cites, by a group of public-health academics, is somewhat stale, dating to late 2005 (though it’s still considered relevant enough that the National Health Policy Forum, a coalition of nonprofits working on health-care issues, cited it this month). But let’s assume that rising life expectancy and medical inflation have doubled the share of people who’ll pay more than $100,000 in their lifetimes: That would bring it to 12%, or about one person out of eight.

Those are still long odds, though not so insignificant that they’d deter a cautious person from taking out insurance. That said, McKinley outlines some other options for customers who may not be comfortable with the costs or uncertainty surrounding long-term care policies. They include:

Self-insuring. This involves setting aside enough money in savings and investments to cover the costs without eating into a family’s day-to-day cash flow. Reuters columnist Mark Miller, citing studies by actuarial consultant Milliman, reports today that a family that could set aside $500,000 for that purpose would have a 95% chance of being able to self-fund any care needs.

Buying life insurance and annuities. Growing numbers of these products include riders that allow investors to withdraw cash to pay for long-term care—the advantage being that money that isn’t used for care can still benefit policyholders in other ways, as income or as a death benefit for heirs. As you’d expect, investors pay more for this feature.

Home equity. Home equity lines of credit can be a resource for funding nursing-home care; so can a reverse mortgage, though usually only if a spouse remains at home once the person receiving care enters a facility.



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