Outside Economics

Who Should Have Long-Term Care Insurance?

Posted by Wendell Brock, MBA, ChFC on Wed, Nov 25, 2015

November as we know is the month in which we celebrate Thanksgiving, perhaps the most celebrated and gratefully under-commercialized holiday of the year, for which I am truly thankful. I love Thanksgiving – it is my favorite holiday. November is also Long-Term Care awareness month.

Long-Term Care is so very important to plan for. Throughout our lives we are bombarded with taking care of risks we are exposed to, auto accidents, home owners’ problems, life and disability, etc., but often we do not plan much for the end of our lives (actually few people die with a valid will in place). And what is left for our loved ones is literally a financial mess on top of the emotional challenges of losing a family member.Long-term_Care.jpg

Below is some information from two studies I would like to use, they lay out some statistics about Long-Term Care. The people who are prepared or ill-prepared for such a catastrophic problem might find the motivation to look for more information to help their unique situation.

According to researchers at Georgetown University and Pennsylvania State University, about 70% of individuals 65 and older will need some kind of long-term care—whether at home, in an assisted-living facility or nursing home.

But how many of them should purchase a long-term-care insurance policy? That number, it turns out, is far lower—at 19% of men and 31% of women, according to a new study published by Boston College’s Center for Retirement Research. (Women live longer on average, and so they’re statistically more likely to incur long-term-care costs; my own mother lived 27 years past my father.)

Surprise - most “individuals should not buy insurance,” wrote the authors of the paper, which was published in November 2014. However, this study only looks at strictly “nursing home care” and ignores assisted living facilities or home health care. Neither of these two levels of care are provided for by any government programs.

Most people do not need the coverage because they do not have a sufficient level of assets to protect. People work their whole lives to provide for themselves and their families, what is left over at the end they want to pass on to their heirs, Long-term Care insurance can help protect that final nest egg, so there is something left.  The value of owning a Long-term Care policy is related to the amount of assets one has and the estimated amount needed to cover the catastrophic cost of long-term care. Additionally the authors found, that for many people of modest means the coverage provided by of Medicare and Medicaid are adequate to cover most of their needs. 

To assess the odds of needing long-term-care, the researchers used government data to “calculate monthly probabilities of transitioning among various health states” from age 65 on. The “health states” are: “healthy, requiring home health care, living in an assisted living facility, living in a nursing home and deceased.” The data show that 44% of men and 58% of women will spend at least some time receiving nursing-home care.

However, many people spend only short spells in nursing homes. Government data show that, on average, men who require nursing-home care spend an average of less than a year in such care over their lifetimes. For women, the figure is about one year and four months.

As the study notes, “many short-duration stays in nursing homes are covered by Medicare,” which covers stays of 100 days or less following a hospital stay of more than 3 consecutive days, Half of all men and 40% of women who use nursing-home care fall within this coverage window, and Medicare picks up their tabs.

At the other end of the spectrum, Medicaid picks up the tab for extended stays in nursing homes for those who run out of money. There are also those people of modest means who try to game the system by spending their assets and thus causing self-inflicted poverty to qualify for Medicaid.

So who should consider buying coverage? According to Anthony Webb, a senior research economist at the Center for Retirement Research and a co-author of the paper, those with significant assets—of a couple hundred thousand dollars or more ($200,000)—should look into a policy. The target market, he adds, is “people who have a sizable amount of household financial assets and would be unlikely to qualify for Medicaid.”

Two things to remember: 1) The study primarily focused on nursing home care, and that type of care is far more comprehensive care than assisted living care and Home Health Care, both of which is covered with Long-Term Care, but not covered by Medicaid or Medicare. People tend to spend more time in assisted living facilities and using home health care then nursing home care. Nursing home care is truly an end of life type of care.

2) What triggers the receiving of long-term care benefits is the loss of two of six activities of daily living, which often allows a person to remain at home, but simply need help on a daily basis to tend to certain activities.

It is likely that in your adult stage of life, most people have experienced a friend or relative that has needed and or used, home health care, assisted living care, and/or nursing home care. There are many different types of policies to choose from. You will want a policy which is simple to understand and yet is flexible enough to cover your needs, while at the same time not being subject to massive rate increases. Or worse, a reduction of the benefits you have paid for, because you can’t afford the new rate increase.

My family has several times expressed gratitude for the policy my mother had, which kept her estate intact and left more to her heirs. It was a wonderful blessing for which I am truly grateful. But more than that it made it possible for my sisters, who were responsible for her, to be care managers rather than care givers – a significant difference between the two roles – and a major difference in the quality of life for both the care manager and the one receiving the care.

With that - I wish y'all a very happy Thanksgiving!



“When you walk with gratitude, you do not walk with arrogance and conceit and egotism, you walk with a spirit of thanksgiving that is becoming to you and will bless your lives.” - Gordon B. Hinckley

Topics: Long term care, LTC, Long term care insurance


Wendell W. Brock, MBA, ChFC

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