Written by:
3/18/2010 9:12 AM 

I’m not sure how aware people are of the financial train wreck that awaits many of us heading toward the frailties of old age. I’ve been frequently astonished during my quarter-century of covering these issues at the complacency people show about this, either assuming Medicare will cover everything (it most definitely won’t) or choosing not to think about such remote concerns at all. This disturbing gap in the public’s reality orientation was brought home to me forcibly by a study published recently by the Center for Retirement Research at Boston College.

The essential take-home point was this: Starting at age 65, a married couple who will eventually need nursing home care can expect to spend a mean amount (i.e., at the middle) of $260,000. They’ll have a 5% chance of needing more than $500,000. The study notes that less than 15% of households approaching retirement have accumulated that much in total financial assets. If you and your spouse are fortunate enough not to need nursing home care, by the way, your healthcare outlays will amount to $197,000.

Who has the money for this? If you’re like me, you don’t.

So, what can we do about this? Is there some way to escape this “geriatric guillotine” or at least lessen its impact? Several potential strategies are under discussion these days. In this blog I’ll give my two cents worth on each. Next week I’ll offer my very personal view on where all this is heading. But first, today’s strategies:

Going on Medicaid: the route most people will take, whether they like it or not, when they’ve arrived at “the end of their money.” Once they’ve spent themselves down to the last $2,000 of their assets (excluding their home), they will qualify for medical assistance to the poor (aka “welfare”), because poor is what they are—impoverished by their expenses for long-term care. It’s not a good deal for nursing homes, either—Medicaid rates in virtually every state shortchange providers on the costs of care, over time threatening their professional existence. Salvation for nursing homes has come from short-stay (less than 100 days) Medicare reimbursement (itself under serious pressure these days). Yes, a resident on Medicaid will receive care, but how far from the basics that care will range depends on the character and financial resources of the facility. This is why not-for-profit facilities, with their fund-raising capabilities, are often deemed a better bet for quality of care than the for-profits. But not-for-profits, too, must make their margins.

Private long-term care insurance: This is a very prudent purchase for people—when they’re in their 40s. And that’s the problem: Premiums are apt to be at their most “reasonable” levels—in the low hundreds of dollars per month—for that age group, and those who purchase policies at that age can feel reasonably assured they’ll be covered for some long-term care, if not all of it, for the foreseeable future. And one shouldn’t overlook the possibility of sustaining serious injury or disabling illness at a relatively young age—do the words “major automobile accident” ring a bell? The problem, of course, is that the 40-something primary market is not only at or approaching its peak earning years, but is in its peak expenditure years as well: the inevitable mortgage and car payments are only part of it; there’s also college support for one’s kids and, increasingly these days, elder support for one’s parents, themselves in need of long-term care. When confronted by those in-your-face realities, the possibility one faces of experiencing near-term disaster pales; buying insurance to cover a seeming “far-off event” can lose its allure.

Reverse mortgages: This seems to be the most reasonable alternative of the bunch—assuming the difference between the assessed value and the initial purchase price of a home is substantial. If it is, the transaction costs involved in setting up a reverse mortgage—possibly several thousand dollars—won’t amount to much against the security of having the resulting profit paid to you as a lump sum, monthly payment or whatever increment you prefer. Upon your demise the bank, which has title to your home, will attempt to sell it to cover the remainder of the loan. The home will not revert to your heirs under any circumstances. This fact alone can discourage people from considering reverse mortgages. Even more discouraging, in this day and age, is the possibility that the home’s assessed value is either at or lower than its purchase price—the so-called “underwater” phenomenon. Obviously reverse mortgages have to be assessed very carefully, preferably with a financial or legal advisor.

None of these options offers the royal road to riches for long-term care. It’s a hard reality and, in my own view, one forcing development of a new concept of long-term care and the settings in which it occurs. I’ll elaborate on this in my next blog.

Trackback Print

Tags:

Categories:

Location: Blogs Caregiving by Richard Peck

Your name:
Your email:
	(Optional) Email used only to show Gravatar.
Comment:
Security Code Enter the code shown above in the box below
Add Comment   Cancel