Long-Term Care – Part III (Long-Term Care Insurance)

The Greatest Financial Risk for Seniors: Paying for

Long-Term Care – Part III (Long-Term Care Insurance)

While I’ve said this many times before, it is worth repeating — the greatest financial risk that nearly all seniors in this country face is the risk of developing a chronic illness and needing to pay the ruinously high cost of long-term nursing care. This is especially true in Pennsylvania, where the average cost of a nursing home is over $125,000 a year (based on 2018 numbers). Because our country does not have a system of universal health care (that is, a system that provides health care and financial protection to all its citizens), there are only a few ways to pay for nursing-home care other than spending down much of your life savings (if you are married with modest savings), most of your life savings (if you are married with more substantial savings), or all of your life savings (if you are single).

The first three parts of this series discussed two separate public benefits that can help pay for long-term care: Medicare (though only for a limited period and sometimes not at all); and the Aid and Attendance pension, a little-known but important benefit available from the Veterans Administration for many seniors who are wartime veterans or the spouse of a wartime veteran.

This and the next article in this series will discuss another alternative to personal impoverishment: Long-Term Care Insurance.

What is long-term care insurance?

Long-term care insurance is a contract between an individual and an insurance company to cover, for a specified period of time, a specified portion of the cost of long-term care in a nursing home and often other settings (such as home or an assisted living facility).

Why should I consider buying long-term care insurance?

If your health is sufficiently good to qualify for long-term care insurance, and you can afford the premiums for this insurance (including future premium increases), this option deserves careful consideration. If you have a good policy, with adequate coverage, from a financially sound insurance company, you have the comfort of knowing you will not later be impoverished by the cost of long-term care. You will also have greater freedom in the choice of living arrangements if living alone at home becomes a problem.

The freedom of choice is particularly important. While most of us who think of “long-term care” think of a nursing home, in fact a nursing home is only one of several options for getting long-term care, depending upon your physical and medical condition. We all hope to live out our lives in our own home. A good long-term care insurance policy can help cover the cost of home health care and therefore permit you to stay at home longer than would otherwise be possible. And it can also help cover the cost of an assisted living facility, an important option because while Medicaid pays for care in a nursing home care and sometimes for care at home, in Pennsylvania Medicaid will not pay for any of the cost of an assisted living facility.

How do I know whether long-term care insurance is a good investment?

For those who later actually need long-term care and have a long-term care insurance policy, it will very quickly have paid for itself in the savings it generates and thus will have been a good investment. But that’s judgment by hind-sight. Deciding now whether to buy long-term care insurance is not an easy matter. This is because the risk of not having long-term care insurance is so hard to evaluate.

Why is the risk of not having long-term care insurance difficult to evaluate?

All insurance involves the transfer to an insurance company of the “risk” of a particular event happening, for a price (the insurance “premium” you pay). For example, people purchase fire insurance to protect against the risk of loss if their house burns down. The total risk is a combination of the likelihood that something will happen plus the size of the loss if it does happen. The likelihood that one’s house will burn down may be small, but the potential loss if it does occur will be great and so the risk is worth insuring against.

Similarly, people purchase long-term care insurance to transfer to an insurance company the risk of losing much or all of their lifetime of savings if they have to pay for long-term care. For younger people, those in their 40’s and 50’s, the likelihood of needing long-term care is quite small. But, if they do need it someday, the potential loss from the cost of care will be great. However, unlike the risk of one’s house burning down (and most other risks we insure against), the risk of needing long-term care increases with age. While one is just as likely to have one’s house burn down at age 25 as at age 75, one is much less likely to need long-term care at age 25 than at age 75.

So here is the problem. When you are in your 40’s and 50’s, at the very time when long-term care insurance is the most affordable, you have the least likelihood of ever needing it. In addition, this is the age at which you are most likely to have the competing demands of mortgage payments and/or college tuition for your limited resources. However, the longer you wait, the more expensive long-term care insurance will become, and the greater the chance that you will have some medical condition that will make you uninsurable – at the very time when you need it most!

What are the unknown variables?

A related problem in deciding whether to purchase long-term care insurance is the large number of unknown variables:

  • In the first place, you don’t know whether you will ever need such care. (For example, only about one-third of people age 65 and older will spend any time in a nursing home.)
  • You don’t know what your assets will be twenty to thirty years into the future.
  • You don’t know what the cost of long-term care will be at that time.
  • And for that matter, you don’t know what the health-care system in this country will be at that time.

    • Perhaps the United States, in line with other western countries, will have some type of universal health system for long-term care, greatly reducing the need for private insurance.
  • Perhaps the most troublesome variable is that you cannot know at the time you purchase a long-term care insurance policy how much the premiums will increase in the future.

Next month’s installment will discuss some of the things you need to consider if you decide to purchase long-term care insurance.


The content herein is for general informational purposes only and does not constitute legal advice. For specific questions you should consult a qualified elder law attorney.

Note: Contrary to what almost everyone believes, if you or a family member has been admitted to a nursing home, it is NOT too late to protect assets. The Medicaid laws give seniors the option to protect a significant portion of their life savings, even when facing an immediate crisis, with no advance planning. However, “time works against you” when planning for long-term care; every day of delay in a crisis can result in $200 to $300 or more of irretrievable loss, so it is important that families who have a spouse, parent or other loved one needing long-term nursing care contact a knowledgeable and experienced elder law attorney for advice as soon as possible.

Kemp Scales is now retired, but elder-law attorney Schellart Los continues to serve clients throughout western Pennsylvania from offices in Erie and Titusville. She can be reached toll-free at (888) 827-2788 or by e-mail at schelly@losscaleselderlaw.com. The Law Offices of Schellart Joyce, LLC has an Internet presence at www.losscaleselderlaw.com.