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 or 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 by researchers at Boston College’s Center
for Retirement Research.
The reasons stem from a range of factors, including the fact
that relatively few people have enough wealth to make it worthwhile to purchase
protection against the potentially catastrophic costs of long-term care.
Moreover, the authors found, due to the way Medicare and Medicaid work, many
people can count on government-provided coverage for the vast majority 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 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.
Because “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 three consecutive days—half of all men and 40% of women who use
nursing-home care fall within this coverage window. Hence, Medicare picks up
their tabs. And Medicaid picks up the tab for extended stays in nursing homes
for those who run out of money.
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—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.”
The numbers in the paper pertain only to single individuals,
who comprise over three-quarters of nursing-home residents. While 19% of men
and 31% of women can benefit from purchasing coverage, only 13% of single
individuals age 65 and over have actually bought it.
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