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Personal Finance
Paying for long-term care
August 26, 1999: 7:19 a.m. ET

Don't let getting old overtake your finances, planners say
By Staff Writer Alex Frew McMillan
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NEW YORK (CNNfn) - Most people would rather pretend they're immune to getting old -- and, with it, the cripplingly expensive costs of health care. But instead of procrastination, financial advisers and health-care insiders recommend taking steps to prepare.
     Next year, around 9 million people will need long-term care of some kind. If they and their families aren't ready, the costs can rack up quickly.
     "Long-term care is a major exposure," said Mike Crifasi, an Atlanta-based financial planner who specializes in helping people plan for old age. "It's as big an exposure as the death of a loved one who's the bread winner, or a disability."
     Be aware of the costs involved, prepare a plan to meet them and know your options, financial planners recommend. "You have to sit down ahead of a crisis," says Greg Seal, a certified financial planner in Denver. "Don't do retirement and family planning in the intensive care unit."
    
So what do you need to expect?

     First the facts. The number of Americans dealing with the financial burden of long-term care will likely only increase. The first Baby Boomers have already turned 50, so they'll see first their parents and then themselves need help.
     By 2030, some 8 million Americans will be over 85. That's old by anyone's standards. Look out a little further, and the over-85 crowd builds to 18 million by 2050.
     According to the American Health Care Association, the average American man can now expect to spend $56,895 on long-term care. The average American woman will spend close to double that, at $124,370 in bills. The price of long-term care is increasing around 7 percent a year.
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Exactly how people spend that varies. "There are many more options than most people know about," said Scott Parkin, vice president of communications with the American Association of Homes and Services for the Aging. "Most people are pretty uninformed about long-term care."
    
What are the choices?

     Most people try to stay at home as long as possible. According to financial planners, that's often a mistake. At first the costs are minimal. But they can build rapidly. Once an elderly person needs outside help, Parkin pointed out, skilled home health care can run $1,000 a month, or $12,000 a year. Sometimes it's a lot more.
     "Many people believe home health care is cheaper than a nursing home, but it isn't," Crifasi said. Expect to pay $45 to $100 an hour for a professional nurse. And there's another toll. "If you're taking care of them at home and paying for it all, you're probably not going to see much of a cost at first, but you've lost your quality of life."
     Another option is a continuing-care community. There are now 1,000 around the country. Most are non-profit, though hotel chains such as Marriott and Hyatt have entered the field. Campus-like, the communities progress from sometimes very upscale retirement complexes, with pools, exercise rooms and banking, through to nursing homes.
     And they're increasingly popular. They charge an upfront fee for moving in, anywhere from as little as $36,000 up to as much as $400,000. After that rental usually runs $1,000 or $2,000 a month, Parkin said.
     Some offer elderly people the chance to own. "I do not advise my clients to buy," Seal, the Denver planner said. "This is a time to rent in your life." Besides the uncertainty of how long you'll live there, management can change, he pointed out.
     Assisted-living facilities blend independent living with some nursing-home features. There may have medical care that's not round the clock, for instance, or help with meals.
     Costs normally run a little higher than continuing care, starting at $2,000 a month. Assisted-living facilities nearly always price themselves below nearby nursing homes. But Seal advises shopping around at four or five of each near you.
     Nursing homes are the last place many people want to go. But they're the first place most people think of when they picture long-term care, and for good reason. For people lucky enough to live to 65, it's even money they'll need a nursing home at some point.
     "It could be as little as a few weeks, it could be 10 years," said Art Maier, spokesman for the Health Insurance Association of America. But at 50-50 odds, he added, "this is something the Boomers should be thinking about." The average nursing-home stay is 2-1/2 years.
     The Health Care Financing Administration, the federal agency that oversees Medicare and Medicaid, offers a guide to choosing a nursing home online.
     The costs vary substantially, from $79 a day in Arkansas to $195 a day in Connecticut. But they average $46,000 a year. "When you're talking about $46,000 a year, it eats up whatever inheritance there might be," Parkin said.
    
Who's going to pick up the tab?

     Medicare, the federal health-care program for people over 65, rarely covers long-term care. For the most part, it pays for rehabilitation of up to 120 days in a nursing home after an acute episode, a hospital stay of more than three days.
     Medicaid, a part-state, part-federal program that covers medical costs for poor people, is the primary payer for close to 7 out of 10 nursing home residents. Each state has its own Medicaid guidelines, and an ombudsman to help consumers with questions about long-term care.
     In all, Medicaid covers half of all nursing home costs nationwide. But people have to spend their own assets until they qualify for the program. In most states, there's an allowance for a home, a car and a certain amount of cash. But it doesn't go far.


Long-term care insurance is increasingly popular, but it's not for everyone, Parkin advised. "A consumer needs to think twice if they don't have a large nest egg." And some very wealthy people may prefer to take the chance they'll be able to pay for any long-term care costs out of their own pocket.
     But for people who aren't at either extreme, the insurance is a way of buying peace of mind. Rates are flat for the rest of your life, and the risk of ending up with a huge, unexpected bill disappears.
     "I've got two kids and I don't want to burden them with that kind of expense when I'm 75 or 80 or 85," Parkin said. "People with houses, stocks, savings, retirement funds, they may want to look at this. That's what drives the middle class to think about long-term-care insurance, to preserve estates."
    
A wide variety of policies

     Though the concept of long-term-care insurance has been around for 20 years, it's only gained hold since the mid-'80s. There are between 4 million and 5 million policies in force. More than 120 insurance companies -- including as CNA, UnumProvident and Conseco -- offer the insurance.
     Policies used only to cover certain kinds of care such as nursing homes. But they've expanded their scope. Many provide coverage and benefits for assisted living, home care and nursing homes.
     "The market is bringing more-sophisticated and better policies," said Winthrop Cashdollar, director of the Center for Disability and Long-Term Care Insurance at the Health Insurance Association of America. On its Web site, the association has both a guide to long-term care and a directory of its members that offer long-term-care insurance.
     The policies kick in when a person is unable to complete two of five basic functions -- bathing, dressing, eating, toiletting and transferring, which means getting in and out of bed or moving around. In designing a policy, a person can pick a specific dollar amount of care they want to kick in --- say, $130 a day.
     Seal, the Denver financial planner, advises his clients to buy coverage at 80 percent of the cost of long-term care where they live. "Most people who buy long-term care policies tend to overinsure," he said.
     The insurance is probably something to buy later in life. "My feeling is, if you're under 45, unless it's being offered by the company where you work, chances are you've already got too many obligations," Maier said. But once you've paid off your car and mortgage and put your kids through school, it's worth considering.
     The average age of people buying individual policies is 69, Cashdollar said. About 100 to 150 companies, normally large employers, offer long-term-care insurance as a benefit. For group policies bought that way through employers, the average age drops to 43.
     Crifasi recommends his clients get the insurance relatively young and in good health. Buy insurance protection, and make sure it's compound protection, he recommends to younger clients. That can double the cost of the insurance but makes sure the $130-a-day coverage doesn't dwindle to nothing when you actually need it.
     He prefers lifetime coverage rather than policies with a time limit. If you want to save on a policy, extend the "elimination period," the length of time you have to be in long-term care before the insurance kicks in, he said.
     Yes, he's heard all the averages, the average 2-1/2 year stay, the average costs. But you wouldn't buy average coverage for your house, he said. "To me the average is meaningless," he said. "Nobody can predict the future."Back to top

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