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Pushing Long-Term Care InsuranceBy Jane Bryant Quinn
Thursday, October 10, 1996
I expect some takers but not a lot. Forty- and fiftysomethings have other things on their minds besides providing for nursing-home costs in 2031. At 65, your odds of spending a year or more in a nursing home are only one in four -- a risk that many are willing to run. If you do come up against heavy expenses, public programs often pay.
Nevertheless, you should prick up your ears at the message behind the new LTC tax rules. The government wants you to plan on paying more of your own late-age expenses. If you won't, you'll have to pay more taxes to keep the public programs afloat.
Today, private money accounts for a bit more than half of the $66 billion spent on nursing-home care for the elderly. Almost all the rest comes from Medicaid -- a welfare program designed for the poor and financed by the federal government and the states.
The middle-class elderly rely on this program, too. If you can't afford the $28,000- to $70,000-a-year that a nursing home may cost, or if you pay for a while and then run out of money, Medicaid will pick up the bill for the rest of your life.
But Medicaid can't go on this way. Over the next 25 years, the elderly nursing-home population will probably rise by close to two-thirds, says health researcher Joshua Wiener of The Urban Institute in Washington, D.C. The cost of their care will butcher state budgets unless new sources of financing can be found.
Private insurance is one such source. Starting next year, taxpayers who itemize will be able to tax-deduct part or all of their premiums. You'll lump this write-off with the rest of your medical expenses, deductible to the extent they exceed 7.5 percent of your adjusted gross income.
That's not a huge incentive to buy. Still, more employers should make LTC plans available and affordable. Employees' parents and spouses may qualify for company coverage, too.
The new law contains one truly juicy deduction, but it's not for the young. It goes to people who are already in nursing homes or paying for qualified long-term care at home. Starting next year, they'll be able to write off the cost as a medical expense. In some cases, that could wipe out their tax.
You'd buy LTC insurance for a single reason: to save yourself from having to dip into personal savings to cover your bills. The policies pay a daily amount, capped at $40 to $300, depending on the size benefit you want. You're insured for life or for a certain number of years. Some policies cover just nursing homes; others include some home-care costs, too. There's inflation protection, at a price.
The older you are when you first buy, the higher your premium will be. As an example, take a four-year policy for home-health and nursing-home expenses, paying $80 a day with inflation protection and a 100-day waiting period for benefits. At John Hancock, it costs $536 a year when you're 50 (provided that you're in good health), $912 when you're 60 and $1,848 when you're 70. Group coverage costs less. Premiums should stay level for life, although an insurer can charge everyone more if the policy isn't profitable enough.
Retirees might lower their costs by joining an HMO and applying any premium savings to LTC coverage, says Marc Aaron Cohen of LifePlans in Waltham, Mass., which evaluates long-term-care risks for insurance companies.
But buyers will never flock to long-term care insurance, as long as people believe that the government will pay. In theory, you have to use up your assets before you can get onto Medicaid. In practice, seniors with modest assets generally qualify right away. Wealthier seniors can see a lawyer and turn up "poor" in 30 days, says Stephen Moses of LTC Inc., in Seattle, which markets nursing-home insurance.
The ethical elderly do indeed use their money to pay their own nursing-home bills. But growing numbers just say no -- egged on by their adult children who don't want to see their inheritance slip away.
Medicaid's quality may decline, if taxpayers resent the cost. Long-term care insurance is looking like the better choice.
Jane Bryant Quinn welcomes letters on money issues and problems but cannot offer individual financial advice.