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Long-term care costs: Planning by the numbers

According to the government, 70 percent of people turning age 65 can expect to use some form of long-term care during their lives. The vast majority of the care they receive — 80 percent — comes from unpaid caregivers (generally family members or friends). In fact, a whopping one in four adults (more than 65 million people) acted in this capacity in 2009, spending an average of 20 uncompensated hours a week caring for someone.

Those who require more care than family members can address — and who have limited resources — may qualify for coverage through Medicaid, which is a joint federal and state program that helps pay for certain health services. If you qualify for Medicaid, you may be able to get government assistance for nursing home care or other health care costs.

Others who do not qualify for Medicaid may be shocked to learn that Medicare and most health insurance plans, including Medicare supplement insurance (Medigap) policies, don’t pay for more advanced services, sometimes called “custodial care.” Once they discover that they may be on the hook for covering the long-term care costs, some consumers turn to elder care lawyers to create and employ strategies that would allow them to qualify for Medicaid in the event of a long-term illness. But in many cases these expensive options can be unnecessary.

While there are plenty of stories about families forced to spend down a large chunk of their nest eggs on long-term care expenses, those cases may be rarer than you think. Most advanced care is provided by licensed home health aides, who charge about $20 per hour, according to Genworth Financial’s Cost of Care Survey for 2015.

The real financial burden occurs if you need to enter a facility. Genworth found that the national median yearly cost for a semiprivate room is $80,300 (a private room costs $91,250). In New York, add another $50,000 or more. Those who want to protect against the massive cost of care often turn to long-term care insurance (LTCi), but not everyone needs insurance. If you have a total net worth, including a house, between $300,000 and $1.5 million, you may want to consider purchasing some baseline LTCi coverage. (Those below $300,000 can rely on Medicaid, while those above $1.5 million can self-insure.) Couples within the range are especially vulnerable, because a sick spouse can eat into assets that would dramatically change the healthy spouse’s life in the future.

I mention baseline coverage, because LTCi policies can be expensive. So instead of trying to insure the total nut, it can sometimes make sense to purchase a policy that covers some of the costs for a specific amount of time. (Statistically, women need care for 3.7 years, men for 2.2 years and one-third of today’s 65-year-olds may never need long-term care support at all.)

If you are going to purchase a policy, you should make the commitment to keep it. Unfortunately, according to a recent study from The Center for Retirement Research at Boston College, more than a third of those with long-term care insurance at age 65 will let their policies lapse at some point, forfeiting all benefits. Lapses could be due to the burden of insurance premiums, a late-in-life bet that care is no longer necessary or, worse yet, poor decisions due to declining cognitive ability. For this last group of lapsers, having insurance could be counterproductive as they buy it to protect against risk but drop it just when the risk becomes more likely.

Many insurers no longer offer this product because it is so difficult to predict how many people will need long-term care and what the cost of that the care might be. Unfortunately, the more insurance companies that exit the LTC business, the fewer options there are for consumers. Some of the highly rated companies that are still committed to offering LTCi include: Genworth, John Hancock, Mutual of Omaha, MetLife, MassMutual, New York Life and Northwestern Mutual.

Jill Schlesinger, a certified financial planner, is a CBS News business analyst. She welcomes emailed comments and questions.

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