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Long-term care needs: The numbers may not be what you think

The odds of needing nursing-home care may be

The odds of needing nursing-home care may be higher than previously thought, but the length of needed care is shorter. Credit: iStock

You've heard the scary statistics: About two-thirds of Americans will need long-term care. The average annual cost of a private room in a nursing home is $87,600; the length of stay can run three years or more.

Do a few quick calculations, and it's easy to get very worried about the potential financial impact on your retirement plan. But recent research is shedding new light on the risks: The odds of needing nursing-home care may be higher than previously thought, but the length of needed care is shorter. The new data has experts talking about the implications for revamping our approach to insuring against the risk of high LTC expenses.

A recent study by the Center for Retirement Research at Boston College (CRR) found that 44 percent of men and 58 percent of women will need care -- somewhat higher than some previous estimates. But the average duration of a nursing-home stay is 0.88 years for men and 1.44 years for women. The center's research also concludes that no more than 50 percent of men and 39 percent of women who use nursing-home care stay longer than three months.

"It's a big event for some people, not for others," says Anna Rappaport, an expert on long-term care who heads an actuarial consulting firm that bears her name.

That raises an interesting question about how much nursing-home care is being paid for by Medicare. The program doesn't cover long-term care, but it does cover up to 100 days of skilled nursing care following a hospitalization. The data on this question is inconclusive, but "it seems likely that many of these short stays are covered by Medicare," the study states.

Long-term care still should be regarded as a significant retirement risk. A recent report by the Employee Benefit Research Institute attempts to quantify the potential impact of a major LTC cost on retirement success by comparing projected retirement-savings shortfalls for different bands of longevity, and by calculating the projected outcomes with and without LTC needs. Ignoring nursing-home and home health care costs decreased the shortfall projections by an average 74 percent.

"The comparisons show how important it is to include long-term care costs in these calculations," says Jack VanDerhei, the institute's research director.

The risk is tied closely to longevity. Twenty-one percent of men and women ages 80 to 84 have at least a mild or moderate disability, compared with just 7 percent of those ages 70 to 74, according to CRR.

The latest LTC utilization data comes at a time when the insurance industry and policy experts are debating ways to improve the safety net for LTC risk. The current system is a hodgepodge. Just 13 percent of households purchase commercial LTC policies, according to the University of Michigan's Health and Retirement Study; everyone else who needs nursing-home care is covered by Medicaid or is self-insured.

The commercial long-term care insurance (LTCI) market has been experiencing upheaval over the past several years. Many underwriters have stopped issuing new policies due to an inability to develop sustainable, profitable LTC insurance business, and many policy experts view LTC as one of the most important unsolved pieces of the nation's health care puzzle.

Double-digit rate hikes on many older LTCI policies in recent years have been especially unnerving to policyholders. Insurance companies must go to state insurance regulators, and the requests often are eye-popping, running as high as 60 percent and rarely less than 20 percent.

Rate hikes don't have to be a disaster for policyholders. If you are hit by one, don't panic or drop your coverage.

If you've had your LTCI for a while, the premium almost certainly is much lower than what you'd pay on a new policy at an older age -- even after a steep rate hike.

What's more, the risk that new coverage would be denied due to a medical condition rises with age.

One way to cope with a large premium increase is to reduce the benefit, for example, by cutting back the daily benefit amount, increasing the elimination period or cutting the length of time that benefits are paid.

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