Long-Term Care: Part II–The 800 Pound Gorilla

According to the National Institute on Aging, “Long-term care is the 800-pound gorilla of social problems that lurks just around the corner.” The reality is that the government system is woefully strapped for funds to cover current liabilities and forthcoming obligations. And do you want to bet that already overburdened government programs will be adequate or even available when you need them?

As we all get older, it’s pretty certain that we will each require some help along the way with our healthcare. It’s just too expensive for government to pay for this longevity and its related care issues. Long-term care is going to have to go private.

In the mid-1990s, seeing the ever-increasing costs of healthcare and noting the hole our government was digging for itself, some insurance companies began offering long-term care coverage. They had no actuarial data upon which to base their premiums, but they forged ahead to get into the market with a new product and meet a perceived “need”. Policies sold well, however, insurance carriers were experiencing big hits because people were requiring more extended healthcare and living longer.

It became painfully evident to the insurance companies that their liability was far greater than they had anticipated. Rather than raise premiums on existing policyholders, insurance companies dramatically bumped up the costs of the subsequent policies.

As you would suspect, long-term care policies have “evolved” numerous times over the years to protect the insurance companies. With each new issue, the next level of policies often covers far less, but at approximately 40-percent more than the former programs.

As an example, if the monthly premium was $500 for an earlier Policy A, it might cover assisted living, in-home care, and nursing homes. Today’s Policy B might cost about $700 a month and only cover care in a nursing home. In California, considering that nursing home care currently can run around $5,000 to $6,000 a month, that’s still not a bad investment. Otherwise, you would have to save that amount each month to pay for your own needs.

In Part III of this article series, we’ll discuss who needs long-term care coverage.

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About the author: About Ronald Bernheim, the owner of Financial Freedom Wealth Management Services, in Chatsworth, CA. He offers a free, no-obligation counseling session to determine whether a financial review or comprehensive plan is indicated. Interested parties may call (818) 626-9498 or e-mail ronald.bernheim@lpl.com or visit the website at www.ronaldbernheim.com.

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