Long-Term Care Insurance?

According to researchers at Georgetown University and Pennsylvania State University, about 70% of individuals 65 and older will need some kind of long-term care—whether at home or in an assisted-living facility or nursing home.

But how many of them should purchase a long-term-care insurance policy? That number, it turns out, is far lower—at 19% of men and 31% of women, according to a new study by researchers at Boston College’s Center for Retirement Research. (Women live longer on average, and so they’re statistically more likely to incur long-term-care costs.)

Most “individuals should not buy insurance,” write the authors of the paper, which was published in November. The reasons stem from a range of factors, including the fact that relatively few people have enough wealth to make it worthwhile to purchase protection against the potentially catastrophic costs of long-term care. Moreover, the authors found, due to the way Medicare and Medicaid work, many people can count on government-provided coverage for the vast majority of their needs.

To assess the odds of needing long-term care, the researchers used government data to “calculate monthly probabilities of transitioning among various health states” from age 65 on. The data show that 44% of men and 58% of women will spend at least some time receiving nursing-home care. However, many people spend only short spells in nursing homes. Government data show that, on average, men who require nursing-home care spend an average of less than a year in such care over their lifetimes. For women, the figure is about one year and four months. Because “many short-duration stays in nursing homes are covered by Medicare”—which covers stays of 100 days or less following a hospital stay of more than three consecutive days—half of all men and 40% of women who use nursing-home care fall within this coverage window. Hence, Medicare picks up their tabs.

And Medicaid picks up the tab for extended stays in nursing homes for those who run out of money. So who should consider buying coverage? According to Anthony Webb, a senior research economist at the Center for Retirement Research and a co-author of the paper, those with significant assets—of a couple hundred thousand dollars or more—should look into a policy. The target market, he adds, is “people who have a sizable amount of household financial assets and would be unlikely to qualify for Medicaid.” (For more on how to purchase a policy, here are six mistakes that people often make when buying coverage and how to avoid them.)

The numbers in the paper pertain only to single individuals, who comprise over three-quarters of nursing-home residents. While 19% of men and 31% of women can benefit from purchasing coverage, only 13% of single individuals age 65 and over have actually bought it.