The Coming Long-Term Care Crisis (and Why Personal Finance Can't Solve Every Problem)
I've been a personal-finance journalist for over a decade, and what I'm about to say almost amounts to heresy in my line of work: Some of your most pressing financial questions just don't have any satisfying answers. There may not be much you can do.
Most financial advice sounds like something out of a how-to manual. Building a table with a dovetail joint? Go get a fine-tooth saw and sharp chisels. Want to shelter your retirement savings from future taxes? Put it in a Roth IRA. But there's a whole set of money problems that can't always be solved by finding (or buying) the right tool.
The best example of this: Paying for long-term care, whether it's for your aging parents or for yourself. In his new book Caring for Our Parents, the journalist and Urban Institute researcher Howard Gleckman makes a compelling argument that the cost of long-term care will be the next shoe to drop in America's ongoing health-care crisis.
This story is personal for Gleckman (who also edits an excellent blog on tax policy). In the course of just a few months, first his father-in-law and then his father fell ill. His family had shell out thousands of dollars to pay for just a few weeks of nursing-home care, and then battled with a Medicare managed-care insurance company that refused to pay $85 a day for his dad's at-home aide. Even little things were a struggle: For a time, the only way his father (who lived in a different state) could get to a doctor was to call an ambulance. "I was a journalist and my wife was a lawyer, [but] we were hit with this huge crisis and we didn't even know where to start," Gleckman told me recently.
That huge complexity is likely in your future, too. About 70% of seniors will eventually need some kind of long-term care, according to one study Gleckman cites, and most of that isn't covered by Medicare. (Long-term care isn't medicine and doctors—it's the people with strong backs who lift you out of bed and make sure you are eating.) A day in a nursing home runs an average of $180, and the rate keeps going up faster than inflation. After you burn through your lifetime of savings or home equity, the main safety net to pay for this is Medicaid, the government insurance program for the poor. With 77 million baby boomers hurtling towards retirement, that system is likely to come under major financial pressure.
This is where the "right tool" problem comes in. There is a product on the market that's supposed to solve this: long-term care insurance. But it's an answer with a lot of asterisks. A couple of years ago, Money's Amanda Gengler and I took a close look atLTC insurance and who it might be right for. Read it here.That story kept me up at night with worry about offering the right advice—the stakes of the decision to buy insurance can be very high, and the product is dauntingly complex.
Among the questions you'll have to tangle with: Are you buying enough coverage (or the right kind) to pay for unpredictable future costs? Will you be able to afford to keep paying the policy 10, 20, or even 40 years from now, especially if premiums rise? And these days, you'd have to add: Can you trust the financial strength of the insurance company?
Speaking very broadly, long-term care insurance can make sense if you'll have enough money to comfortably pay premiums for life, expect to have an estate worth preserving, and are willing to do a lot of careful research to make sure you get the right policy. In short, while today's private LTC insurance can work for some people, it's not going to be an affordable solution for most us. And so it also won't protect the younger taxpayers who are going to be on the hook for more and more of these costs in the coming decades.
Gleckman thinks we'll need to set up some kind of public or hybrid public-private insurance system, so that more Americans will be preparing in advance to pay for the cost of their own care. This insurance might pay just part of the costs, leaving plenty of room for private insurers to sell supplemental coverage. Ideally, Gleckman says, the insurance would be mandatory, so that, by spreading the cost among millions, the premiums could be kept low.
America is already facing a hefty bill for boomers' retirement and regular medical costs—can we really add long-term care to the government's menu of responsibilities? The truth is that cost is going to hit us whether we plan for it our not. And this is one problem we'll need to face as a society, not just as individuals.