The cost of care today is merely a reference point
to plan for the ten or so years from now when care might be needed. When considering
long-term care coverage it is very important to remember that the insurance is not
for now -- but for the future. This is why inflation protection is so
important.
Assumption:
a) Nursing home rates will increase 5% compounded.
b) The average age of entrance to a nursing home is 78
Widower Jones is 65. He has assets of $300,000. His income, primarily derived from his
assets, is about $100 per day. The cost of a typical nursing home in his area is currently
about $180 per day. In planning for his long-term care needs, he has several options:
Based on a 5% compound inflation factor, fifteen years into the
future nursing home care will be about $360 per day ($180 x 5% x 15 years), but Widower
Jones' income and assets have remained constant. Should he need four years of nursing home
care, the following scenarios show what would happen to Widower Jones based on the above
options.
SCENARIO 1: Widower Jones is on Medicaid. With $100 per day income, he will need
to pay $260 per day from his assets. By the end of four years, he will have had to spend
$379,000 ($79,000 more that his total assets).
SCENARIO 2: Widower Jones has lost $116,800 in assets. Adding his income to his
insurance leaves $80 per day that must be paid from his assets.
SCENARIO 3: Widower Jones has lost $102,200 in assets. While his insurance
covered the first three years, in year four, his income leaves $260 per day that must be
paid from his assets.
* The figures used are approximate. In the State of New York, historically, nursing
home rates have risen between 5% and 8% per year.
