Is long-term care insurance right for you?

Given a choice, almost everybody would prefer to live out their last days at home -- and in good health. Unfortunately, that doesn't always happen. According to the National Center for Health Statistics, some 1.6 million people currently reside in nursing homes. That number is likely to increase significantly as the baby boomer generation continues to age.

Recent legislation makes it harder for Americans of limited means to depend on help from the government to pay for nursing home costs through Medicaid. The Deficit Reduction Act, signed into law in February 2006, tightens restrictions for nursing-home eligibility to anyone who gives away assets to charities or family members for less than fair market value. The so-called "look-back" period for these asset transfers has been extended from three years to five, and the penalty period begins when someone applies for Medicaid, rather than at the time of the asset transfer, as was the case before.

For example, let's say that on March 1 of 2006, grandma gave $55,000 to grandson Teddy to help pay college costs. To keep it simple, let's imagine that grandma requires nursing-home care within five years, in January of 2011, and that nursing home costs in her state at that time run $55,000 a year. Her penalty period begins in January 2011, when she needs care; before, it would have begun in March 2006. As a result of this law, she will have to wait a year before she becomes eligible for nursing-home care through Medicaid, because the gift amount to Teddy equaled one year's worth of nursing home costs. Under the old rules, her penalty period would have expired in March of 2007.

In addition, single individuals with more than $500,000 in home equity won't be eligible for Medicaid benefits (some states may raise that amount to $750,000). Also, if Medicaid is used to pay for long-term care, the government may become the patient's first beneficiary, before other heirs, with certain types of assets.

A harsh reality

A good nursing home -- especially one that specializes in Alzheimer's disease or dementia care -- costs roughly the equivalent of a four- or five-star hotel. The average cost of a nursing-home stay in the United States is $150 per day. That adds up to about $4,562.50 a month, or $54,750 a year. This number varies widely from state to state, with lows of around $99 a day (Louisiana) to highs of $448 per day (Alaska). And the average length of stay in a nursing home facility is about two-and-a-half years, according to the National Center for Health Statistics.

If that isn't sobering enough, consider that the rate of medical inflation is between 10 percent and 15 percent a year, according to Paul Fronstin, director of the Health Security and Quality Research program at the Employee Benefits Research Institute.


That means, if the going rate for a nursing home is $72,000 a year in your state now, in 10 years the price tag could be close to $200,000.

"If you ask people, 'Are you prepared for four years of long-term care at $200,000 a year?' they're going to say, 'Of course not!'" says Joshua M. Barron, of JMB Financial Services Group LLC in Troy, Mich.

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