Can You Live on That?
Tim Walters, CPCU, CIC, Walters & Hanna Insurance Agency, Akron LIVING WELL Magazine (formerly SENIOR Magazine)
Recent studies suggest that about 40% of all people who reach age 65 will spend time in a nursing home before they die. One in four will spend more than a year in a nursing home. One in 10 will require nursing home care for five years or more. According to a 2010 MetLife survey, the average cost of a semi-private room in a nursing home in the state of Ohio is $68,985. Many of us think our spouse or loved one will care for us regardless of the level of care needed, but depending on how events unfold, this may be a very impractical plan. In fact, studies show that 50% of couples with a partner in a nursing home are impoverished within a year.
Can You Afford Nursing Home Care?
Can you afford nursing home care? Take this test and see. First, add up all your annual sources of income from pensions, social security and the like. If you are married, add both spouses’ income. To that figure add all investment income from interest, dividends, rents, etc. From your total income, subtract the annual cost of a nursing home, in the state of Ohio – $68,985. If the difference between your income and the cost of care is a negative number, you’ve got a real problem. You will have to start spending your principal immediately. Principal will be required to pay both the nursing home and to pay the living expenses for the spouse still at home. If the number is positive, ask yourself this question: “Can I live on that?” If the spouse at home could not survive on the difference between your income and the cost of a nursing home, principal will be consumed to meet expenses.
If you must spend the principal, how long will your assets last? Remember if you consume principal this year to pay the nursing home, there will be less to invest to produce income next year. If there is less to invest, your investment income will probably go down. If your investment income goes down, you will probably need to consume more principal next year to meet nursing home costs. This is the start of an accelerating downward spiral. Nursing home costs have to be paid. Either you or someone else must pay them. There are only three possible sources of funds other than you; your family, the government or an insurance company. Could your family afford to shoulder the burden of your nursing home costs? Even if they are able and willing, would you ask them for help?
Contrary to popular belief, there is a national government program to provide funding for nursing home expenses. It’s called Medicaid. Medicaid is a welfare program for poor people. In order to qualify for long term care under Medicaid, you either must be poor or become poor. Medicaid helps those in need but, as the law stands, Medicaid should be a last resort.
Coverage for Nursing Home Care
The best way to manage the risk of an extended nursing home confinement is through insurance. Not only will you have the coverage, but you will also have choices about where you receive care. There is a large difference between the care received in a private pay facility, as opposed to a Medicaid only facility. These choices can help preserve your independence and dignity. Purchasing a cost effective policy requires careful planning and investigation. The quality of the policies has gone up; however, it is still possible to buy inadequate coverage.
Of course this brief article is no substitute for a careful consideration of all the advantages and disadvantages of this matter in light of your unique personal circumstances.
For more information, contact Tim Walters, CPCU, CIC or Sandy Gasser, CLU, ChFC at Walters & Hanna Insurance Agency, Inc., 330-668-2300 or 800-686-1133.
For more information, the Ohio Department of Insurance website has a Shopper’s Guide and brochures that explain the basics of long term care insurance. Visit their website at: www.insurance.ohio.gov under the Communications Tab.
Ohio’s Estate Recovery program requires the Ohio Attorney General’s Office to recover payment from the estate of anyone who receives Medicaid payments for long-term care.
