Need for Long-Term Care Insurance May Be Overstated

A new study by Boston College’s Center for Retirement Research indicates that purchasing long-term care insurance makes financial sense for fewer individuals than was previously believed.

The Center’s study found that previous research underestimated the probability that people would need nursing home care. However, previous research also overestimated the length of the average nursing home stay. According to the Center, 45 percent of patients are in a nursing home for three months or less. The study used monthly data instead of the yearly data used by previous studies.  “In reality, many individuals return from institutional care to the community after short stays, even without an improvement in health status,” the researchers write in an Issue Brief summarizing their findings.

While individuals are more likely to need nursing home care than previously thought, the shorter stays mean that Medicare would be more likely to cover the care, alleviating the need for long-term care insurance. According to the Center, it makes sense for only the richest 20-30 percent of single individuals to buy long-term care insurance. Previous estimates were that it would be a rational choice for 30-40 percent of single individuals.  Other individuals can use Medicare or spend down their assets to qualify for Medicaid.

“If nursing home care is a high-probability but relatively low-cost occurrence, models that treat it as a lower-probability, high-cost occurrence may overstate the value of insurance,” the researchers write.

While the study looked only at single individuals, the Center says that forthcoming research will show that long-term care insurance makes even less sense for married couples, according to Bloomberg. 

Jesse Slome, director of the American Association for Long-Term Care Insurance, told McKnight’s Long-Term Care News that the study used outdated information. “The LTC insurance market and the products have changed so significantly over the past few years that this report is little more than a nice exercise in walking down memory lane,” Slome asserted. He also pointed out that many people use long-term care insurance for home care instead of nursing home care.

To read the study, click here.