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Americans are reluctant to talk about long-term care provisions. For most, the potential loss of independence is what they fear most about growing older.


Confronting the legacy of Baby Boomer long-term care

by Victoria Yates
Feb 14, 2013


INSURE_population infographic on aging population

Victoria Yates/MEDILL

The changing ratio of working people supporting those over retirement age will have economic and social repercussions across the world.

Baby boomers have a lot to answer for. The vast number of births between 1945 and 1964 necessitated an expansion of the education system, a housing boom and infrastructure investment. They helped steer America out of the Great Depression and into a fast growing economy, and under their cultural leadership America entered a new era of social freedom.

Now these aging pioneers are leaving their children with an unwanted legacy. By 2020 a third of working Americans will be faced with ensuring some form of long-term care for their parents.

“When I was 22 I didn’t have a concept for what it would be like to get to 60, 70, 80,” said Jesse Slome, executive director for the California-based American Association for Long-Term Care Insurance. “But I guarantee if you talk to your parents or grandparents they know what it’s like and they know the consequences for living a long life.”

The statistics are sobering. Roughly 75 percent of Americans over 65 will eventually need long-term care, a reality that will cost, on average, a quarter of a million dollars per person in as little as three years.

The average American had $212,600 in savings in 2011, according to research by Fidelity Brokerage Services.

Medicaid, the government program that provides healthcare funding to low-income Americans with limited resources, covers around half of long-term care expenses. Unlike Social Security and Medicare, Medicaid is not funded through a dedicated trust fund. Federal and state contributions come from general revenue, specifically income taxes.

“It’s a costly issue. It impacts families, it impacts states who pay the lion’s share,” Slome said. And yet only 8 million Americans currently have long-term care insurance, roughly 2 percent.

In 1993 a pilot program was introduced in California, Connecticut, Indiana and New York to create a partnership between private insurance companies and the states. The plan aimed to reduce the burden of growing long-term care needs on state resources.

A key benefit of long-term care insurance partnership policies is the asset protection clause. Within a partnership plan, if policyholders’ needs are greater than their insurance coverage, they can access Medicaid without having to sell off their assets to qualify.

It proved so successful that the Deficit Reduction Act of 2005 made it possible for all states to offer a similar program.

Eight years later only seven states do not offer a partnership program, among them Illinois where the statute has not been finalized.

The process for Illinois has now spanned almost two decades. The state was one of two that attempted to create a partnership program under the more limited terms allowed in the 1993 Omnibus Budget Reconciliation Act.

The Department of Insurance is working on a regulation that will outline how insurance providers can file for partnership policies in Illinois, according to Kimberly Parker, communications manager for the Illinois Department of insurance.

The state is hoping to conclude the process this year.

It is a far cry from neighboring Indiana, one of the first four states to try the program. Since 1993, 53,000 partnership policies have been purchased in the state.

“A partnership policy benefits both consumers and the state,” said Rebecca Vaughan, director of the Indiana Long Term Care Partnership Program.

“The impact of the aging population will be tremendous on all aspects of the country’s social and economic future,” said Vaughan. A partnership serves the dual purpose of reducing Medicaid expense while helping citizens protect their personal assets, she added.

Specialist life and annuity insurance company Genworth Financial Inc., which is based in Virginia, has been involved in the Indiana partnership since it started in 1993. Genworth reports that approximately 80 percent of long-term care policies sold by the firm were in partnership with Indiana.

“The partnership program is a good example of a public/private solution to help Americans deal with long-term care risk,” said Beth Ludden, vice president of long-term care product development for Genworth. “It promotes planning for one of the largest unfunded exposures a resident may face as they age while reducing reliance on Medicaid.”

Slome agrees that a large part of the program’s appeal lies in encouraging residents to take up a policy. “The partnership was a wonderfully conceived program designed to create incentives for more people to consider and purchase long-term care insurance,” Slome said.

Nevertheless, Slome maintains that getting people to recognize the importance of long-term care planning is about connecting on a personal level.

Once family members have experienced the financial burden of long-term care, they will come to recognize the importance of preparing for the future. Ultimately, there will simply not be enough federal funding to go around.

“You aren’t going to want to spend the vast majority of your adult life paying taxes so your parent’s generation and your grandparent’s generation can get excellent care,” Slome said.

In 2012, the American Association for Long-Term Care Insurance compiled the average cost of private long-term care insurance and compared it to the previous year.

A standard, long-term care policy with a three-year benefit period, 100 percent home care and a $150 daily benefit would cost a single 55-year-old, on average, $1,720 a year. At age 80, the protection would worth $354,000.

For a 55-year-old couple, the average annual cost of a policy with the same benefits is $2,700. When they are 80, the plan will provide $708,000 of protection value.

According to the association’s findings, long-term care premiums are between six and 17 percent higher than they were last year. In 2011, a comparable policy for single 55-year-olds would have cost $1,480.

It is not only the increased rates that are deterring consumers. “For the 55-year-old single policy applicant, the highest price policy cost almost 80 percent more than the lowest priced policy,” Slome said in the research note. “For some categories, the difference was as much as 132 percent and no single company always had the lowest nor the highest rate which is why we stress the importance of comparison shopping.”

Despite the looming need, the number of long-term care policies sold has been declining since 2008, according to LIMRA, a worldwide association of insurance and financial service companies based in Connecticut.

Catherine Theroux, director of public relations at LIMRA, partly attributes this trend to the poor economic climate and partly to the historically difficult long-term care market.

“Consumers are, not surprisingly, more reluctant to talk about needing long term care than dying,” Theroux said. People looked at the relative expense of long-term care policies and weighed it against their belief that “there was a possibility that they wouldn’t need it at all,” Theroux said.

This optimism is partially rooted in the general fear of nursing homes that many Americans harbor.

American seniors overwhelmingly hope to stay in their own homes as they age, according to “Aging in Place,” a 2007 study.

Roughly a quarter cited the loss of their independence as their greatest fear related to growing older, while 13 percent were most afraid of having to move into a nursing home. This compared with only 3 percent who considered death their greatest fear.

For their Baby Boomer children, independence was an equally high priority. Eighty percent think it is very important for their parents to age in their own homes with the same amount expressing concern over how possible that will be.

Surprisingly for ‘the sandwich generation’ who are caught supporting both their parents and children, the source of Boomer concern is sentimental not monetary; more than half were not worried that their parent will be a financial burden.

For Pamela Sams, president and chartered retirement planning counselor at Jackson Sams Financial Services in Virginia, Baby Boomers are nevertheless worried about the impact they will have on close family.

“The main concern that I hear from most Boomers is that they do not want to be a burden to their children if a long-term care need arises,” Sams said.

The effect of long-term care costs is already beginning to hit home for many Americans. By 2030 there will be almost 1 million more Illinoisans over the age of 60, making up 23 percent of the state’s population.

Nationally, one in five Americans will be over 65.

“Anything you can do to get more people aware and to plan is good,” Slome said. “People generally don’t act until there is a crisis.”