Surveys by long term care insurers, such as Genworth Financial, MetLife, New York Life and Northwestern Mutual, show the cost of a nursing home or assisted living can swiftly erase years of saving for retirement. Because of that, these studies of LTC costs can be a powerful tool for financial advisors trying to convince clients to include long term care insurance in their retirement planning.
Beth Ludden, senior vice president for long term care insurance at Genworth, Richmond, Va., advises producers to exploit her company’s “2009 Cost of Care Survey” to get clients to talk about LTC insurance.
“It’s an excellent starter of conversations about long term care,” Ludden says. “You can show it’s a matter of pennies for insurance versus dollars for long term care services.”
To get the conversation rolling, Ludden suggests testing clients on the costs of care in their area. “When we ask consumers what they think the cost of nursing home confinement is in their area, we find they underestimate by a lot,” she says. “Some estimate the annual expense at only $5,000 or $10,000.”
This year, Genworth has refined its study by breaking out costs for 331 regions across the U.S., from 90 in its previous studies, to provide more local cost viewpoints.
“We found people really want to know what the costs are in specific localities,” she explains. “The idea was to give a better view with more specificity so financial advisors and consumers can make better decisions about how much long term care insurance to buy. This is a way to offer consumers more control and more confidence in their decision.”
Genworth’s latest survey, released in May, pegged the annual cost of a private room in a nursing home at $74,208.
That result was in line with other LTC carriers’ cost studies conducted within the past year or so: Northwestern Mutual calculated the cost of a private nursing home room at $76,650 per year, and MetLife put the same cost at $77,380, while New York Life put that cost at $74,416.
Bringing nursing home and other LTC costs to clients’ attention is critical, Ludden says, and can lead to productive discussions built around asking clients what they would do if they had to confront a long term care event. Would they liquidate assets? Move in with their children?
“The best way to start the discussion is have both the husband and wife in the room when you ask the question,” says Ludden. “They won’t have same answer.”
The resulting conversation can be fascinating but can also expose a major clash of opinion between the two spouses, she warns.
“Many times, one or the other will have a definite plan in mind, and generally that idea is completely appalling to the other,” she says. “Once when I asked the question, the husband said his plan was to sell the family summer home in Lake Tahoe, and when the wife heard that, it turned ugly, to say the least.”
However, at the very least the resulting discussion helps assure a couple is in sync, she adds.
One industry expert cautions, however, that while LTC cost surveys can be useful for producers in presenting the need for insurance to cover the costs, they are only part of the job of selling LTC insurance.
“As the industry strives to penetrate more middle income markets where affordability of insurance is an essential element, producers need to be conscious that the worst-case scenarios, the most costly need for care, can be counterproductive to the goal of increased sales,” says Jesse Slome, executive director of the American Association for Long Term Care Insurance, Westlake Village, Calif.
A Genworth 2009 study analyzed data from more than 14,000 nursing homes, assisted living facilities, and home health and adult day health care providers to determine the cost of care across the country and in local communities.
In addition to expanding its analysis to provide a more local perspective, Genworth introduced a choice and affordability index, which ranks regions according to the number of nursing homes and their costs in proportion to each area’s population aged 65 and over.
Median costs for LTC received in recipients’ homes ranged from $38,896 to $74,208 per year, depending on the type of care needed, Genworth found. Based on its own records, Genworth found that 74% of its own initial LTC claims are for home health care.
Looking back at 5 years of survey results, Genworth notes some budding trends in LTC. While the cost of care has risen sharply among facility-based providers, cost of non-skilled care received in the home has remained relatively flat.
For example, in 2005, the average annual rate for a private nursing home room was $62,415, compared with 2009′s $74,208. This increase corresponds to a 4.3% compound annual growth rate over that time. At the same time, the monthly average rate for a one-bedroom unit within a licensed assisted-living facility increased 4.8%, apart from community fees, which are charged by around a third of all assisted living facilities surveyed.
In contrast, rates charged by home care providers for non-skilled services remained fairly flat over those five years. In 2005, for instance, the national, hourly private pay average rate charged by a non-Medicare-certified but licensed home health agency for a home health aide was $16.93. By 2009, that rate had only edged up to $18.50, for a compound annual growth rate of about 1.7% over the 5 years.
Ludden says home care rates have remained level largely because of increased competition among agencies and the wide availability of unskilled labor.
According to Genworth’s choice and affordability index, the top 10 states for nursing home care availability and choice were:
2. South Dakota
5. North Dakota
The choice and affordability index does not reflect the LTC services capacity available in a region or the quality of care, Genworth notes. The index reflects the number of LTC facilities in each region from which a consumer can choose, rather than the number of beds.