A recent Washington Post article stated what Long Term Care (LTC) planners have known for some time, that it’s difficult to find sufficient caregivers to staff nursing homes, assisted living facilities, and home care agencies. What happens to wages in any industry when sufficient employees cannot be found? Correct, wages rise.
This situation is already causing problems. A study done December of 2012 found a fivefold increase of help wanted advertisements in the LTC caregiving industry over just a year earlier. Who wants to do this work for minimum wage? Only those who really like this type of work. The hours can be long, lifting can cause or aggravate back injuries, and benefits are scarce.
10,000 baby boomers are turning 65 on average every day in America, and this will continue for 18-19 more years. They are a flood coming in to Medicare health insurance now, and many will need LTC in the future. The costs of LTC services have been increasing at an average of 5% to 6% annually over the past 20 years. Costs are likely to increase even faster with less and less people seeking such employment.
LTC insurance has a feature which makes the daily or monthly benefit increase each year to keep up with rising costs. I personally have never written such coverage without the automatic 5% compound increase feature. Some companies are now suggesting that agents offer the 3% compound increase instead (or even worse, simple interest) to make their policy less expensive and easier to sell. The problem with this is that many people will not need to use their policies for 20-40 years. How will they fare?
If a 50 year old purchases a $4000 a month LTC insurance benefit with a 5% compound inflation rider, 40 years later that policy will pay benefits of $28,160 a month. With a 5% simple interest the same person would have only $12,000 a month benefit in 40 years. With 3% compound the benefit is $13,050 in 40 years and at 3% simple interest only $8,800 a month is available in 40 years. Will the shortfall come from a monthly Social Security check?
If these numbers seem quite large, just think back to what gasoline cost 40 years ago. Going back just a few more than 40 years, a 1977 Ford Maverick automobile retailed for $1995 with a 6 cylinder engine and automatic transmission. Yes, we have had inflation and we will continue to have inflation. Compound that with a shortage of workers to do the caregiving and a government struggling to meet the demands of Social Security and Medicare (let alone Medicaid for LTC), and I see trouble.
Every year one waits to purchase LTC insurance means a larger benefit must be purchased. Once you own a policy, it will get larger automatically to keep up as costs rise. Why would someone wait to purchase LTC insurance? Perhaps they are waiting for their health to get better? The time to investigate is when you are still healthy enough to qualify. Call TheLongTermCareGuy.com at (920) 884-3030 or (800) 219-9203 to investigate.