- The Washington Times - Monday, April 13, 2009

DES MOINES, Iowa | The high cost of long-term health care will drag down the quality of life for nearly two-thirds of today’s retirees. It can cost $77,000 a year for a nursing-home room and $20,000 for in-home care, expenses that many people are ill prepared to absorb, said the Center for Retirement Research at Boston College.

An analysis shows that when the cost of health care and long-term care is included, 64 percent of retirees likely will be unable to maintain the lifestyle they had before retirement.

“This is the number one issue staring us in the face over the next decade,” said Paul Ballew, a senior vice president at Nationwide Mutual Insurance Co., which provided a grant to fund the study.

The cost of health care will create such an unexpected hardship on unprepared retiring baby boomers that it’s imperative to sound the warning now, said Alicia Munnell, director of the Center for Retirement Research.

The stock market collapse that has whacked retirement savings for millions of workers has focused attention on how poorly people are prepared for retirement expenses, she said.

Ms. Munnell said she has been concerned for years about the impending retirement crisis caused by a combination of problems. They include inadequate personal savings, a Social Security system that likely will fail to provide current levels of support, and rapidly rising health care costs.

Health care costs rose nearly 7 percent last year after totaling $2.4 trillion in 2007, about $7,900 per person, says the nonprofit National Coalition on Health Care.

“My thought was that nothing was going to happen until the first generation of people retired without enough money and congressmen would see their parents living on just too little and people would be motivated to do something,” she said. “The financial crisis really accelerated that process.”

The study illustrates the harsh reality that the combination of spending too much, borrowing excessively and saving too little has left a generation unprepared for retirement, Mr. Ballew said.

“We’ve had a 20-year run of very aggressive consumption and a nice 20-year run of high levels of indebtedness, and now we’re faced with a period where there’s going to have to be some behavioral changes,” he said. “We’re now staring into a decade or two where we have to see restraint from consumption to derive savings.”

Options for paying for such health care include relying on Medicaid, buying long-term-care insurance, selling the family home when long-term care is needed or tapping into the value of the home through a reverse mortgage.

Medicaid is the most likely option for the poorest retirees, Ms. Munnell said. Although in some cases, these people may be able to extract some of the value of their home to help pay costs.

People with higher incomes likely would prefer to buy insurance that can cost about $3,500 a year if acquired at age 65. Delaying the purchase increases the price. By age 75, a policy could cost about $600 a month, Ms. Munnell said.

About 48 percent of long-term care recipients and their families pay long-term care costs out of their own pockets, says the American Council of Life Insurers. About 41 percent qualify for Medicaid. Another 8 percent are getting temporary coverage provided by Medicare, and 3 percent are paying with private long-term-care insurance.

Several factors may play into why so few people buy long-term-care insurance. They include the cost and the fact that an insurance industry study found that 20 percent of applicants are denied coverage because of poor health.

Stand-alone long-term-care insurance policies vary greatly in their features. Some have caps on how much they pay and limits on the length of service, and they may not be fully adjusted for inflation, Ms. Munnell said.

In the past few years, the industry has developed other options, including life insurance policies and fixed annuities that carry long-term health care riders. Those products cost more than straight insurance polices but offer guaranteed payout to beneficiaries upon death in addition to providing long-term health care coverage if it’s needed.

Long-term care for some means in-home assistance with shopping, cooking, housework and other basic duties, but for others it could mean a stay in a nursing home.

Estimates indicate that one-third of people age 65 today will need to enter a nursing home for at least three months. Some will need to stay for a prolonged period of time.

The costs are high. Hiring a home health aide for four hours a day, five days a week costs nearly $20,000 a year. The cost of care in a private nursing home is $77,000.

Overall, long-term care costs exceed $100 billion a year, says the Centers for Medicare and Medicaid.

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