“Most single individuals should not buy [long-term care] insurance given the availability of Medicaid.”
This is what the Center for Retirement Research at Boston College (CRR) wrote in a new research brief. A study from the organization looked not only the chances of needing nursing home care after age 65, but also the average duration of that care. The CRR found that previous research understated the probability of ever needing care, while also overstating the average duration of nursing home care.
The response from the long-term care industry was swift and blunt. A Bloomberg article published this morning quoted the executive director of the American Association for Long-Term Care Insurance as calling the new study “irrelevant.” His reasoning, according to Bloomberg, was that most people take long-term care policies because “they want to remain in their own home.”
I’d counter-argue that the CCR’s brief gives interesting insight and its findings should be taken into consideration. Long-term care insurance helps cover the costs of assistance with daily living activities, but premiums have been rising and policies need to be chosen very wisely. Lifestyle and genetics play a role in what type of coverage you may need. An Alzheimer’s disease diagnosis, or another debilitating ailment, could result in a lengthy period of needed assistance. If this occurs, your assets could be drained, leaving you with nothing to pass onto your family. On the other hand, long-term care insurance is use it or lose it; if you aren’t able to utilize the policy’s benefits, you will be out the money you paid for the coverage.
Given this conundrum, here is a summary of what the CCR said it in its brief.
Only 13% of single individuals buy long-term care insurance. This low rate of adoption exists despite the large potential costs of long-term care. The CRR says that a semi-private room in a nursing home cost $81,030 in 2012, while home health care averaged $21 per hour. Medicare only picks up some of these costs. Medicaid will cover much of the cost, but only after a person’s assets have dwindled enough so that he or she passes the means test.
Only 44% of men and 58% of women will ever use nursing home care. Among those who do use nursing care, 50% of men and 39% of women will not have a stay exceeding three months. Many of these short stays may be covered, at least in part, by Medicare.
Given this, and the backstop of Medicaid picking up the costs after a person's assets have been exhausted (“the Medicaid crowd-out”), the CRR concluded that an informed, rational person would not buy long-term care insurance.
Since medical costs are a wildcard, it is very difficult to accurately plan for them. One thing you can do to help plan for potential outcomes is to periodically have your memory and cognition skills tested. Because cognitive impairment alters your view of what normal is, you may not realize that you are being adversely affected. The Ohio State University has a Self-Administered Gerocognitive Exam, or “SAGE” for short, designed to test how well your brain is working. You can take the test and bring it into your physician for review. Even if you don’t have any problems, taking the test on an annual basis can provide a benchmark to measure your future skills and abilities against.
- Long-Term Care of Your Personal Finances – Christine Fahlund, formerly with T. Rowe Price, explained why she thought long-term care insurance should be purchased.
- A Primer on Insurance Products – Insurance expert Peter Katt said long-term care insurance can be a bargain, though there are cautionary issues to be aware of.
- Why Did or Why Didn’t You Buy a Long-Term Care Policy? – Tell us on the AAII.com Discussion Boards.
About 25 members of the S&P 500 will report earnings next week. Included in this group are Dow Jones industrial average component The Home Depot (HD) on Tuesday, and fellow retailers Target (TGT) and Lowe’s Companies (LOW) on Wednesday.
October industrial production and the November Empire State manufacturing survey will be released on Monday, both leading off the economic calendar. Tuesday will feature the October Producer Price Index (PPI) and the National Association of Home Builders’ November housing market index. October housing starts and building permits and the minutes from the last Federal Open Market Committee meeting will be released on Wednesday. Thursday will feature the October Consumer Price Index, the November Philadelphia Federal Reserve survey, October existing home sales and the November PMI manufacturing index flash.
November option contracts will expire on Friday.
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- How Much Small Cap Should Be in Your Portfolio?
- Weight by Fundamentals, Not by Price
Optimism about the short-term direction of the stock market spiked to a four-year high in the latest AAII Sentiment Survey. Pessimism rebounded off of last week’s nine-year low, while neutral sentiment plunged.
Bullish sentiment, expectations that stock prices will rise over the next six months, jumped 5.2 percentage points to 57.9%. This is the largest amount of optimism registered by our survey since December 23, 2010 (63.3%). It is also the sixth consecutive week and the 13th out of the past 14 weeks with bullish sentiment above its historical average of 39.0%.
Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, plunged 9.5 percentage points to 22.8%. Neutral sentiment was last lower on March 14, 2013 (22.6%). The historical average is 30.5%.
Bearish sentiment, expectations that stock prices will fall over the next six months, rebounded by 4.3 percentage points to 19.3%. This is the fourth consecutive week and the 37th week this year with pessimism below its historical average of 30.5%.
Optimism has only been higher on 57 occasions during the nearly 28-year history of our survey. The six-month return for the S&P 500 following those readings was an average of 0.0% and a median of 0.5%. This is not surprising given that unusually high levels of bullish sentiment and unusually low levels of bearish sentiment (pessimism more than one standard deviation below its historical average for the second consecutive week) have tended to be followed by below-average six- and 12-month gains, as I explained in the June 2014 AAII Journal.
Individual investors continue to react positively to the market’s rebound from its mid-October lows. Also contributing to the level of optimism are earnings growth, the Federal Reserve’s ending of its bond purchasing program, falling energy prices and sustained economic expansion. Some AAII members may also be reacting to the outcome of the midterm elections. Keeping other AAII members cautious are geopolitical events, a sense that prevailing valuations are too high, the pace of economic growth and worries that a larger drop in stock prices is forthcoming. It is unclear what, if any, impact the midterm elections had on investor sentiment.
This week’s special question asked AAII members what, if any, global events are influencing their six-month outlook for stocks. Responses varied, with several members listing more than one event. Russia’s intervention with Ukraine was cited by 17% of respondents. About 14% of respondents said events in the Middle East, particularly those involving the Islamic State group, were influencing their outlook. An equal number say both global and U.S. monetary policy, including stimulus programs in Japan and in Europe, are impacting their outlook. The midterm elections and the forthcoming change in Senate leadership was listed by 12% of respondents. About 11% mentioned the U.S. economy, either in terms of its recovery or its relative strength compared to the rest of the world. A similar percentage said they were encouraged by the drop in oil prices, though some said they would be concerned if prices fell too low. Just 6% of respondents discussed Ebola, with some seeing progress in containing it and others expressing concern about the outbreak spreading.
Bullish: 57.9%, up 5.2 points
Neutral: 22.8%, down 9.5 points
Bearish: 19.3%, up 4.3 points
Bullish: 39.0%
Neutral: 30.5%
Bearish: 30.5%
Local Chapter Meetings
November 6, 2014 Are Simpler Stock Strategies Better?
October 30, 2014 I Rebalanced My Portfolio
October 23, 2014 The SEC Says “No!” to Next-Generation ETFs
October 16, 2014 The Markets Had Been Calm Until Recently
