Monday, September 22, 2008

You Think Tuition is Costly?

Today seems to be "Consider the Elders" day for posting purposes. My first post of the day pointed out that any discussion of the financial arrangements of Klal has to discuss the costs that are going to be incurred by the older generations. Consider some of the costs mentioned below:

"On average, U.S. nursing homes now charge $54,900 a year, and this could reach as high as $190,000 by 2030, when the last of the boomers reach age 65."

"The five costliest areas are Alaska, New York City, Connecticut, New York state, and Washington DC, with costs ranging from $88,000 to $106,500 per year, according to a new study by GE Long Term Care Insurance."

"“Nursing-home costs have been rising 5 percent or more a year, outpacing inflation,” said Herb Perone, spokesman for the American Council of Life Insurers."

"The American Council of Life Insurers estimates that one out of every three men who live beyond 65 will require nursing-home care, compared to one out of two women. Medicare will only cover short periods of nursing-home care after a hospital stay, for example, if a patient needs therapy to recover from an accident."

"Financial planners are now urging more Americans, especially those in their 50s,- to take a hard look at their financial situation and determine if taking out long-term care insurance should be part of their overall retirement-planning strategy."

Average Cost of Care for New York Long Term Care Nursing Homes, New York Home Health Care, & New York Assisted Living Facilities for 2007
The table below shows the average New York long term care costs in three different types of long term care facilities: home health care, assisted living facilities, and New York nursing home facilities. People usually use more than one form of long term care. Actual costs for future years will be substantially higher due to inflation.

Costs of Long Term Care in New York, NY
Annual Costs

New York Home Health Care(avg hourly rate)
$ 17.82
$ 23,166.00 *

New York Assisted Living(avg monthly rate)
$ 3,696.66
$ 44,359.92

New York Nursing Home(avg daily rate)
$ 269.00
$ 98,185.00
(*The New York Home Health Care costs have been computed using the defaults of 5 hours per visit and 5 visits per week depicting a typical scenario.)

Note: 24/7 in-home care costs substantially more than the 25 hour per week costs that are shown here.

Note: Residents of assisted living facilities and nursing homes who require that medications be administered and/or monitored by someone other than the resident can charge residents a nurse administrator fee running anywhere from $400 per week to $100 per day in addition to the regular charge for residence.

Note: Medicaid does not cover long term care, nor does it cover hospice care. The charge for a long term care policy can start in the $6000 per person, per year range for someone in their 50s and will go substantially higher as you get older. My mother, in her 80s, pays about $12,000 for this policy per year.

The costs above are a per person cost. Should a couple need such care, well you do the math. Even if, as many who track the expenses involved in this type of care say, the average stay in a nursing home or assisted living facility runs from 2-6 years you are talking $88,000 to $1,200,000 for that time period, depending on the age of the person and the projected rise in costs. Double the costs for two people.

I was not kidding around when I said that Klal has some serious discussing to do about financial issues that aren't about tuition costs.


Anonymous said...

Your figures are a good place to start but they are not the total cost. Nursing home residents whose needs cannot "reasonably" be handled by the nursing staff as part of their regular duties are going to be told that they need to hire private duty aides or nurses. A private duty nurse in NYC will run you about $70K plus per year. And good luck getting your insurance to cover their cost.

Lion of Zion said...

how about an occasional post to make us smile?

Anonymous said...

1) Medicaid does cover long-term care, but you have to spend through your assets to qualify. Medicare does not cover long term care.

2)One should consider buying insurance. One should also consider just setting aside sufficient funds to cover it, as the premiums are high, and some of the policies have limits and restrictions that people have found problematic when they have tried to collect. If you take the $6000 /yr premium for a 50 year old and invest it for 30 years, you will have money to cover a nursing home for a few years by the time you are 80. There are plusses and minuses to this--you can out live your money this way, but on the other hand, you are not depending on an insurance company to be solvent 30 years from now, you have more control over where and how you spend the money, and your estate has that money if you don't need nursing home care.

3) Most medical policies (including medicare) will pay for limited time in a nursing home for rehabilitation following illness or surgery.

Anonymous said...

Some employers offer group long term care as a benefit - the cost is highly likely to be lower than for an individual policy.

ProfK said...

You're correct Tesyaa, and my husband's company does offer this as a benefit, saving us a lot of money now. But there is a catch. When an employee retires, no matter what the age, they can continue the insurance but will pay a much higher cost for it. If my husband retired at 62 let's say, then the cost of that insurance for the two of us would suddenly start costing us $7,000 each per year. We have the same option on the regular health insurance, only that would cost us at retirement $12,000 a year for the two of us. The catch is that after retirement you are not drawing a salary and have no salary income, only investment income. Those two insurances would run us $26,000 a year on a fixed income. So yes, a savings now and a small fortune later.

Anonymous said...

And some people may consider an early exit.

The day I need a Nursing Home, is the day my life is over.

Anonymous said...

ProfK: as a side point, all the financial planning professionals recommending NOT retiring at 62 because of the reduction in Social Security benefits, among other reasons.

BTW, my father was forced to take early retirement at age about 60 (25 years ago) and until the last few years he spent much of his time trying to drum up consulting work for himself -- not so much for financial need but for boredom reasons.

ProfK said...

Again you are correct, but only if you retire and take social security at that age. You aren't required to touch your social security benefits, if "required" is the right word, until way later. My husband's company makes it possible for its employees to retire earlier but not have to touch social security because they have a deferred salary option. The amount of salary deferred does not become available to you until you retire from the company, at which point the total amount is divided into 5 and paid out over five years. For someone retiring at 62 that would mean a salary still coming in through 67 while still being retired. If you retire first at 65 then the salary would be there until 70, when social security payments are much higher.

The deferred salary, if you can swing it financially, is one way to save for retirement and up your social security payments. More people ought to be asking their employers to offer that option.