The Tax Attic with Jerry Coon — May 6, 2010

More on cost of health, nursing care

Last week, I began a discussion on the subject of the costs of health and nursing care and how we are going to pay for that cost during retirement. According to the Department of Health and Human Services, the blunt fact is that taxpayers age 65 and over have a 40% chance of enduring a stay in a nursing home. The trade group, America’s Health Insurance Plans, reports that taxpayers age 85 and over have a 55% chance of being sufficiently disabled; they will require long-term care. The average stay in a nursing home is currently 875 days or 2.4 years—55% of all people pass away within one year of being admitted, but 21% stay for more than five years. The average total time spent between home health care, assisted living, and nursing home totals to just over three years.

Jerry Coon, Enrolled Agent

These time spans and percentages have been climbing as our life expectancies have been climbing. Unfortunately, the costs of home health care, assisted living, and nursing home care have also been rising.

Currently, on a national average, home health care costs $25 per hour, unless you need certified nursing help, then the cost rises to $36 per hour. Nationally, assisted living costs $2,714 per month or $32,572 per year and nursing home care costs $204 per day or $74,806 per year. Those are astronomically high figures, especially the nursing care cost. However, here in Michigan, our costs are lower than those on the east and west coasts. In San Francisco, the daily cost is $300 or $109,500 per year and in New York, a person will pay $314 per day or $114,610 annually.

From my personal experience, I would say our costs in Michigan are closer to the national average.

We can draw at least two conclusions from these facts and figures. The first is that it’s going to be expensive if we require some form of health care, whether it is home health care, assisted living, or nursing home care. The second is that it’s almost a certainty, if we live long enough, that we will require some type of nursing care. That form of care could involve paying for home health care, paying for assisted living, or paying for skilled nursing care. The more disabled we are, the more expensive will be the care.

Once we reconcile our thinking to these two conclusions, does it then make sense to purchase some form of long-term care insurance? The alternative would be to pay for the care out of the assets we have accumulated for retirement. How long can those assets last if nursing care is required at the rate of $74,806 per year? If both of the spouses end up in a nursing home, the total is just under $150,000 per year.

Take a look at your portfolio with a critical eye. Subtract $150,000 or even $74,806 each year, and that portfolio will probably be decimated within a short period of time. At what age does it make the most sense to buy insurance? The older we get, the more expensive the premium becomes. By delaying the purchase, we do save some premium dollars. However, playing that game is tricky because, as we get older, we sometimes become uninsurable. Bad health frequently happens suddenly. How much of the cost should be covered by the insurance? The most common policies cover expenses for three years. This makes sense in light of the average stay of 2.4 years. Long-term care policies are sold by a daily amount of coverage such as $150 per day for up to three years. Most experts also recommend buying an inflation adjuster rider that will increase the coverage by 4% or 5% each year. Again, in light of the increasing costs, this rider probably makes sense. Buying a fixed $150 per day might make sense today, but 20 years from now, the cost might be $300.

Next week, I am going to analyze an actual quote that my wife, Deb, and I received for a long-term care policy. We will put some dollars and cents to this long-term care question. This is Jerry Coon signing off.

Jerry Coon is an Enrolled Agent. He owns Action Tax Service on Northland Drive in Rockford. Contact him at

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