Back in March, sister publication Financial Planning wrote about the potential long-term care crisis that could plague Boomers during their later years.
The story was based on a study by the Center for Retirement Research at Boston College, which found that in over 300,000 simulations, the average lifetime health care expenditure for a typical married couple at the age of 65 is $197,000. This figure covers insurance premiums, out-of-pocket costs, and home health costs. With nursing home costs included in the equation, that amount jumps to $260,000, with a 5% risk of exceeding $570,000.
Malcolm Cheung, vice president of long-term care product and risk management at Prudential Insurance, noted in an interview that fewer than 10% of American adults have any sot of long-term care insurance. Cheung argued that the penetration of LTC insurance is relatively low in part because many American adults think they can always get their long-term care paid for by the government through Medicare.
“Medicare does pay close to 50% of the long-term care bill in this country,” Cheung said. “But it’s already running out of money and it’s questionable whether or not 10 or 15 years from now, when the oldest Boomers are in their 70s and need long-term care services, Medicare programs can continue to fund at the level they have been. Plus the federal government has been tightening up on Medicare eligibility requirements.”
Cheung’s assessment from four months ago appears increasingly prescient given recent news about the state of Medicare. Specifically, a recent report in USA Today pointed to surveys by national and state medical societies showing a rise in the number of doctors limiting Medicare patients roughly six months before millions of Baby Boomers will begin to enroll in the government program.
The limitations come after Congress opted not to halt an automatic 21% cut in payments that went into effect on June 18. Doctors had already complained long before the cut that Medicare does not pay enough to cover the patient costs. According to the American Medical Association, 17% of doctors in America refuse Medicare patients, with that number increasing to 31% for primary care physicians.
But now, those numbers are expected to rise even higher. As pointed out in the USA Today report, a recent survey by the American Academy of Family Physicians found that 13% of respondents didn’t participate in Medicare in 2009, up from 8% in 2008 and 6% in 2004. Meanwhile, the American Osteopathic Association says 15% of its members do not participate in Medicare and 19% aren’t accepting new Medicare patients. With the 21% cut in Medicare cuts, the association expects both numbers to double.
What this means for advisers is that they will likely have to place even greater emphasis on discussing long-term care insurance with Boomers. It is a fairly giant leap to say that Boomers are already facing a long-term care crisis, but the recent developments with Medicare points to potential problems as they age.
“This is a crisis down the road as the demand and need for LTC increases and the dollars that are available to fund it in the public sector don’t increase at the same rate,” Cheung said. “More and more of the burden is going to be placed on the individual.”