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Health Cost Paradox

Being healthy could cost you in the long run, so consider the pros and cons of long-term care insurance

I was feeling pretty good last night when I came home from my hour-and-a-half yoga class, very centered and self-congratulatory about taking care of myself.

It turns out, though, maybe I would have been better off somewhere smoking and playing video games.

The Center for Retirement Research at Boston College, which spends a lot of time worrying about our financial futures, sent out an intriguing piece of research this month, titled “Does Staying Healthy Reduce Your Lifetime Health Care Costs?” The answer, counterintuitively, is no. But as with many things that seem counterintuitive at first, the explanation makes perfect sense once you’ve heard it.

The problem with those darned healthy people is that they live longer, thereby incurring higher lifetime health care costs. Excuse me while I grab a hot dog, cheese fries and a beer.

“Our main finding is that although the current health care costs of healthy retirees are lower than those of the unhealthy, the healthy actually face higher total health care costs over their remaining lifetime,” wrote researchers Wei Sun, Anthony Webb and Natalia Zhivan.

Take a couple who turned 65 last year in which one or both spouses suffer from a chronic disease. Over their remaining lifetimes, they can expect to spend about $220,000 for health care in today’s dollars, including insurance premiums and the cost of nursing home care. An unlucky 5 percent can expect to spend more than $465,000.

But it could be worse. They could both be healthy and free from chronic disease at age 65. That raises the stakes to $260,000 and $570,000 respectively.

The lesson that the three researchers take from this is that relatively healthy people shouldn’t delay purchasing insurance until their health declines, because if they do, their premiums will be higher, and they may not be able to buy long-term care insurance at all. In other words, buy medigap insurance when you first become eligible for Medicare and buy long-term care insurance before you get so sick that insurance companies won’t want you.

Do you need long-term care insurance?

As someone who has to make a decision on buying medigap insurance this year, I’m persuaded that it pays to get it. But I’m not convinced that everyone needs long-term care insurance.

Long-term care insurance covers people who need help with some of the basic activities of daily living, such as bathing and changing clothes. Whether that care is delivered in a nursing home, an assisted living facility or by home health care aides depends on the policy.

And the care can be expensive. In 2009, a MetLife Mature Market Institute survey found that the cost of a private room in a nursing home was $219 daily or $79,935 annually.

For people with a moderate amount of savings or income, long-term care insurance makes sense. For those who have a lot of money or very little, it may not. Low-income retirees may be eligible for Medicaid, which will pay the bills. And higher income retirees may be able to put aside enough money to cover several years of care.

My mother and father struggled to raise five children on a teacher’s and a machinist’s salary. But Mother approached the end of her life with lots of money, thanks to my dad’s investing. She was able to cover the very expensive cost of her care in her last couple of years of life before her death at age 96. While my sisters and I had more than enough stress about other things in those years, we never had to worry about where the money for Mother was coming from.

Had she purchased long-term care insurance at age 65, she would have spent a fortune in premiums, even at a lower rate, by the time she needed it, starting around age 94.

Long-term care policies make sense if you are “concerned about spending down your resources,” said Christopher P. Covill, a partner at the Mercer consulting firm. The problem is, you don’t know what your health needs will be or how much they will cost. Covill said that long-term care policies typically offset costs but don’t fully cover them.

Questions to ask

If you think long-term care insurance is a good idea for you, shop around. Some of the issues to check out include whether a policy is inflation-adjusted so that payouts will rise over time; how flexible it is about where services are delivered; how good the company’s credit rating is (this will give you an idea of how likely the company is to be around when you need it); and what happens if you miss a premium payment.

Some policies offer a partial return of premiums if the benefits are not used. While features like that may make policies more attractive, Covill said that few people buy any kind of long-term care. When employers offer long-term care policies, usually on better terms than are available on the open market, fewer than 10 percent of employees opt for the benefit, he said.

That’s because buying long-term care insurance means facing mortality, your own, Covill said. “I think you need it, Martha, but I don’t. I’m going to die on a beach, running,” he joked.

Just remember: In the long term, we’re all dead, but in the longer term, it’s more expensive.

Martha M. Hamilton writes a regular column for the AARP Bulletin on retirement and financial issues.

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