Why Mark Pauly Decided Against Long-Term Care Insurance
In a New York Times article about the weak sales of long-term care insurance, seventy-four year old University of Pennsylvania Wharton School professor Mark Pauly looked at the subject as both a potential purchaser and economist.
On both counts, he said he decided against purchasing a long-term care policy. He also noted humorously that some people may do the same thing because they fear owning such a policy would make it "too easy for kids to put them in a nursing home."
Little consumer interest
Pauly, PhD, a nationally renowned health economist and Senior Fellow at Penn's Leonard Davis Institute of Health Economics (LDI), was one of a number of insurance authorities interviewed by the Times for its article about the insurance most members of a rapidly aging population may ultimately need but few are inclined to buy.
In Pauly's personal case, he elected to "self-insure" by methodically building his savings and investments in annuities and other funds to cover the potential need for long-term medical care. The Times' piece indicates the hesitation to purchase such insurance is a common one that has resulted in sales of only about 110,000 policies in 2015 compared to 750,000 policies in 2002.
High costs, limited benefits
The article's authorities cite a number of trends that caused this precipitous decline, including inaccurate actuarial assumptions, consistently low interest rates that reduced insurers' return on investments, high policy costs, limited benefits of the actual coverage, and other complications related to a product that is not used until decades after it is purchased.
The issue of long-term care is a major one for large numbers of Baby Boomers who have little or no savings and are not fully aware that the average annual cost of a semiprivate nursing home room is currently more than $80,000.
The article notes that a mistake many of those boomers are making is assuming that Medicaid can be used to cover some nursing home costs. It can, but only after the patient can prove to Medicaid auditors that he or she is the equivalent of financially destitute.