'Spending down' for Medicaid is the most practical LTC financing plan for most Americans, researchers assert

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Forgoing long-term care insurance and relying on Medicaid is the smartest financial planning decision for the majority of unmarried Americans, according to investigators at Boston College's Center for Retirement Research.

The odds of needing long-term care likely are higher than previous research has indicated, but the average duration of care is shorter, the study authors calculated. They used monthly rather than annual figures to determine that 45% of residents are in a nursing home for three months or less, and many of these stays end in death, according to Bloomberg.

The upshot is that the 100-day Medicare benefit would cover many of these stays. Therefore, most “rational, far-sighted, well-informed” single people would be smart to avoid paying LTC insurance premiums; if faced with a worst-case scenario, the could spend down their assets until they qualify for Medicaid, the study authors stated.

The exceptions would be the wealthiest 20% to 30% of unmarried individuals, who could afford the insurance premiums and would benefit most from inheritance protection.

Forthcoming research will show that married couples need to be even wealthier before buying a long-term care policy makes sense, study author Anthony Webb, Ph.D., told Bloomberg.

The study unfairly ignores many benefits of long-term care insurance, said Jesse Slome, director of the American Association for Long-Term Care Insurance. For example, people purchase it to have home healthcare and other services that help keep people out of facilities, he told Bloomberg. He also points out that the study uses data that is not current, such as National Long Term Care Survey information from 2004.

“The LTC insurance market and the products have changed so significantly over the past few years that this report is little more than a nice exercise in walking down memory lane,” he asserted in an statement emailed to McKnight's.

Only about 13% of seniors have LTC insurance, and many insurers have scaled back or gotten out of the business entirely in recent years. Those that remain have faced many challenges, and some have dramatically raised premiums to cover unexpectedly high payouts. Genworth Financial posted an $844 million loss last week, and analysts declared its LTC business “worthless.”