Advantages of Long Term Care Insurance Page 4

Third, the rising cost of long- term care presents special problems. The price of nursing home and home care is likely to rise faster than general inflation. Over the thirty or more years during which people might provide for their long- term care needs, the real cost increases can accumulate to very large sums. That cumulative cost increase not only raises the amount that people of working age have to save to provide reasonable protection in old age; it also magnifies the financial risks for both the user and the supplier of insurance. If the long- term care insurance provides only a fixed dollar benefit (for example, $50-aday in a nursing home), the buyer is at risk for the unplanned inflation in the cost of care. If nursing home fees increase 5.8 percent a year, a $50-a-day indemnity payment needs to grow to more than $271 a day to maintain its purchasing power after thirty years. If the insurance provides a service benefit (that is, the actual cost of care minus any cost-sharing), the insurance company or the government is uncertain how much should be charged for premiums or taxes to cover expenses in future years.

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