Michael Hurd doesn't have a long-term-care insurance policy, but he does have something likely to prove valuable in his old age — two daughters.
Few Americans assign a dollar amount to the worth of their children — they are without price. But as lead author of a new study looking at nursing home cost and use, Hurd can quantify the value that daughters, and children in general, bring to parents facing one of life's most dreaded prospects: a stay in a nursing home.
First the good news. The median stay in a nursing home was 10 days, and the amount a 57-year-old needed to set aside to cover average lifetime out-of-pocket spending on nursing home care was $7,344, according to the study. Hurd is senior principal researcher and director at the RAND Center for the Study of Aging.
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That's not nothing, but it's also not the six-figure amounts often mentioned, which will prove accurate for some people, particularly in cases of dementia.
Hurd's average assumes the $7,344 pot grows by an inflation-adjusted, or real, 3 percent until it is needed some 20 years down the line. To be extremely conservative, assume a zero return, and the amount that 57-year-old needs to set aside is more like $18,000. For someone with kids, both time spent in a nursing home and out-of-pocket costs are significantly lower than for those without children. The childless would need to put aside an average of $8,943 at age 57, compared to $6,094 for someone with daughters.
Hurd and his co-authors used data from the Health and Retirement Study (HRS), a longitudinal project sponsored by the National Institute on Aging and the Social Security Administration. It's a nationally representative survey-based study focused on Americans over 50. It involves interviewing 20,000 people in each of a set of older age cohorts every two years. The RAND study followed a core cohort of people born between 1919 and 1923, with the survivors reaching age 87 to 91 in 2010.
The study found that Americans between 57 and 61 had a 56 percent chance of having a nursing home stay of at least one day, higher than in some previous studies. That's likely due in part to hospitals discharging people faster than in the past, and to a rise in stays in post-hospitalization rehabilitation centers. As long as someone has been in the hospital for three days, Medicare fully covers the cost of post-hospitalization rehab for up to 20 days, and then pays part of the cost for stays of up to 100 days. The bad news: The averages on cost and nights spent in a nursing home are skewed by some huge numbers for a small percentage of people. Those who fall into that unhappy camp would need to save about $47,000 at 57 to cover the costs, assuming a long-term return of 3 percent on that money. Assume zero growth and the amount they'd need to save swells to $115,000.
Having children doesn't affect the odds of having a nursing home stay, but kids tend to delay the entry of a parent into a nursing home or help a parent transition out of one faster. People with four or more kids spend about 38 percent less in nursing home costs than those without children, the study found, and having daughters brought the costs down further. Those with one to three children also paid significantly less than those without children. The average number of days in a nursing home (not necessarily consecutive days) was 272. That number is skewed by some horrendously long stays for a small percentage of the population — people in the study had a 10 percent chance of spending three or more years in a nursing home, and a 5 percent chance of spending more than four years in a facility.
"People who have been middle class their whole lives may find themselves on Medicaid."
All that said, only 32 percent of people who had nursing homes stays had out-of-pocket costs. Medicaid is "an extremely important insurance program for the great majority of people in advanced old age," Hurd said. "The very rich won't go on Medicaid, and those that don't go into nursing home won't go on Medicaid. But people who have been middle class their whole lives may find themselves on Medicaid at some point."
The costs are greater than average for women, who live longer and often go into nursing homes as widows. Men spend less time in nursing homes, at a lower cost, because their wives were there to care for them; most die married. The lifetime risk of a nursing home stay for a woman is 64 percent, compared to 51 percent for men. Out-of-pocket costs and nights spent in nursing homes are double those of men.
Not everyone will need to enter a nursing home. The half or so of the population that never has a stay "will waste or bequeath that money, and the other half will need about twice that much," Hurd said.
But Americans are having fewer children, he noted, so while "people in their 80s were parents of boomers, and have more kids to take care of them, in the future we can expect to see increasing out-of-pocket spending and nights in nursing homes."
