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Is CPI Inflation Adequate?

You will definitely want to pick up Prudential’s 2010 Long-Term Care Cost Study, which measures trends in costs associated with the major forms of long-term care services.

I’ve seen the cost of care increase an average of 5-6% compounded annually between the year I entered the LTCI business (1988) and present. When the CPI inflation option came on the market in 2006, my research showed that from 1913 - 2006, the average CPI increase is about 3.5%, so I’ve never been comfortable with it, unless you make the starting benefit significantly higher (e.g. $7500 monthly benefit vs. $4800). Urban CPI doesn’t keep up with LTC costs, and this year’s report from Prudential really underlines this thinking. Take a look:

"Consumer misperceptions continue to exist about long-term care services and coverage options," said Malcolm Cheung, vice president, Prudential Long-term Care Insurance. "Of those surveyed 25 percent said they had no idea what a day in a nursing home costs and more than a third continue to believe private health insurance and Medicare will cover their future extended care costs."

Increases in long-term care costs slowed somewhat since 2006. However, from 2004 to 2010 the compound annual growth rate averaged six percent according to Prudential's report. By comparison, the consumer price index increased at a rate of just 2.5 percent during this same period, emphasizing the importance of choosing the appropriate type of inflation protection when purchasing long-term care insurance.

The study found that home health care costs grew by 13 percent since 2008 largely due to a 17 percent increase in costs to $54 per hour for Licensed Practical Nurses, which represents only about one-quarter of home service usage. The national average cost for a Home Health Aide or Certified Nursing Assistant remained flat at $21 per hour. Assisted living facilities saw the smallest increase with the average annual cost for a room rising only 2 percent in the last 2 years, compared to a 13 percent increase in the prior two-year period. The average daily cost for a private nursing home room in 2010 is $247, or $90,155 annually, a 14 percent increase since 2008.

The CLASS Act contains the urban CPI inflation method.

Thanks to the September 22, 2010 LTC E-Alert from the Center for Long-Term Care Reform (www.centerltc.com) for compiling this information. Please support this organization as its founder, Steve Moses, has worked tirelessly for three decades to pave the way for a sound long-term care insurance market. I simply could not do without the daily e-alerts.

Phyllis Shelton 11/27/10


LTC Consultants provides long-term care insurance training to agents and educates consumers with information about long term care insurance. This website contains reports and articles about caregiving, assisted living, nursing homes, aging, senior living and elder care, home health care and other long-term care related articles. Order Phyllis Shelton’s Protecting Your Family with Long-Term Care Insurance with articles about whether or not to self-insure or buy combo life insurance and annuity policies or a traditional LTC insurance plan. The book also contains ideas for people who don't qualify for LTC insurance such as Medicaid, life settlements, reverse mortgages, critical illness and also contains in-depth information about Medicare, Medicare Advantage and Medicare Supplements.


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