BUSI 687 Week 4 DB Forum 3 Example

Discussion Board Forum 3: Thread and Replies

BUSI 687 Insurance & Risk Management, Discussion Board Forum 3 (thread and two replies)

Thread by [Student Name]

The forum topic, the couple and the classmates are composites standing in for the course's own; the cost figures come from the 2024 Cost of Care Survey released by Genworth and CareScout, and the textbook and research cited are real; the requirements follow Liberty's public course guide for BUSI 687.

Thread

The topic presents a composite couple, both 55, with $900,000 in retirement savings, a paid-off house and two adult children. They ask whether long-term care insurance is worth its cost. National data show what is at stake. Nationally, the 2024 Cost of Care Survey found that a year in a private nursing home room had a median price of $127,750, a shared room $111,325 and a home health aide's help $77,792 (Genworth Financial & CareScout, 2025). Three years in a private room at today's median would cost about $383,000, before the increases of 7 to 9 percent that nursing home costs showed over the prior year.

For this couple, one spouse's extended care could consume close to half of their savings, leaving the other spouse with far less. That is the high-severity, low-frequency exposure insurance is meant for. Dalton et al. (2018) describe the policy features a planner can adjust: the daily or monthly benefit, the benefit period, the elimination period before benefits begin and inflation protection. Adjusting them lets a couple buy partial protection at a premium they can sustain.

Why do so few people buy coverage? Brown and Finkelstein (2007) traced the small market to Medicaid, which covers long-term care only after a person's own money is largely gone and substantially lowers the value of private insurance, because for people with modest wealth, private coverage mainly protects assets Medicaid would otherwise require them to spend. They found this effect could explain the lack of coverage across much of the wealth distribution. For a couple with $900,000, however, Medicaid offers little protection until most of that wealth is gone, so private insurance has real value. Insurance is worth most to the people who have the most to lose before the public safety net begins.

My grandmother needed care for three years after a stroke. My parents and her savings covered most of it, and by the end her house had been sold to pay the nursing home. She did not have a policy, and no one had discussed one with her.

I would recommend a shared-benefit policy for the couple, with a pool of about three years of benefits each that either spouse can draw on, a monthly benefit of around $6,000, a 90-day elimination period and 3 percent compound inflation protection. Their savings can cover the elimination period and any cost above the benefit. They should buy soon, since premiums rise with age and health can change.

Reply to Lauren

Lauren, you advised the couple against long-term care insurance because insurers have raised premiums on existing policies sharply in recent years, and you shared that your aunt's premium doubled. That is a fair concern; older policies were priced on assumptions about lapses, interest rates and claims that proved too optimistic, and policyholders paid the difference. But the risk of rising premiums is different from the risk the policy covers. A private nursing home room cost a median $127,750 a year nationally in 2024 (Genworth Financial & CareScout, 2025), so a few years of care could cost more than a lifetime of premiums even after an increase. Dalton et al. (2018) describe ways to manage the premium risk: a shorter benefit period or a smaller monthly benefit can lower the premium, and some policies let insureds reduce benefits instead of paying a higher premium when a rate increase is approved. Brown and Finkelstein (2007) also explain that for wealthier households, Medicaid provides little protection until assets are spent, which is why this couple stands to lose more by going without coverage than a household with modest savings would. Your aunt's experience is a reason to choose a policy with flexible benefit options, not to give up coverage entirely. It is also a reason to buy from an insurer with a strong rating and a long record in this line, since the companies that raised rates most were often those that had underpriced their policies to win market share. Did your aunt have the option to reduce her benefit instead of paying the full increase, and would that have changed her decision to keep the policy?

Reply to Marcus

Marcus, your thread proposed that the couple self-insure by setting aside $300,000 of their savings as a dedicated care fund. That is a legitimate strategy, and Dalton et al. (2018) recognize retention as an appropriate treatment when a client can absorb a loss. Earmarking the money also has a practical advantage: it keeps the couple from spending it on other goals. The question is whether $300,000 is enough. At 2024's national median price for a private room, $127,750 a year (Genworth Financial & CareScout, 2025), the fund would cover a little over two years for one spouse at current prices, and costs have been rising, with private rooms up 9 percent from the prior year. If both spouses need care, or one needs it for five years, the fund runs out and the rest comes from their remaining savings. Brown and Finkelstein (2007) explain that Medicaid only steps in after most assets are gone, so the couple's safety net would arrive late. I would suggest combining your plan with a modest policy: keep the dedicated fund, but buy coverage with a long elimination period, such as 180 days, and a two- or three-year benefit pool. The fund would pay for the first months and any costs above the benefit, while insurance would protect against the long-duration cases that self-insurance handles worst. That hybrid would cost less than a full policy and still close the gap your plan leaves. Your instinct to keep control of the money is sound, and the hybrid preserves most of it. Would the couple accept a smaller earmarked fund if part of the risk were insured?

References

Brown, J. R., & Finkelstein, A. (2007). Why is the market for long-term care insurance so small? Journal of Public Economics, 91(10), 1967-1991. https://doi.org/10.1016/j.jpubeco.2007.02.010

Dalton, M. A., Dalton, J. F., & Langdon, T. P. (2018). Insurance planning. Money Education.

Genworth Financial & CareScout. (2025). Genworth and CareScout release cost of care survey results for 2024 [Press release]. https://investor.genworth.com/news-events/press-releases/detail/982/