Why You Could Die Broke, Lonely and Miserable

NEW YORK (TheStreet) -- While health insurance is controversial, the product is not broken.

Long-term care insurance is broken.

Long-term care insurance works something like Social Security. Young workers pay; old workers collect.

But as the costs of long-term care have skyrocketed, and as America has continued to age, the numbers no longer add up.

Operating costs are rising, and longer life spans mean people are spending more time in increasingly expensive acute-care facilities.

A recent cost of care study from Genworth Financial (GNW) offers a good summary.

It now costs $3,500 per month to keep someone in an assisted living facility. A nursing home, which offers more care, costs even more. Half of those aged 65 or older will need such care at some point, notes LTC Tree.

Middle-class people can't bear these costs. We can't even plan for them.

I have had disability coverage since I started working 35 years ago. The premium is $33.85 per month. The roughly $14,000 I've paid out for coverage over that time would pay for just a few months of nursing home care.

Knowing how bad the numbers are, many large insurance carriers have exited this area.

MetLife (MET) decided to get out of offering such policies in 2010Prudential (PRU) chose to stop selling individual policies in 2012, the same year as UNUM Group (UNM).

The remaining players, such as Genworth, call it a "challenge business." They have been raising premiums, sometimes by as much as 90% in one year.

They have also been limiting benefits, and pushing state governments to extend coverage for longer-term care.

In practical terms, this means someone with long-term care insurance will get a few months of care when he needs it. Then he'll have to rely on Medicare, but because Medicare can't cover the full costs of such care, this person will start spending his estate to make up the difference. Once he exhausts his estate, he'll be left at the mercy of government through the Medicaid program.

If you or a loved one has faced long-term nursing home care, you already know this. My good friend Martin Bayne, who has been in care for more than a decade because of Parkinson's disease, knows this first-hand.

Most care facilities today are run as Real Estate Investment Trusts. VentasREIT (VTR) is among the largest owners, having bought Sunrise in 2007. A REIT is designed to extract maximum profit from a real estate investment, through cost-effective property management.

This is not the business model of a service-oriented business, which is what an assisted living facility is. To make the model work, operators focus on keeping labor costs low.

The front of the facility may be nice, for the well-being of visitors, but behind that wall, costs are under constant pressure in order to maintain profits.

Even beyond this cost squeeze, Bayne and other patients face what he calls an "ambient despair" for which there is no treatment.

There's a deep irony at the end of this story. Before his diagnosis, Bayne sold long-term care insurance. While he could still live in his home, with an assistant, he advocated for purchasers under the name "Mr. Long Term Care."

Now he writes from a wheelchair about the horrors of his daily reality as The Voice of Aging Boomers.

This is our future, and from a financial standpoint it does not work.

At the time of publication the author owned no shares in companies mentioned in this story.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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