06/11/2010 03:50 pm ET | Updated May 25, 2011

Here Comes the Public Option for Long-Term Care Insurance

In the din of debate over health care reform legislation, one of the bill's most important features went almost unnoticed -- a public option for long-term care insurance.

The law signed into law earlier this year establishes a national insurance program for purchasing community living assistance services and support (CLASS for short). The new plan, which will be rolled out over the next several years, was a top priority of the late Sen. Ted Kennedy.

CLASS should help raise the profile of long-term care insurance (LTC) -- an important financial tool that doesn't make it into most retirement plans. Long-term care needs can throw a monkey wrench into even the best-designed retirement plan.

About one-third of Americans turning 65 this year will need at least three months of nursing home care sometime during their lives, according to the Center for Retirement Research at Boston College (CRR). Another 24 percent will need more than a year of care, and 9 percent will need more than five years.

Medicare covers only a small portion of long-term care needs, and the cost of a semi-private room averages $79,000 per year. CRR calculates that the mean lifetime exposure to long-term care costs for our 65-year-old couple is $260,000, with a five percent risk of a $570,000 expense.

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