The Cost of Long-Term Care and How to Plan for It

The cost of long-term care can be catastrophic.We have 78 million aging baby boomers. Few people have sufficient resources to pay for needed long-term care.

In an effort to deal with this concern, the Long-Term Care Financing Collaborative (the “Collaborative”) began meeting in 2012. They are now a formalized group.

The collaborative’s goal is to improve the way the elderly and those living with disabilities pay and prepare for long-term care support and services.

About the Long-Term Care Financing Collaborative

The collaborative is made up of policy experts, consumer advocates and representatives from service providers and the insurance industry. The group also has senior executive branch officials in both the Democratic and Republican administrations, former congressional aides, and former top state health officials.

Who Needs Long-Term Care?

According to the collaborative, between 10 and 12 million adults require long-term supports and services (LTSS). That number is expected to double by 2030.

LTSS is defined as non-medical assistance. This includes help with food preparation, personal hygiene, assistive devices and transportation, bathing, eating and the like.

More than two-thirds of older adults will need some help. Nearly half will have enough need that they will be eligible for private long-term care insurance or Medicaid to pay the bill. More than 6 million older adults need that level of care today. Nearly 16 million will need it in 50 years.

Cost of Long-Term Care

Elderly and disabled persons in need of LTSS often pay for it out of their savings or income from their retirement. This usually is not enough to cover the costs. Many people have to turn to Medicaid for help. The cost of LTSS is expected to double by 2050, which will cause even more people to depend on Medicaid to pay.

Few people have saved enough for LTSS. A typical American between 65 and 74 has financial assets of $95,000 and about $81,000 in home equity. This does not include retirement savings. To pay lifetime medical expenses with a 90% certainty requires savings of about $130,000 plus $69,500 for LTSS costs. It is easy to see how people run out of money.

Individuals pay for about 55% of LTSS costs. Medicaid pays about 37%. Private LTSS insurance pays for less than 5%.

Cost of Long-Term Care to Family and Friends

Long-term care costs also affects families. The collaborative estimates that in 2013, family and friends provided 37 billion hours of unpaid LTSS to adults. This care calculates to $470 billion, three times the amount Medicaid spent on LTSS the same year.

When family members provide care, it often comes at the cost of their job or a portion of their job. Collaborative data suggests a woman in her 50s who leaves a job to care for her aging parents loses $300,000 of income over her lifetime. The collaborative states that “unpaid family caregivers lose an estimated $3 trillion in lost lifetime wages and benefits.”

Cost to Employers 

Employers experience a loss of $17.1 to $33 billion in productivity due to absenteeism, based on collaborative data. Employee turnover and schedule adjustments add to the costs.

Recommendations to Plan for Long-Term Care

On February 22, 2016, the collaborative announced its final set of recommendations.

The final set of recommendations focused significantly on:

  1. A need for universal catastrophic insurance
  2. Private market initiatives and public policies to revitalize the insurance market to address LTSS risk
  3. Enhanced Medicaid LTSS for those with lower lifetime incomes

The collaborative calls for a strong government role. The group considered voluntary and universal insurance programs and concluded that universal was the only viable solution. Universal insurance spreads the risk across the entire population and avoids challenges of adverse selection.

The collaborative noted in the report, “Universal insurance appears to offer broad-based insurance at a comparatively low lifetime cost.”

The collaborative also recommended actions to revitalize the private insurance market.

  • Employers should offering long-term care insurance as part of their benefits packages.
  • Regulatory changes should be made in the insurance industry to create more standardization in policies. The specifics of the regulatory change suggestions include increasing premiums and benefits as the individual ages.
  • Policymakers should continue to encourage insurance industry efforts to combine long-term care insurance with other products.
  • Encourage increased private savings for retirement by making it to easy to enroll through employers’ benefits programs and expanded retirement products, tax subsidies and education.
  • Modernize Medicaid financing and eligibility by expanding coverage to include more people, settings, and care. Eligibility would be based on a functional and needs assessment rather than requiring institutional care.

Get Educated About Long-Term Care

The collaborative recommends more education for everyone about long-term care. Many people do not plan and do not understand the costs. Until there is a firm solution, individuals must take responsibility and plan ahead.

If you or someone you know has questions about how to plan long-term care, contact me.