Retirement Matters

January 2024

Long-Term Care (LTC) Is Costly — This discussion is continued from the December SERA-Nade. Many retirees equivocate on whether the inflation-adjusted increases in LTC insurance premiums are affordable. They don’t like paying the higher inflation adjusted LTC premium but know they haven’t saved enough either. See the Kaiser Family Foundation (KFF) chart showing most older adults haven’t planned or saved for their LTC.

Recently, thousands of people reacted to the New York Times “Dying Broke” series on the financial drain that U.S. families are experiencing in struggling to afford LTC. A KFF analysis showed that those with greater LTC needs were more likely to end up broke. For example, 23 percent of those requiring a nursing home died broke.

Federal Subsidies Are Unlikely — Policymakers have suggested increasing government payments for LTC. The U.S. allocates a smaller share of its gross domestic product (GDP) to LTC compared to other wealthy countries. At the same time, U.S. LTC expenses are more costly than other countries because services are delivered largely by a for-profit industry. Wealth is transferred, through profits, primarily from the middle class to the for-profit hospitals and LTC facilities. Recently, the administration proposed improvements in wages and working conditions for paid caregivers. However, the $150 billion plan for Medicaid in-home services didn’t have enough support to become law. In April, President Biden signed an executive order encouraging government programs to improve workers’ conditions and give relief to families providing care.

Saving for LTC Isn’t Easy — Those opposing more LTC government funding suggest that individuals are to blame, as they just haven’t taken responsibility for saving for their own LTC costs. It’s easy to blame the victim. But, is saving the enormous amount that’s needed for LTC a realistic expectation for the average American, investing on their own?

Consider a comparison - a family’s investment of buying a home vs. LTC. Buying a home is one of the family’s highest costs. Even so, many middle-class families had a reasonable expectation that they could pay it off. Those that are seniors now, may have paid about $79,100 (the medium U.S. home value in the 1990s, according to CNBC, for their home. To manage the cost, it was paid for with a mortgage over a thirty-year period.

Compare buying this home, with saving one million dollars for LTC, assuming a cost of $100,000 a year, per person, for two persons within a married couple, for up to five years. Given this uphill climb, it’s no wonder that a KFF survey revealed that a majority of respondents, age 50 and older, said they hadn’t saved for LTC. When the goal is daunting, it’s hard to start. The enormity of savings needed for LTC is the reason why individuals purchased LTC insurance policies in the past. However, due to huge rate hikes by insurers, only a tiny number of LTC policies are being sold today.

Home Care Preferred — Most people wish to receive LTC services in their home but can’t afford it. The Harvard Joint Center for Housing Studies concludes that the total housing and daily care costs are out of financial reach for most. The Northeast and Rust Belt states, including Michigan, have a higher rate of adults unable to afford in-home care.

  • Only 13 percent of adults, age 75 and older who live alone, across 97 U.S. metros, could afford assisted living without dipping into assets.
  • Only 14 percent could afford a daily visit from a home health aide in addition to their housing costs.

Care facilities, such as assisted living facilities or group homes, are needed by those that can’t be cared for at home. Those with more serious medical conditions need the resources and medical equipment available at nursing homes.

Caregiver Shortage — There aren’t enough care givers primarily due to low wages and difficult work. Many U.S. workers, who value their own time and mental health, may find care giving depressing, sad, and time-consuming. In 2023, all 50 U.S. states reported a scarcity of care workers, and 43 states experienced permanent closing of care facilities, according to the KFF survey. The U.S. has at least 600 fewer nursing homes than it did six years ago. Many nursing home staffers quit as they were physically and mentally burned out due to the pandemic. In addition, 81 percent of facilities say they need to hire more workers to meet staff requirements mandated by the Centers for Medicare and Medicaid. Policymakers have proposed allowing more immigrants to work as caregivers since many are already doing these jobs. But, agreement over immigration policies has been nearly impossible over the last decade.

Get the Check — Even with insurance coverage, getting insurers to pay isn’t easy. When you need LTC services, you probably aren’t able to struggle with the insurance provider to get payments. According to researchers, insurers that want to save money are betting that you don’t follow through with the required paperwork when they reject your claims. In addition, most LTC insurance policies require you to pay for LTC during an elimination period, such as 90 days, before they start paying the bills. Do you have readily available savings to pay for LTC during this “gap” period?

A Trusted Friend — LTC insurance companies can make you work for your money so it’s important for you to identify and talk with a trusted and financially competent person that will make the commitment to ensuring your insurance pays for your LTC. The KFF chart reveals that only about half of those age 65 and older have seriously discussed LTC plans with a loved one. This leaves them sadly unprepared in the future with so much of their money at stake.

Make Decisions Now — It isn’t surprising that paying for LTC causes anxiety, according to a KFF poll shown in the previous chart. But like a lot of difficult things in life, it takes courage to overcome these feelings and take action. While you have the time and resources, prioritize your future needs for LTC and plan ahead.

Editor’s note: Joanne Bump serves as feature columnist for “Retirement Matters.” Column content is time sensitive and is based on information as of 5/7/23. Joanne can be contacted by e-mail at joannebump@gmail.com.

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