There are an estimated 77 million baby boomers coming close to, or entering, retirement age. This huge increase in the nation’s elderly population is swamping the existing long-term care (LTC) system, which can’t handle this number of people. While it’s wonderful news that we now live in an era of medical advancement that improves life expectancy, the projected increase in seniors means the system will soon become hopelessly overburdened unless something changes.
What Is Long-term Care?
LTC is essentially assistance with daily living activities including bathing, dressing, going to the bathroom, and other activities such as shopping, housekeeping, financial management, and cooking.
It is performed in a variety of settings including assisted living facilities, nursing homes, retirement communities, or even in your own home. While family and friends can provide a form of LTC, you have to take into account the cost in terms of their time and finances.
Understanding the Cost of Long-term Care
The lack of knowledge surrounding the cost of long-term care among seniors and baby boomers is alarming. A 2013 study outlining the attitudes of Americans toward long-term care was very revealing. Over 65 percent of Americans above the age of 40 have little or no long-term care plan in place. This is despite the fact that 70 percent of over 65s will need some form of LTC before they die.
As it happens, the median cost of a nursing home is approximately $87,000 per annum. The study shows that Americans have a range of thoughts and ideas on how to pay for LTC, and not all of them are entirely accurate or realistic.
Approximately 75 percent of those interviewed in the study said they believed their spouse would care for them while almost 50 percent believed their children or grandchildren would look after them. Yet, this doesn’t take into account the aforementioned problems this can cause. You can’t underestimate the hidden economic impact of asking your family to help. In order to provide you with adequate care, your children or grandchildren may have to reduce their own labor hours, which would naturally reduce their income.
Over 33 percent of Americans wrongly believe that Medicare covers them, while a similar number think their private health insurers can help them. In fact, Medicaid is the only program that can help with long-term care. The trouble is that it only provides assistance to those in financial need. This means you’ll need to spend the majority of your life savings on LTC before becoming eligible.
Private long-term care insurance is another option but you’ll have to pay high premiums, and these products have low benefit caps. Research suggests that over 40 percent of LTC expenses are paid out-of-pocket on these programs.
What About Catastrophic Insurance?
According to research by the Urban Institute, Americans who turn 65 this year can expect to pay an average of $138,000 in LTC costs over the rest of their lives, a figure that is almost certain to rise.
Catastrophic insurance can help you in the event your LTC expenses get out of control. With this type of insurance, you pay for the cost of LTC to a certain point. Once you reach “catastrophic” level, your insurance comes into play. While catastrophic insurance is common in private health insurance markets, it is a rarity in long-term care.
Yet, there are potential options for LTC; it’s just that few people seem to be aware of them. The 1993 Long-term Care Program helps people purchase private LTC insurance while still being able to get Medicaid assistance and retaining assets equal to the amount of their insurance policy. Even though this program is available in 39 states, very few people even investigate it.
Perhaps there will be a publicly provided method of catastrophic coverage. The Congressional Long-term Care Commission rendered this moot in 2013. The paper, “A Comprehensive Approach to Long-term Services and Supports,” outlined a model where you would pay a specific percentage of LTC expenses and then become eligible for catastrophic coverage.
According to the model, your income is a factor, so individuals on lower income pay lower out-of-pocket costs. Wealthier individuals would also pay a percentage of their LTC costs but would get coverage without losing their existing assets.
However, this idea has not come to fruition, and there are unquestionable financial obstacles to overcome before any LTC program becomes publically available. Nonetheless, it must become a priority because the existing system is simply unsustainable.