A new study published in Health Affairs shows the financial impact Long-Term Care is having on the American family. Americans spent nearly $163 billion on nursing care facilities and continuing care retirement communities in 2016.
The Centers for Medicare & Medicaid Services' National Health Care Spending report for 2016, found that total healthcare spending in the United States increased 4.3% in 2016, reaching $3.3 trillion. This news might not shock many people. However, when it comes to long-term care, many American’s under-estimate the financial impact.
$162.7 billion was spent on long-term care in 2016. The spending continues to increase as more people age and require help with activities of daily living or require supervision due to memory issues like Alzheimer’s. The long-term care spending is up from the last report of $140.5 billion in 2010. The annual growth rate for nursing care facilities and CCRCs hit 2.9% for 2016, down from 3.7% the prior year.
The cost of paid care at home would make this number even larger. In addition, non-paid care provided by family would make the financial impact of long-term care even greater.
Medicaid, the nation’s medical welfare program, was never intended to cover long-term care for everyone. Now it pays for nearly 40 percent of the nation’s long-term care expenses, and that is growing. As America gets older federal Medicaid spending on long-term care is widely expected to rise significantly – by nearly 50% by 2026.
The nation’s long-term care insurance companies paid $8.65 Billion in claim benefits to individuals in 2016 according to the most recent report from the American Association for Long-Term Care Insurance.
The report from Health Affairs also projects long-term care spending to continue to climb over the next decade, driven by the rapidly aging U.S. population. That report predicted that nursing facilities and CCRC spending would grow at an average rate of 5.2% per year until 2024, reaching $274 billion in total spending.
Since most long-term care services are not paid by health insurance or Medicare it becomes a family’s responsibility to either provide care for their older family members or they will pay for care out of savings until nothing is left. At that point Medicaid will pay for those services. If a family has saved money in retirement assets the loss of savings on long-term care costs will have a dramatic impact on the lifestyle of the couple. It would prevent many families from providing any inheritance to their children and grandchildren.
The impact of caregiving on a family caregiver is huge. A recent AARP study says family caregivers have significant out of-pocket expenses in addition to the impact on their time and their own health. Caring for an adult with dementia also resulted in higher out-of-pocket costs.
More than half of employed caregivers (56%) experience at least one work-related strain. This may take the form of working different hours, fewer/more hours, and taking time off (whether paid or unpaid).
Many family caregivers also need to cut back on other spending which can undermine the family caregiver’s future financial security. One in six have reduced contributions to their retirement savings (16%) and roughly half have cut back on leisure spending (e.g., 45% cut back on eating out or vacations as a result of caregiving expenses).
Remember family members have their own careers and family responsibilities in addition to the pressure of added responsibility of caring for an elder parent or in-law.
The quality of care with Medicaid is always a question as the reimbursement to caregivers and facilities is low. This requires staff to individual ratio to be much higher than what would be provided in a private pay facility.
Many people are unaware of tax incentives available toward to purchase of Long-Term Care Insurance. In addition, as more people have Health Savings Accounts, the pre-tax money in these plans can be used toward the purchase of LTC insurance policies. https://www.ltcnews.com/articles/irs-2018-long-term-care-insurance-deduction-schedule
Since the federal Deficit Reduction Act of 2005 became law in early 2006 most states offer a federal, state consumer Partnership to make Long-Term Care Insurance even more valuable. A Partnership Long-Term Care Policy will provide additional dollar-for-dollar asset protection. This would allow a person who exhaust all the benefits from their qualified Long-Term Care Insurance policy to access Medicaid Long-Term Care benefits without the normal required spend-down of assets. https://www.ltcnews.com/articles/partnership-plans-provide-additional-asset-protection
Many financial advisors and experts recommend planning before retirement for the costs and burdens of aging. Long-Term Care Insurance is a very affordable way to safeguard your savings and reduce the burden which is created on family members when a loved one need extended care. Since the chance of needing some type of long-term care and support services is high, an advance plan will help you enjoy a successful retirement.
The best time to plan, say the experts, is before you retire when you have better health. Premiums are based on the age you are when you put a policy in place as well as your health at that time. Premiums are intended to remain level. The partnership program requires by law you have some type of inflation protection so while you benefit will increase your premium will not.
The other advantage of purchasing a long-term care policy when you are in your 40s or 50s is you may also qualify for good health discounts which make the premium even lower. Don’t forget, your health can change at any time and the need for long-term care can happen at any age. People require extended care due to illness, accidents or the impact of aging.
Considering the increasing cost of long-term care and the high likelihood of needing care including a Long-Term Care Insurance policy to your retirement planning should add much peace-of-mind of you and your family.
See the current cost of Long-Term Care in your state and available tax incentives: https://www.ltcnews.com/resources/state-information