Planning forward might help households afford long-term care amid inflation

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Stan Horwitz and his family didn’t have any plans regarding long-term care until there was a crisis. His father, Martin, was in his late 80s and lived alone. He was reluctant to accept any assistance from his children.

One day, Stan and his sister found their dad unconscious in his living room after a fall. This incident six years ago set off a cascade of medical issues. Martin was never able to return home. And when it came to trying to sort out his father’s finances, “the bureaucracy was intense,” Stan said.

He said his father was diligent about putting money away, but the cost of nursing care wiped out his life savings — $300,000 — in four years. Martin, now 93, qualifies for Medicaid, which pays for his skilled nursing care.

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The Horwitz family’s ordeal in paying for long-term care services is not unusual — and high inflation will likely make the rising costs more difficult for many families to afford this care.

Inflation has now replaced staffing as a top concern of skilled nursing and senior housing facilities, according to a new survey, as small increases in essential operating expenses — food, supplies and energy — are making a big impact and aren’t easy to cut.

How much long-term care can cost

The average 65-year-old has a 70% change in needing long-term care, according to the US Department of Health and Human Services. Yet, 1 in 10 of middle-income adults ages 44 to 64 do not have long-term care insurance, according to a survey by Arctos Foundation and HCG Secure. And, many people are not aware that Medicare does not cover costs associated with long-term care services, which can include dressing and bathing.

The costs may vary widely by type of care and location. On average, long-term care costs $50,000 a year at home and $100,000 in a nursing home, according to LTCG, which provides services to the long-term care and life insurance industry. But in Connecticut, LTCG found nursing home care cost an average of $165,000 a year and, in Texas, just over $70,000.

Traditional long-term care policies are expensive

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Few long-term care insurance policies have unlimited coverage. Costs vary widely and depend on age, gender, health and other risk factors. For a new policy with $165,000 benefit, a healthy 55-year-old could pay $45,000 in premiums by the time they turn 85, according to the American Association for Long-Term Care Insurance.

Tom Beauregard was an executive in the health insurance industry when his parents were in their early 80s and dementia and pulmonary disease required them to have daily care.

“It was chaos trying to figure this out as a family,” said Beauregard, the founder and CEO of HCG Secure. “The real chaos came into the decision-making process and the lack of information from my parents.”

Understanding your options

That experience prompted him to start a company to help middle-income families understand their options. “You need objective experts to help you understand how to make transition plans, how long you can keep people at home safely, what kind of services you can bring in,” Beauregard said.

Low-income adults may qualify for Medicaid, but that requires a “lookback” which considers assets held in the last five years. Many others in middle- to upper-income demographics choose to self-fund long-term care, but experts say it may become more difficult for older adults to manage the rising costs of these services.

If people come to me for estate planning, and they haven’t thought about long-term care, I make them think about long-term care.

Evan Farr

elder law and estate planning attorney

“It’s one thing to go out less or drive less when prices of food and gas are going up,” said Ken Latus, vice president for long-term care products at Northwestern Mutual. “Cutting costs or finding trade-offs for your care as you age is not as simple.

“Plan early so that you can stay in the driver’s seat when the time comes,” Latus said.

There are insurance options to help offset the costs — from traditional long-term care insurance to hybrid policies that combine life insurance and long-term care coverage. These policies “provide funds that can be used to cover care expenses down the road, as well as a death benefit payable to the insured’s beneficiaries if care isn’t needed,” Latus said.

Also, investment growth or “cash value” in the policy can be accessed during the insured’s lifetime and can be used to pay for long-term care services. And there are inflation riders that can increase benefits up to 5% every year.

“If people come to me for estate planning, and they haven’t thought about long-term care, I make them think about long-term care, because in my mind these two areas of planning are inextricably intertwined,” said elder law and estate planning attorney Evan Farr.

The most important step, experts say, is to communicate with your loved ones about what you may need and what you want for care as you age.

Horwitz said he wishes he’d had conversations about long-term care much earlier with his father — and he would have been more direct. “I’d say ‘Dad, we need to have a talk about your future and how you’re planning’ — and ‘Dad, this happens to everyone.'”

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