Most Americans are unprepared for long-term care costs
By Deb Gordon
Amid the debate over whether the United States is officially in recession—or if it just feels that way—healthcare costs remain a top financial concern for Americans, second only to gas and transportation costs.
But as near-term financial worries mount, new research suggests that Americans may be overlooking their long-term healthcare needs and associated financial health.
According to the U.S. Department of Health and Human Services, nearly 70% of 65-year olds will need some form of long-term care in their lifetimes. These services include medical and personal care services, at home or in a facility, when people can no longer care for themselves independently. The average person will need services for three years and 20% will need help for five years or more. Long-term care services can cost six figures per year, but a survey released last month suggests that many middle-income adults will be unprepared for those costs.
The survey was conducted by HCG Secure in partnership with the Arctos Foundation and included approximately 400 adults between the ages of 40 and 64 whose annual household income was between $75,000 and $150,000.
While more than half of respondents said they assume they or their partner will need long-term care services of some sort, only about one-quarter have or are seriously considering getting long-term care insurance or a savings account for long-term care expenses.
Most people aren’t even talking about long-term care at all. More than half (57%) haven’t discussed their long-term care needs and preferences with their family or friends.
This lack of open dialogue is concerning to Tom Beauregard, founder and CEO of HCG Secure.
“Everyone should be having conversations with loved ones about wishes and needs,” Beauregard said. “And from these conversations they should then be either earmarking a significant portion personal savings for long-term care needs or they should be enrolling in lower cost policies to cover at a minimum one year of long-term care needs.”
The survey results suggest that preparation is not currently happening in a lot of American households.
When asked how they expect to pay for future long-term care services, 54% of survey respondents said they assume they will use their own savings. This figure was higher among people without a college degree (59%).
Just 22% expect to receive financial support from long-term care insurance.
Another 41% expect financial support from government insurance. But most people won’t be able to get everything they need from government-sponsored insurance.
Medicare, health insurance primarily for Americans 65 and older, covers some nursing home and rehab facility costs (up to 100 days) and some home health care expenses. It does not, however, cover the costs of assistance with activities of daily living, such as eating, bathing, toileting, or moving around. About half (51%) of people surveyed did not know that.
Medicaid, health insurance primarily for lower-income Americans, covers some long-term care services, including personal care services in some instances, but only for people who qualify based on income or other state-level eligibility rules.
One-fifth of respondents aren’t sure how they’ll pay for long-term care.
Not only are people unsure how they’ll pay for the cost of care over time, but they also aren’t particularly well versed in how much it’s likely to actually cost. Just 7% said they were very familiar with the costs of long-term care while nearly half (48%) said they were not familiar at all.
Respondents were somewhat optimistic when asked to estimate how much it would cost to cover assistance with activities of daily living. The median “best guess” for these costs was $25,000 per year.
In fact, costs vary widely by type of service and location but typically average more than that. According to Genworth’s 2021 cost of care data, the national median cost for one year of nursing home care ranges from about $95,000 to nearly $110,000, depending on the type of room (private or semi-private).
In the HCG Secure survey, seven out of ten respondents said they want to receive long-term care at home—and 10% said that’s the only option they’ll consider. But home-based care is also pricey. Genworth data show that the median annual costs for home health aides and homemakers are approximately $60,000 each.
Presented with actual average costs for long-term care, survey respondents were unpleasantly surprised. Sixty percent said the actual costs are more or much more than they expected. Two-thirds (66%) said they would be not at all or not very prepared to pay for in-home help with personal care.
Once respondents understood the real costs, still only 30% said they would change their long-term financial plans to be better prepared. Of those, about half (53%) said they feel they need to save more money and 25% would consider getting a different kind of insurance coverage.
Some respondents simply don’t believe they’ll need long-term care at all. More than one-third (33%) said they feel it is unlikely that they will need some type of help with daily living in the future. Most commonly, people who don’t expect to need long-term care cited their good health habits and a lack of family history.
Beauregard said the general lack of preparedness is not surprising because long-term care insurance can be expensive and difficult to get, especially for people without financial resources. But he found the optimism about long-term care needs surprising.
“Despite a wealth of research showing that the vast majority of Americans will need this support with age, individuals are still willing to risk the financial and emotional stability of their families’ years down the road based solely on current health status,” Beauregard said. “This is a real problem and illustrates how the current discussions around our country’s [long-term care] crisis is not being adequately communicated, with really devastating impacts on middle-income Americans and families.”