LTC Costs Continue Outpacing Inflation
By Wendy Boglioli
It’s a stark reality: The cost of most types of long-term care services continues to rise at a rate outpacing inflation. Genworth’s 11th annual Cost of Care Survey highlights the fact that the increasing cost of long-term care is a serious and growing social issue and that consumers must be educated about that issue. It’s imperative that insurance advisors understand the issue so that they properly engage their clients on the topic.
Nationally, the median hourly cost for the services of a homemaker or home health aide hired from a home care agency is $19 and $19.75 respectively. Homemaker costs have risen 1.2 percent on average over the past five years. Home health aide services have risen, on average, 1.32 percent annually over the past five years. The rate of cost inflation for home care services is rising at a slower pace than that for other types of services. This is relatively good news for consumers in that almost three-quarters of those who require long-term care prefer to receive care in their homes, according to Genworth’s claims data.
The cost to receive care in an assisted living facility or nursing home is rising at a level three times greater than that of home care. The median annual cost for care in an assisted living facility is $42,000. This represents an increase of 4.29 percent over the past five years. The comparable cost for a private nursing home room is $87,600, which has increased 4.19 percent annually over the past five years.
According to the U.S. Department of Health and Human Services, 70 percent of people over the age of 65 will need some type of long-term care services and support during their lifetime. If your clients’ savings were to be eaten away by care services 20 years from now, how would that impact your advice to them today?
Long-Term Financial Burden
A combination of economic and market factors is driving the increase in long-term care costs. As a result, these associated costs are being passed along to consumers. The average long-term care claim duration is about three years, according to Genworth’s claims experience. Assuming one would receive in-home care from a home health aide for this length of time, the cost of care would be nearly $136,000. In an assisted living facility, this cost would approach $143,000. In a private nursing home room, this cost would exceed $260,000. At a 3 percent inflation rate, in 25 years, when many baby boomers could require long-term care services, costs for an average length stay in a private nursing home facility will be about $840,000. This is a steep cost that most Americans cannot afford.
Although the costs on the high end of the spectrum for long-term care can be daunting, many consumers are looking for options that will help pay for a portion of those costs. Be sure to include these options when talking with your clients. By paying for, say, 80 percent of potential long-term care costs, the total premium often can be reduced significantly, making plan options more affordable.
In addition to what type of care your clients choose to receive, the cost of care and the rate at which costs increase year over year can vary dramatically depending on where your clients plan to receive care. For example, in Boston and its surrounding suburbs, the median annual cost for care in an assisted living facility is $73,950, significantly higher than the national median cost of $42,000. Costs in this market also are rising much faster than they are nationally. On the other hand, in Las Vegas, one can expect to pay $33,000 annually for similar services, well below the national median. And, in Las Vegas, costs have actually declined slightly year over year.
The impact of this cost differential over a three-year period – the average duration of a long-term care claim – can be significant. In Boston, a three-year stay in an assisted living facility would exceed $221,000. In Las Vegas, the comparable cost would be just under $100,000. As such, long-term care planning must take into account these regional cost differences in order to be of value to clients.
It is well documented that most Americans do not have traditional pensions and many have saved far too little in their 401(k) plans or other savings vehicles. For most Americans, long-term care costs generally are not covered by Medicare or other government-funded programs. Given this backdrop, it is more critical than ever that Americans take the issue of long-term care seriously and develop a sound financial plan to address the potential costs.
Helping Customers Prepare for the Cost of Care
However, long-term care planning is about more than just cost. It requires difficult family decisions and sacrifices. Planning today can help save consumers from facing a crisis tomorrow. It is important for customers to know that having the right talk, the right way, at the right time, can help ease the emotional, financial and legal pressures of planning for long-term care needs.
As a trusted advisor, you can help your clients recognize the importance of sound planning and encourage them to take steps toward putting a plan in place. Here are some tips to address the impending social issues surrounding long-term care.
- Determine what’s important. Take time to consider your clients’ needs, educate them and encourage them to talk with family so they can decide on the most appropriate option for their long-term care needs. It’s important to let them know that there are two things that will never change when it comes to long-term care planning: The need will always be there and the cost of care will continue to rise.
- Plan. Once your clients have a better idea of what they want, how much it costs and the key issues, it’s important to encourage them to develop a basic plan. Clients should outline their objectives and continue to communicate with family members. Regardless of how clients will pay for care today or in the future, they should have a written plan. In addition, regardless of their net worth, your clients will want to know how to retain what it is they value most. Rather than be burdened with concern of what tomorrow may bring, it is important that people grab the bull by the horns and plan for the future long-term care costs.
- Stay educated. As the long-term care landscape continues to evolve and change, stay up-to-date on the options available and determine what works best for your client’s holistic retirement plan.
- Continue the conversation. Encourage your clients to look for natural opportunities to talk with family and friends about their plans. Let them know that they shouldn’t try to tackle too many issues at once as it may be easier to have a series of conversations over time.
Genworth’s Cost of Care Map can help you and your clients evaluate options to address the increasing cost of long-term care and put together a comprehensive long-term care plan. The map provides cost of care information for nearly 450 regions nationally, so that you and your clients are able to develop a plan tailored to the specific market in which they expect to receive care.
Wendy Boglioli is Genworth’s national spokesperson. An Olympic medalist in swimming, she has spent 10 years in the long-term care field. Wendy may be contacted at [email protected].