Long-term care costs continue to rise, regardless of politics

By Tom Riekse

As the average American lifespan continue to expand, many retirees are re-examining their saving strategies and health-care budgets to ensure they have enough money to live comfortably and in good health for longer than they might have originally anticipated. Although many retirees have set aside some money for long-term care as a part of their health-care budget, what they might not realize is that the cost of long-term care is only going to increase.

In the next few years, looming demographic challenges for both caregivers and the aging American population will pose additional complications for the cost of long-term care. These challenges are exacerbated by a challenging political environment, which threatens the fragile talent pipeline for many LTC facilities.

Demographic pressures

The American population is rapidly aging as the number of Americans aged 65 or older is expected to increase from 58 million in 2022 to 82 million by 2050 – an increase of 47% according to data from the Population Reference Bureau. Although an increase in Americans over the age of 65 does not necessarily correlate to increased LTC costs, it a reasonable assumption that there will be a greater demand for LTC providers in the coming years.

Complicating the matter of more older Americans is the dearth of younger Americans to care for them. According to research, the share of people over 65 is predicted to increase from 17% of the population to 23% of the population by 2050. This shift in demographics will have a direct impact on LTC providers, who with more Americans to care for will have a smaller labor pool to source talent. In turn, this will likely increase costs for many LTC providers, which will be passed on to retirees.

Long-term care’s political worries

Many LTC facilities are plagued with a common challenge – a significant worker shortage. For example, in Michigan it is estimated that there will be a shortage of 170,000 care workers in the next decade. According to recent cost of care survey from Genworth, the median cost for in-home caregiving has increased from $43,472 in 2012 to $75,504 in 2023 as a result of the talent shortage. Nursing homes now average $116,800 a year for a private room, which means that something that might have been standard and is now out of reach for many elder Americans.

Complicating the matter are the political implications of the upcoming presidential election. Although every election has its unique set of consequences, the stakes are particularly high for LTC providers in the 2024 U.S. presidential election as both candidates have proposed significant overhauls to the current immigration system, which threatens an industry already plagued by talent shortages.

According to the Pew Research Center, there were 11 million undocumented immigrants in the U.S. in 2022. Many of these immigrants have been in the country for more than a decade and many them provide home-based care services as informal caregivers. If this population of workers is lost due to proposed deportations, the indirect consequence of this action would drive up the overall cost of care in the industry.

How retirees can mitigate the impact of rising costs

Although most retirees have plans for long-term care as a line-item in their budget, many retirees will not have budgeted the necessary funds to meet the rising costs of LTC in coming years.

Many retirees are looking for alternate ways to ensure they are financially protected in the event they need LTC. The two most popular types of LTC insurance are traditional LTCi and linked life/LTC plans. Both offer similar features, such as coverage at home, assisted living or a nursing home. Additionally, the benefits are paid tax free, and the choice of coverage is based on cost of care. The coverage has inflation coverage to keep up with rising costs.

The primary difference is that linked life/LTC plans also include guaranteed premiums and a life insurance benefit if long-term care isn’t used. Planning ahead is essential for LTC programs as the sweet spot for buying LTC coverage is when someone is in their 40s and 50s – while they are healthy and premiums are generally more affordable.

Will there ever be a federal long-term care program?

Whichever party wins the upcoming presidential election, the odds are low that the government will provide a generous federal long-term care insurance program – it is simply too expensive. For many, the options come down to self-funding their care or purchasing LTCi – which will only get more expensive.

Tom Riekse, CLU, ChFC, is the managing director of LTCI Partners, an NFP company. Tom may be contacted at [email protected].