Plan ahead for long-term care

YOUR MONEY ADVISER

BY ANN CARRNS

The New York Times

Most older adults don’t have long-term care insurance, and a big reason — in addition to the cost — may be that they don’t understand the limits of their regular health coverage.

Long-term care refers to personal services for people who can’t take care of themselves because of physical or cognitive decline. Typically, people need such help when they can’t manage basic activities— like dressing, eating and bathing — on their own. Such care can be provided at home, by family or paid providers, or in an assisted-living community or nursing home.

A relatively small share of older adults view long-term care affordability as a top concern, researchers at the Center for Retirement Research at Boston College found, even though a significant number may need it at some point. And long-term care is expensive. The typical annual cost in 2025 was about $80,000 for non-medical care provided at home, just over $74,000 for assisted living and about $130,000 for a private room in a nursing home.

Q: Does insurance pay for long-term care?

A: The lack of concern may stem from confusion about whether health insurance covers long-term care. Mostly, it doesn’t. Medicare, the federal health plan for older people, doesn’t cover long-term care except in limited circumstances. Medicaid, the federal-state health program for the poor, does cover it, but qualifying for the program is difficult except for those with very low incomes. People must typically exhaust their own financial resources before becoming eligible for Medic-aid coverage.

Special long-term care insurance, whether traditional policies or hybrids combining long-term care coverage with life insurance or an annuity, can help with costs — but it’s also pricey. Just 15 percent of people 65 and older have long-term care coverage, according to the retirement research center.

Q: How can I tell how much I may have to pay? A: An index introduced this year by Milliman, a consulting and actuarial firm that advises insurers and governments, aims to help people plan for the cost of care. The firm estimates that a 65-year-old would need $135,000 today to cover the average expected future lifetime costs of long-term care.

The cost, however, varies by factors like sex, geography and length of care. "There are a wide range of outcomes," said Chris Giese, a principal at Milliman and a co-author of the index. The average amount needed now for someone who requires less than a year of long-term care is just $30,000, but it rises to $665,000 should that person need five years or more of care.

More than 4 million Americans will turn 65 this year and next year as well, the firm says. The index is based on an analysis of long-term insurance claims data, adjusted to reflect the general population.

About half of men and 60 percent of women will use some sort of formal, paid long-term care services after age 65, Milliman found. Milliman expects to update the index annually and to eventually offer online tools to help people customize their cost based on where they live, Giese said.

The projection on costs assumes that the money is invested at a rate of return of 4.35 percent, and that services are paid for out of pocket at commercial market rates. (The estimate doesn’t account for unpaid care provided by family members.)

Harry Margolis, a lawyer in Massachusetts specializing in elder law and estate planning, said the $135,000 benchmark was a good place to start. You can add or subtract an amount based on where you live, your health status and family history, and whether you have family who can help provide some care.

Q: What if I’m not average?

A: Waterlily, a financial technology startup, aims to make long-term care planning more personalized. Founded by two young entrepreneurs, the firm says it uses analytics and artificial intelligence to predict an individual’s likelihood of needing long-term care, the age at which the person is likely to first need it and for how long. The tool, aimed at people over age 40, analyzes data from government sources as well as from a private database with information on about 50,000 families.

Lily Vittayarukskul, 30, a co-founder of the firm and its CEO, said she had started Waterlily because of her family’s experience with a serious illness. When a beloved aunt was diagnosed with terminal colon cancer, she said, relatives stepped away from work and school to arrange for her care. "It tore our family apart," she said. Waterlily, which has attracted investments from venture capital firms and large insurers, markets its tool to financial advisers and insurance agents, who use it with their clients. Firms pay monthly or annual fees to use the service.

The tool isn’t widely available to individuals, but Vittayarukskul, a licensed insurance agent, offers limited online demonstrations free to the public each week, by appointment.

Q: How does Waterlily’s tool work?

A: Waterlily quickly shows clients an estimated age at which care is likely to begin, based on information they provide in an electronic health questionnaire. It offers a timeline of how care will progress, including any care provided by family members. Clients can then explore options to cover all or part of the costs, whether by purchasing insurance or self-funding.

Margolis said he had recently tried the Waterlily demonstration and that the tool had predicted he would need long-term care for three years starting at age 86, at a cost of $350,000 in today’s dollars.

"I think that the idea of an algorithm to give people some idea of their potential long-term care costs makes a lot of sense," he said.

Chris Chen, a certified financial planner in Newton, said he had been using Waterlily with clients for more than two years. The information, he said, can help clients face their potential need for long-term care and account for it in their financial plans.

"Most people try to avoid it," he said.

The tool is also able to sell insurance. Waterlily says almost half of its users report that they plan to buy long-term care coverage. (The company typically doesn’t make commissions when clients sell policies, although insurance agents and advisers using the tool may.)

Chen said he considered Waterlily’s results to be something of a guess, albeit a "much more educated guess" than what was previously available.

Waterlily notes that "stakeholders should view its insights as a well-informed guide, not an absolute prediction of the future."

Q: Are there any government efforts on long-term care funding?

A: Some states are starting to address the need for long-term care funding. Washington established a program, funded with a payroll tax beginning in 2023, to provide state residents a benefit of up to $36,500, adjusted for inflation. While the amount is relatively modest, it can cover the needs of some people, the program’s website says, and can give other families time to plan. The first benefits under the program, WA Cares, are scheduled to become available later this year. Other states, including California, Massachusetts and New York, are exploring similar efforts.

Part of the Affordable Care Act would have created a federal program to help older adults and disabled people needing long-term care. The effort, however, known as the Class Act, was abandoned in 2011 as financially unworkable and repealed in 2013.

This article originally appeared in The New York Times.

Most older adults don’t have long-term care insurance, and a big reason — in addition to the cost — may be that they don’t understand the limits of their regular health coverage.THOMAS FUCHS — THE NEW YORK TIMES