Long-Term Care Needs Demand Your Attention Now

As costs and needs rise, public funding and the supply of caregivers are shrinking.

By + More

The trend lines for the nation's long-term care needs are becoming distressingly clear. As a society, we are running out of both the financial and human resources to provide adequate care to our oldest and often most frail citizens. From an individual perspective, the bill for long-term care will become an increasing financial burden. People as young as their 40s ought to raise their retirement savings rate now to prepare for their later years.

[See The 10 Most Affordable Cities for Long-Term Care.]

If you are fortunate enough to reach the age of 65, the odds are 70 percent that you will need some form of long-term care during your remaining years. The duration and severity of care needs vary widely, of course, but on average, you'll need care for three years and it may cost you a boatload.

Long term services and supports (LTSS) accounted for one in every seven healthcare dollars in 2009—nearly $295 billion out of the nation's $2.1 trillion healthcare tab, according to a Congressional Research Service summary. Of this $295 billion, the direct government portion was nearly $210 billion: $127 billion for Medicaid, $63 billion for Medicare, and $20 billion on other public programs. Private spending was about $85 billion, including $52 billion for out-of-pocket spending, $17 billion by private long-term care insurance, and $16 billion in other private funds.

The bulk of the nation's long-term care bill is in the form of uncompensated care, mostly by family members. Nearly 62 million Americans provided some care in 2009, according to a report from the SCAN Foundation. "The estimated economic value of their unpaid contributions was approximately $450 billion in 2009," Foundation president Bruce Chernof said in testimony for a hearing on LTSS costs called by the Senate Special Committee on Aging.

The rapid growth rate of older populations is colliding with growing fiscal problems in Washington. Medicare faces growing funding shortfalls. Medicaid, a federal-state partnership, is seeing growing pressure at the federal level to shift some spending to the states. They are, not surprisingly, paring back Medicaid benefits themselves to control their own budget deficits.

[See 50 Best Funds for the Everyday Investor.]

In theory, this would raise demand for unpaid caregivers, and perhaps somehow we could squeak by. But possibly the most troubling projection of the experts is that the supply of unpaid care will inevitably fall, not rise. "Demographic changes will reduce the supply of informal care," Douglas Holtz-Eaton, former director of the Congressional Budget Office, testified to the committee. "Smaller families, lower fertility rates, and increasing divorce rates may make donated LTC services less common in the future." This drop in the family "labor" pool for LTSS will be made still larger by more and more women joining the paid labor force, he added.

We will somehow need to spend more money on LTSS expenses, as individuals, taxpayers, or both. But the more immediate need, experts say, is to get through to Americans that they need to pay attention to these future expenses. Many people incorrectly assume their LTSS needs are already covered by Medicare (they're not) or that they can just use Medicaid (they can, but only after spending virtually all of their personal wealth first.)

"Adults are largely unaware of their future LTC needs and do not adequately prepare for them," Holtz-Eaton testified. "They are also surprised to find out just how expensive it is." Nursing homes average $80,000 and can be twice that amount in high-cost markets. Even unskilled home care help is approaching a national average of $20 an hour.

[See top-rated funds by category ranked by U.S. News Mutual Fund Score.]

Meanwhile, private long-term care insurance has been struggling. Sales continue to be small despite rising numbers of aging consumers. Some insurers have stopped writing new policies altogether. If there is to be a more meaningful role for private insurance, it may have to come at the expense of Medicaid benefits.

Medicaid's "worst case" role—providing nursing home slots to those who can't afford other care—is widely cited as a deterrent to private insurance, which can be expensive and subject to possible future premium increases. Most states have approved private LTC "partnership" policies that allow owners of private policies to shield substantial private assets from Medicaid provisions should they exhaust their private insurance benefits and need to use Medicaid. Other efforts are underway to make private coverage more appealing by combining it with retirement investments such as annuities.

The health reform law also tried to address the LTSS problem by creating a new employee-funded insurance program called the Community Living Assistance Services and Supports program (CLASS Act). Employees would voluntarily sign up and put funds into a CLASS account. They would later be eligible for a modest level of payments to help defray their old-age LTSS costs. As critics widely forecast at the time it was enacted, CLASS was based on unrealistic projections of how many people would want to participate and whether its premium levels would ever support a viable program. CLASS has since been put on hold and is considered unlikely to be revived without significant changes.