Few plan for long-term care though most will need it

Mary Pickett, M.D., Faculty Editor, Harvard Health Publications

Two of every three Americans who reach age 65 will at some point need long-term care for up to three years. Yet the majority of those age 40 and older have done “little or no planning” for how they might pay for long-term care when they get older.

That’s a key finding from a new survey of 1,019 Americans over age 40 on the topic of long-term care. The survey was done by the Associated Press and NORC at the University of Chicago. Other interesting results:

• Most people underestimate the cost of nursing home care (it averages $6,700 a month) and overestimate what Medicare will cover.
• Few people are setting aside money for long-term care even as most worry about key issues of aging such as memory loss or being a burden to family members.
• Many people support public policy options for financing long-term care, either through tax incentives to encourage saving for long-term care or a government-administered plan.

Mismatch between perception and reality

As a primary care doctor, I see my patients struggle with how the cost of age-related care affects their lives and their financial realities. Long-term care costs are huge. We can’t afford not to think about them.

The U.S. Census Bureau estimates that $217 billion will be spent in 2015 on nursing home and residential care. This includes assisted living facilities and board and care homes. Currently, about 25% of these costs are paid out-of-pocket by older adults and their families. Almost two-thirds of the cost is paid by Medicaid and Medicare combined.

Medicare only pays for short-term care—20 days in a nursing home—when illness causes disability. After that, patients or their families must meet these costs out-of-pocket. Most older adults with chronic needs then “spend down” their funds to pay for long-term care until the money runs out. At that point, at poverty level, Medicaid support may be available.

Start early

Without a crystal ball, it’s tricky to plan for the future. It’s easy to convince yourself that you or a partner won’t need long-term care. But the statistics suggest you should start planning now, even if your plan isn’t perfect.

1. Talk with your family. Nearly 60% of older people who need long-term nursing or personal care rely fully on unpaid caregivers, usually their children or spouses. Sometimes this is an obvious arrangement. But your family must be flexible and committed. If a caregiver must stay at home, some family income will be lost. This is rarely a comfortable situation if everyone did not agree ahead of time.

2. Consider long-term-care insurance. Fewer than 3% of American adults have purchased a long-term care insurance policy. The average cost is high. A typical plan might cost $3,300 a year for a healthy 60-year-old couple. And it might pay only a $150 a day for up to 3 years. For a person who buys this insurance at age 65, there is a 45% chance of making a claim. If you never need long-term care, the payments you made to the plan are lost.

3. An “age in place” retirement arrangement might be right for you. Some campus-like retirement communities are designed to permit an older adult to “age in place.” This means you can go from a relatively independent life to a more dependent life while staying in the same community. Services often include recreation for the active elderly and 24-hour skilled nursing or rehabilitation services for the frail elderly. These organizations are called continuing care retirement communities. They are always expensive. Usually, they charge an up-front fee of $25,000 to $500,000. Then you pay a membership fee or rent each month.

4. Build up your savings. Making ends meet is a challenge. But in your working years, don’t underestimate how much you need to save. Many of us think, “After we no longer have our mortgage, we should be able to live on our savings.” It’s a good idea to factor long-term care into your savings plan. If disability strikes, you will need it.

5. Write an advance directive (“living will”). Some people receive intensive medical care after they become profoundly disabled. By then, some people who are in this situation are no longer able to communicate their wishes to family members and doctors. If you know that you would not want life-sustaining treatments in this condition, it is wise to record your wishes in a legal “advance directive.”