The Cost Of Care

LTCi: Bringing It All Back Home

Rising demand for in-home care driving up cost of long term care

by Gordon Saunders

Mr. Saunders is Senior Brand Marketing Manager at Genworth, where he manages digital, user experience and brand leadership initiatives, including the annual Cost of Care Survey, in support of the company’s mission of helping families manage the financial challenges of aging.  Visit www.genworth.com

My earliest recollection of the cost of long term care was in the early eighties when I was a teenager. I remember my parents being in shock by the costs and trying to work out with their siblings how to fund the nursing home expense for both of my grandmothers while balancing their own financial situation.

My grandmothers were unable to stay alone in their homes and, of course, this care expense was unexpected. Care funding options and solutions were limited at the time, so my family was on the hook for these expenses, along with other competing financial priorities advancing in their rearview mirrors, including saving for retirement, raising a family and funding college educations.

Fast-forward to the mid-nineties and I witnessed a similar course of events with my in-laws and the financial consequences they experienced as they struggled to pay for long term care, using a number of levers, including a reverse mortgage, personal savings and, eventually, public assistance.

Long Term Care: Bringing It All Back Home

Today, most people will receive long term care in their homes1. And, as was the case with my own family, they likely will not have given a second’s thought to what that care will cost and how they’ll pay for it. Perhaps that’s because the cost of care in the home has always been seen as one of the most affordable forms of care. But those perceptions may be about to change.

This year, our annual Genworth Cost of Care Survey2 found that the cost of in-home long term care services is rising more rapidly than the cost of care in nursing homes or assisted living facilities. In just one year, the cost for homemaker services shot up 7.14 percent, almost four times as fast as the cost of a nursing home. And the cost of a home health aide increased 4.55 percent. This is two to three times higher than the 2.1 percent rate of inflation3.

That makes the national median annual cost of homemaker services — “hands off” care for help with things like cooking, cleaning and running errands – about $51,480 per year, and the national median annual cost of a home health aide – “hands on” personal care with things such as bathing, dressing and eating, about $52,624 a year, based on 44 hours of care a week for 52 weeks.

Although the cost of care in facilities such as nursing homes and assisted living /residential care facilities continue to increase and are the most expensive settings for long term care, those costs appear to be stabilizing because of overbuilding, according to experts we consulted.

The national annual median cost of care is now $102,200 for a private room in a nursing home; $48,612 for care in assisted living; and $19,500 for adult day health care services (based on five days per week per year). A new category in this year’s Cost of Care Survey is in-home skilled nursing care at a national median cost of $87.50 per visit.

The implications for financial professionals is clear: Considering that most people want to stay in their homes as they grow older4 and 65-year-olds today have a 70 percent chance of needing some type of long term care services in their remaining years5, it’s evident that planning for how to pay for those services must be part of pre-retirement planning.

Why Home Care Costs are Increasing

We’ve been tracking the cost of long term care for 16 years now (see 16-year trends insights), and we’ve seen the cost of in-home care ticking up in each of the past three years, but the sharp increase we saw in this year’s findings was so startling we sought out home care providers to better understand the market dynamics behind the uptick.

Unfortunately, too many long term care decisions are made during a time of crisis; But it doesn’t have to be that way. With a bit of planning, families can avoid much of the financial stress associated with an unexpected long term care event.

What we learned is that it’s a simple case of supply and demand: There simply are not enough care professionals to meet the increasing demand for in-home care. The rapid aging of the U.S. population, coupled with the desire to stay at home as long as possible, has created an unprecedented demand among home-bound Americans for non-medical long term care.

The U.S. Department of Labor projects the demand for home health aides and personal aides will increase 36 percent, from 3.2 million to 4.4 million, in the next 10 years6.

Compounding the problem is the tight labor market; the costs of complying with the new mandates in local, state and federal certifications and regulations, including revised minimum wage and overtime laws in some states; and the shift in post-acute Medicare reimbursement, which is spurring hospitals to discharge patients sooner and with greater care needs.
Because of the tight labor market, non-medical home care agencies are having to compete for care professionals with hospitals, assisted living facilities and other service-based industries by offering higher pay and benefits, which ultimately drives up the cost of providing in-home care services.

Adding to the cost of in-home care services are mandated minimum wage laws in some localities and a change in federal rules that require in-home care workers to be paid overtime, which is creating an increasingly complex operating environment for keeping up with growing demand for in-home care.

Also contributing to the demand for in-home care is a shift in post-acute Medicare reimbursement, said the providers we consulted. A change from a fee-based to value-based Medicare payment system has resulted in the reduction of skilled nursing days provided to patients following their release from a hospital. As a result, many patients are sent home with more acute care needs and costly care episodes often not covered by Medicare.

Implications for Retirement Planning

As these trends suggest, individuals and their families are increasingly finding themselves bearing more and more of the cost of non-medical long term care. So, it’s imperative that families have a plan for how they are going to pay for long term or custodial care. That’s in addition to the cost of medical care, which can be substantial as people grow older.

Since we began tracking the cost of long term care in 2004, the cost of long term care has increased by an average of 1.7 -3.64 percent for in-home and facility care per year. At that rate, people living in Kansas City, MO, for example, can expect homemaker services to increase from $50,336 today to $122,179 in 30 years7 when they are in their mid-80s. The mid-80s is when people are mostly likely to need long term care8, although illness and accidents that result in the need for long term care services can occur at any age.

Those trends should be concerning to families and to their financial advisors. As unpleasant as it is to think about needing care as we grow older, it’s imperative that people start planning now for how they will address those costs. If families do not have the resources or a plan in place, they may well find themselves shouldering the responsibilities of caregiving.

To gain a deeper understanding into the cost of long term care, PwC published a study of data from eight long term care insurance carriers9. They analyzed claims data of more than 200,000 users of long term care services to determine long term care costs. Based on this research, PwC estimated that the average lifetime cost of long term care is $172,000. This included all paid services and excluded informal care.

Tools for Long Term Care Planning

As part of our desire to be an ally for people as they grow older, we offer our annual Cost of Care Survey and award-winning interactive website to help individuals and their families educate themselves about what long term care may cost now and in the future.

The centerpiece of our Cost of Care website is an interactive long term care calculator that financial advisors can use with their clients to understand what long term care may cost in their current location or in areas they may be thinking of moving to in retirement. The calculator also allows advisors and their clients to project long term care costs up to 50 years into the future and adjust for inflation from 2 to 5 percent.

In addition to the Cost of Care calculator, our website also contains long term care planning tools, practical information on topics such as understanding Medicare and Medicaid, conversation starters, impairment simulations, options for financing long term care, and videos of real families sharing their long term care stories.

As an additional resource to families engaged in financial planning, we offer tables ranking states from the highest to lowest cost in each care category.

A Few Final Thoughts

Unfortunately, too many long term care decisions are made during a time of crisis, as was the case when my grandmothers needed care and the costs came as such a shock to my parents. But it doesn’t have to be that way. With a bit of planning, families can avoid much of the financial stress associated with an unexpected long term care event.

My family’s experiences taught us the importance of planning ahead and inspired both my parents and my family to create a plan to address these costs for ourselves, should we ever need long term care down the road.

Financial professionals are in a unique position to start those conversations, help families understand the costs of care and the various funding options available, as well as recommend solutions. Individuals typically pay for long term care using a combination of sources, including personal savings, financial and in-kind support from their families, insurance, Medicaid and Veteran’s benefits.

Having a plan for paying for long term care gives your clients care options they may not otherwise be able to afford. It also helps protect their hard-earned retirement savings for what really matters – realizing the hopes and dreams they’ve reserved for their later years.

 

 

 

 

1- “What is long term care?” U.S. Department of Health and Human Services, National Institute on Aging, accessed Nov. 11, 2019.
2- Genworth Cost of Care Survey 2019, conducted by CareScout®, June 2019. Represents the year-over-year growth rate based on Genworth Cost of Care Surveys conducted from 2018 to 2019. The rate can be influenced by a number of factors such as random variation in samples, different sample sizes and new surveyed providers.
3- United State Department of Labor, Bureau of Labor Statistics, accessed Aug. 26, 2019.
4- AARP, 2018 Home and Community Preferences Survey: A National Survey of Adults Age 18-Plus, ©August 2018, https://www.aarp.org/research/topics/community/info-2018/2018-home-community-preference.html.
5- 2019 U.S. Department of Health and Human Services, LongTermCare.gov., Oct. 10, 2017.
6- Bureau of Labor Statistics, U.S. Department of Labor, Occupational Outlook Handbook, Home Health Aides and Personal Care Aides, https://www.bls.gov/ooh/healthcare/home-health-aides-and-personal-care-aides.htm, accessed Oct. 2, 2019.
7- Genworth estimates of how much care might cost in future years, based on 3% annual inflation. Represents average cost through 2008, switched to median in 2009. Genworth Cost of Care Survey 2004-2019, conducted by CareScout®.
8- Proprietary Genworth long term care claims data as of November 2019.
9- “Formal cost of long-term care services. How can society meet a growing need?” PwC, 2017.