Three things are true about long-term care, though many Americans don’t want to believe it: You are very likely to need it in old age. It will cost a lot more than you think. And, no, Medicare won’t pay for it.
Two recent studies help explain how Americans think about the financial aspects of their long-term care needs, and why they are so poorly prepared. But the results also may hold a key to future policy solutions to the challenges of funding personal care in old age.
The Reality
Let’s start with an analysis by Spencer Look and Jack VanDerhei of Morningstar’s Center for Retirement & Policy Studies. They looked at what long-term care is likely to cost the typical older adult and how the need for those services reduces the adequacy of their retirement savings.
The bottom line: If you need paid care, whether in a facility or at home, your likelihood of having sufficient retirement income falls from about 40% to about one-quarter.
Those at the highest risk: Single women, whose likelihood of running short of funds rises from about one-third to more than half; and Gen Z, whose chances of running out of money in old age will almost double if they have long-term care needs.
Two other results are very important, though unsurprising. The longer you live, the more likely you will need long-term care. And middle-income people, who are not poor enough to qualify for Medicaid but not wealthy enough to fund their care needs, are in trouble.
Overall, this study found about 43% of Baby Boomers will need paid long-term care before they die. That’s similar to a 2022 study by my Urban Institute colleague Rich Johnson.
While about half of Baby Boomers will have no long-term care expenses, costs will be steep for those who do. Among Boomers who need care, EBRI projected the present value of their lifetime costs will average about $240,000.
The cost for a single male will approach $190,000. Care for a single woman, who likely will need help for much longer, will run nearly $250,000.
The Expectation
That’s a credible picture of reality. Here’s what people think their futures will look like.
A survey by Bridget Bearden of the Employee Benefit Research Institute found that workers have a pretty good sense of their chances of needing paid long-term care. But they wildly underestimate what it will cost and have little understanding of who will pay for it or where to get it.
EBRI surveyed about 2,400 workers between ages 20 and 70. About 40% thought they’d need long-term care, close to expert projections. But one-third did not know what their chances were.
Fewer than 30% even tried to estimate their expected costs of care. Nearly half figured their annual expenses would range between $11,000 and $50,000, well below reality.
Who would pay the bill? More than four-in-ten thought it would be Medicare, and 29% said Medicaid. Less than one-third thought they’d pay out-of-pocket for a loved one’s care or the care recipient would pay.
The reality: With some very narrow exceptions, Medicare generally does not pay for long term care at all. Medicaid does pay, but only if you are very poor and have a high level of need.
The vast majority of middle-income people will pay out of retirement income, savings, or home equity. A few will have insurance. Some will go broke and become Medicaid-eligible, though federal funding for Medicaid is shrinking.
Unprepared
Given the widespread public confusion about who pays for long-term care, it should be unsurprising that so many workers are unprepared. For instance, while about one-quarter said their employers offered a long-term care insurance benefit, only about 9 percent enrolled. The biggest impediment: premium prices.
Oddly, about 40% said they purchased a long-term care insurance rider with their life insurance policies. But industry estimates only about one-quarter of life policies are sold with an LTC add-on.
And it isn’t just lack of resources. Nearly four-in-ten said they had little or no knowledge about where or how to get the services and supports their loved ones need.
For all that discouraging news, there was one potentially important result of the EBRI study: Many workers favor a government solution to the LTC financing problem.
About 27% preferred a state-based solution, while about 20% felt the federal government was best positioned to provide long-term care insurance. And by 58% to 42%, they preferred a catastrophic benefit, such as the WISH Act, to a front-end version.
Only 11 percent thought private insurance is the best alternative.
Almost two-thirds say they’d pay higher state payroll taxes to fund a public program, 57% said they’d pay higher Medicare taxes, and 55% would pay more Social Security taxes. Fewer than half say they’d rather buy a policy on the insurance market.
These two valuable studies paint a complex picture: The public remains dangerously il-informed about long-term care and how to pay for it,but seems open to a public insurance program even if they have to pay more taxes to fund it. Lawmakers should take note.
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