Costs of Long-Term Care

How Much does Long-Term Care Cost?

It’s no secret – along with most other healthcare costs, the cost of long-term care is rising. According to a study by Genworth Financial, one of the largest LTC insurers in the market, the monthly average cost of an assisted living facility has grown by an annualized rate of 4.26% over the past five years. This means that costs have grown at a rate higher than inflation and gross domestic product. The costs of other LTC services have risen as well, particularly for LTC performed in a facility.

In 2013, the average annual cost of a private nursing home hit $83,950. The average hourly cost of a home health aide, someone who provides home care, hit $19 an hour. If you assume 8 hours of daily care and five days of care per week, the annual cost was almost $40,000. These costs are substantial, and, if the recent path tells us anything, they will continue to rise.

It’s important to consider how these costs can add up over time. Consider these facts from the US Department of Health:

  • On average, a 65-year-old American in 2013 will need LTC for three years
  • The average woman will need care for almost four years, while the average man will need a bit more than two years of care
  • 20% of today’s 65-year-olds will need long-term care of some kind for more than 5 years

How to Pay for LTC

Many Americans believe that Medicaid and Medicare will cover the majority of long-term care costs. This belief is a misconception, and even in cases where one of the programs will cover the bulk of care, reliance on a government program and limit your options. In short, you will pay for LTC services through public programs, private payment options, or personal savings.

The two public options you need to know are Medicaid and Medicare. Medicaid pays for a larger share of LTC costs, but there are strict eligibility requirements that you must meet, mostly related to income. In general, you have to deplete a large amount of your personal assets before you can rely on Medicaid for coverage. Medicare covers skilled services such as nursing homes or skilled home care. It does not pay for general assistance with activities of daily living (ADLs), and unfortunately these make up most LTC costs. Not every LTC service provider accepts Medicaid and Medicare, so you may also end up in a situation where you have to choose a provider that is not best suited to your personal needs.

Private payment options include long-term care insurance, long-term care annuities, health insurance plans, reverse mortgage, and life insurance. Of these options, LTC insurance typically covers the largest amount of LTC expenses. However, you may not qualify for LTC insurance in certain cases. We strongly recommend considering private payment options, and we cover long-term care insurance and private options in general in more detail here and here.

Self-insurance, which basically means personal savings, has grown in popularity in recent years. If you choose to self-insure, you calculate how much you expect to spend on long-term care over your lifetime and then begin a savings and investment plan to meet these costs. Though self-insurance works for some individuals, we strongly recommend that you proceed with caution. If you depend on your personal savings, you are at risk of underestimating the costs of LTC, failure to save enough, or loss through your investments.