Long-term care might be an overlooked expenditure, but it is becoming increasingly important to incorporate in retirement planning — especially for younger generations.
The number of Americans expected to need long-term care services, which include activities of daily living such as bathing and eating, is expected to double from 7 million today to 14 million in 2065, according to MedicareGuide.com, a website dedicated to Medicare resources. The site did an analysis of the Department of Health and Human Services research conducted by the Urban Institute, as well as used the National Association of Insurance Commissioners and AARP as resources for its report.
Based on the analysis, more than half of Americans will require help with bathing, eating and other activities of daily living by the time they turn 90 years old. They and their family members will be responsible for the care and cost of these necessities.
See: Long-term-care insurance cost: Everything you need to know
These figures could be especially detrimental to millennials and younger generations. The number of Americans who will have at least two disabilities will increase between now and 2065, at which point millennials will be somewhere in their 70s or 80s.
Neglecting to include long-term-care planning when figuring out how much to accumulate for retirement can be an expensive oversight. Healthcare alone is one of the highest expenditures for retirees, and that’s without long-term care costs included. A 65-year-old couple retiring in 2020 could expect to spend $295,000 on healthcare costs during their retirement, and that estimate will continue to rise, according to Fidelity Investments. Long-term care costs could be additional thousands (or tens or hundreds of thousands) of dollars more depending on needs and services provided.
Many private insurance plans and Medicare do not offer coverage for long-term care needs. Long-term-care insurance is one way to mitigate these expenses, but it becomes costlier as one ages. Experts typically advise individuals to consider paying for long-term-care insurance in their 40s or 50s and while they are at their healthiest.
Long-term care insurance cost: Everything you need to know
Whether provided in a nursing home, assisted living facility, or inside the home, long-term care (LTC) services offer daily assistance for people with chronic illness or disabilities. They help patients with various essential tasks, from eating, bathing, and dressing to housekeeping, grocery shopping, and even money management.
Most employer-sponsored private insurance plans don’t cover long-term care services, nor does Medicare. And without a stand-alone LTC insurance policy, your annual out-of-pocket costs could range from $20,000 to $100,000, depending on the type of care you need.
The reality is that around 7 out of every 10 seniors will need long-term care at some point during their lifetime. But if you start planning early, you can avoid mountains of medical bills and associated debt.
This article will cover how long-term care insurance works, who might need it, the services it covers, and a review of average LTC premium costs.
Key takeaways:
- Long-term care refers to services received from nursing homes, assisted living facilities, in-home care providers, and adult day care centers. These services help with eating, bathing, mobility, and other custodial tasks that patients can’t complete independently.
- Without long-term care insurance, annual LTC costs in 2020 range from $93,075 to $105,850 for care in a nursing home, $53,768 for homemaker services, $54,912 for a home health aide, $51,600 for an assisted living facility, and $19,240 for adult day health care.
- Most medical and disability insurance policies, including Medicare, don’t cover long-term care, which is why you need a separate LTC insurance policy.
- LTC premiums vary by age, gender, and the type of plan and carrier you choose. On average in 2021, a single 55-year-old male purchasing a $165,000 policy benefit will pay $950 per year, while a single 55-year-old woman will pay $1,500 annually. Adding 10 years, a 65-year-old single male will pay $1,700 per year for the policy, while a single female of the same age will pay $2,700.
- LTC insurance eligibility and pricing varies depending on your age and health condition. Experts recommend signing on to a long-term care policy in your mid-50s.
What is long-term care insurance?
Long-term care insurance policies serve people with chronic medical conditions or disabilities, such as Alzheimer’s disease, who need assistance with daily living activities.
Long-term care is provided by professional home health aides, adult day care services, nursing homes, and assisted living facilities. Another common source is family and friends who are caring for a loved one without pay. In fact, 80% of at-home care comes from unpaid caregivers, according to the U.S. Department of Health and Human Services (DHHS).
What services does long-term care insurance cover?
Long-term care services offer both medical and non-medical assistance. On the medical side, they help with Activities of Daily Living (or ADLs), such as:
- Bathing
- Dressing
- Using the toilet
- Transferring (moving short-range from one position to another, like from a bed to a chair)
- Incontinence
- Eating and drinking
Many long-term care services also support activities outside of basic daily medical needs. These Instrumental Activities of Daily Living (IADLs) include:
- Housekeeping
- Taking medications
- Money management
- Grocery shopping
- Pet care
Do other types of insurance plans offer LTC coverage?
Standard health insurance plans do not offer long-term care coverage. This includes both employer-sponsored health insurance policies, as well as federal health care programs such as Medicare. While Original Medicare does not cover long-term care insurance, it may pay for 100 days of skilled nursing services or rehabilitative stay in a nursing home. Beyond that, Medicare beneficiaries must pay 100% of the cost of LTC services.
Medicaid, on the other hand, does cover some long-term care coverage for people who fit the low-income criteria necessary to qualify for the program. Medicaid is the largest public payer of LTC services nationwide. Federal programs through the Department of Veterans Affairs may pay for long-term care services under some circumstances.
Generally, if you need long-term care services, you’ll need a private long-term care insurance policy. Alternatively, you could use a reverse mortgage, life insurance, or annuities to pay for long-term care costs. Otherwise, you’ll have to pay out-of-pocket costs, many of which add up to $50,000 to $100,000 per year. More on that below.
Long-term care costs without insurance
The cost of care varies widely and may depend on the type of care you need, how long you need it for, which provider you use, and where you live. Costs may also depend on the time of the service provider’s shift; home health care services are often more expensive on evenings, weekends, and holidays.
According to data from the insurance firm Genworth Financial, the national average costs for long-term care in 2020 are as follows:
- Nursing homes: $255 per day or $7,756 per month for a semi-private room; $293 per day or $8,821 per month for a private room
- One-bedroom unit in an assisted living facility: $141 per day or $4,300 per month
- Home health aide: $150 per day ($24 hourly) or $4,576 per month
- Homemaker services: $147 per day ($23.50 hourly) or $4,481 per month
- Adult day health care centers: $74 per day or $1,603 per month
Long-term care insurance cost: Average 2021 premiums
Annual premiums vary by gender, marital status, health condition, and the carrier and policy you choose. Long-term care insurance premiums are priced based on your age when you apply. Every year on your birthday, the annual rate increases. It will typically rise by 2% to 4% in your 50s, but it may jump 6% to 8% per year in your 60s.
According to data from the American Association for Long-Term Care Insurance, a policy valued at $165,000 equates to the following annual premiums (on average) in 2021:
| Purchaser | Age | Annual Premium* |
| Single Male | 55 | $950 |
| Single Female | 55 | $1,500 |
| Couple | 55 | $2,080 (combined) |
| Single Male | 65 | $1,700 |
| Single Female | 65 | $2,700 |
| Couple | 65 | $3,750 (combined) |
* Rates reflect the initial benefit amount valued at $165,000
Alternative to traditional long-term care insurance, you could opt for a hybrid long-term care insurance policy, which combines life insurance or annuities with long-term care benefits. These policies are typically best for people who have funds sitting in money market accounts, as the average cost of a single-premium policy is $75,000. Home equity and reverse mortgages may also help pay for long-term care costs.
Who needs long-term care insurance?
Per DHHS statistics, today’s 65-year-olds have a 70% chance of needing long-term care services at some point. While most people (around 69%) will likely only need long-term care services for three years, 20% will need it for five years or longer.
According to the American Association for Long-Term Care Insurance, the ideal time to apply for LTC insurance is in your mid-50s. Don’t wait until your health needs demand immediate long-term care. At that point, you probably won’t qualify. Sign on when you’re still in good health so you can lock in the discounts LTC plans extend to applicants in good health.
The more you age, the less likely you’ll qualify for good health discounts. It will also increase your chances of getting declined due to your current health conditions.