The possibility of needing long-term care—basically, needing to live in a nursing home or needing in-home nursing services—is a significant, and largely unpredictable, retirement security challenge.
The Employee Benefit Research Institute (EBRI) projects a baseline estimate (assuming no change in the current system) ) that 57.4% of US household headed by individuals between the ages of 35 and 64 will achieve retirement success (namely, they will not run short of money in retirement). If long-term care costs are suppressed/ignored this value increases to 75.5%. (EBRI Retirement Security Projection Model®(RSPM) – Analyzing Policy and Design Proposals, Jack VanDerhei, Ph.D., Employee Benefit Research Institute, 2018.)
So, long-term care presents a significant risk to retirement security. And we’re kind of in denial about it.
The Cost of Long-Term Care
Long-term care is expensive. According to LongTermCare.gov, a semi-private room in a nursing home costs $225 a day/$6,844 per month—around $82,000 a year. This cost varies widely by state (and by the quality of care). And care for individuals with dementia or other special needs is considerably higher, increasing costs by as much as 20%-30%.
The challenges presented by the risk of having to pay these costs are especially acute for lower income workers. Why? Because the income replacement target of a worker earning, say, $50,000 per year is (perhaps) 60%-80% of that number, i.e., around $30,000-$40,000 per year. Nursing home/care costs are, however, not a function of income. Within some general limits (and subject to some obvious exceptions) the cost is the same whether you are rich or poor.
A Problem of Risk, Not Income
All of that is to say that the long-term care challenge is a problem of risk, not a problem of income. If you need long-term care, you are confronted with a cost challenge that your Social Security benefit—often adequate to your income needs (particularly at lower incomes)—won’t cover.
The risk is that, in retirement, not only are you going to no longer be able to earn an income, but at some point you will no longer be able to take care of yourself at all. That doesn’t happen to everybody, or even to the majority of retirees. But if it happens to you, it can sink your retirement boat.
The risk of needing long-term care falls disproportionately on women. They make up around 70% of nursing home residents and two-thirds of those suffering with dementia and Alzheimer’s disease. The obvious reason for this is that women (on average) live longer than men. It’s no accident that one of the main nursing home search services is called “A Place for Mom.”
What Is Plan B?
For individuals and their families without adequate resources, there are two main alternatives. First, their families can (and often do) shoulder much of the responsibility for caring for them.
Overall, 16.3% of Americans provide unpaid care to an adult age 50 or over (overwhelmingly, a relative, typically a parent or grandparent). Doing so puts all sorts of strain on the caregiver, physical (21% report a decline in health), emotional (40% “consider their caregiving situation to be highly emotionally stressful”), and social (21% report “feeling alone”). And, caregiving can drain the caregiver’s resources—27% stop saving, 20% use up short-term savings, and 11 % use up long-term savings (including retirement accounts). (“Caregiving in the U.S. 2020: A Focused Look at Family Caregivers of Adults Age 50+”, AARP, 2020.)
Whatever the benefits of DIY-ing long-term care (e.g., emotional connection and an increased sense of purpose), it has a significant cost. Moreover, for the increasing number of individuals who are remaining childless, relying on family may be a problem.
The other obvious Plan B is a Medicaid nursing home. Medicaid pays 30% of total nursing home reimbursements and is the primary payor for more than 60% of nursing home residents. However, Medicaid long-term care assistance is limited to those with very limited means, typically a monthly income of no more than $2,382, and $2,000 or less in assets. Indeed, sometimes individuals may engage in a variety of strategies to reduce their “excess assets.”
And the quality of Medicaid nursing homes varies widely, both state by state and with the community served: “in poorer areas nursing homes…tend to have fewer staff, go through more frequent changes in ownership, and perform worse on key quality metrics including incidence of pressure ulcers, use of physical restraints, and antipsychotic medications.” (“Medicaid and Quality of Care: How our Funding Structure Failed Nursing Homes,” Ariadne Labs, Sam Cox, 2020.)
Long-Term Care Insurance?
Is long-term care insurance a solution? There are a couple of problems with that.
First, it’s expensive. Annual rates (in 2020) for a policy with premium payments beginning at age 55, for total benefits maxing out at $386,500 (per individual) at age 85, were $1,700 (single male), $2,675 (single female), and $3,050 (couple). (“Long-Term Care Insurance Facts – Data – Statistics – 2020 Reports,” American Association for Long-Term Care Insurance.)
Second, it’s a thin market that has gotten a lot thinner over the last two decades, with the number of carriers falling from over 100 (2004) to “about a dozen” (2020), and the number of individual policies dropping from 372,000 (2004) to under 70,000 (2017). (The State of Long-Term Care Insurance.)
It looks like, at these prices, most individuals simply prefer to self-insure. And a lot of people simply can’t afford long-term care insurance—critically, those lower income individuals for whom Social Security is an adequate income solution but totally inadequate as a long-term care solution.
A Social Solution?
If we care about the “retirement crisis,” then we should care about finding an adequate solution to the long-term care challenge I’ve just outlined. I believe that challenge—which, as discussed, is one of risk, not income—should be handled socially, at least for those individuals whose working income is not adequate to meet long-term care costs.
To be clear, I think we need a federal program financed out of general revenues that provides adequate long-term care to individuals meeting certain criteria-of-need, within income/net worth limits that are much more generous than the current Medicaid limits. Indeed, maybe all we need is more relaxed Medicaid criteria plus better quality control.
Frankly, I don’t think there is any other way to deal with this.
In staking out that position, let me acknowledge three deep problems, in ascending order of difficulty, with implementing such a social solution.
The problem of means and need: Obviously there will be an opportunity for (unscrupulous) individuals who do have adequate means to provide long-term care for themselves, or who don’t really need long-term care, to game such a system. We would need realistic and credible enforcement of wealth limits/need criteria, so that all the rest of us who are paying for this don’t feel ripped off.
The problem of quality and accountability: Similarly—and fundamental to such a project—we would need adequate criteria for judging the quality of care being provided—objective, enforceable standards.
The problem of cost: As with health care and college education, when you dump money into a system like this, it drives up prices. I do not know how to prevent this, short of nationalizing the Medicaid nursing home industry. But we have to solve this problem—we can’t wind up where we are with health care, with the most expensive system in the first world.
When I think of all these issues I think—why are there no easy problems with obvious solutions? You’re tempted to throw up your hands and just focus on taking care of yourself.
But remember—these are generally infirm individuals who are, in many respects, literally helpless. They are our fathers and, especially, our mothers. Taking care of them is kind of what it means to live together in community.
