The rising crisis of long-term care costs

[UNITED STATES] Long-term care expenses can be overwhelming, often exceeding $100,000, yet many households are not financially prepared to handle these costs, according to financial experts.

“People don’t plan for it in advance,” said Carolyn McClanahan, a physician and certified financial planner from Jacksonville, Florida. “It’s a huge problem.”

A 2022 report from the U.S. Department of Health and Human Services (HHS) and the Urban Institute reveals that more than half of Americans turning 65 today—57%—will face a disability severe enough to require long-term care. Such disabilities can include conditions like dementia, Alzheimer’s, Parkinson’s disease, or the aftereffects of a stroke.

The situation is compounded by an aging population and the rise of chronic health conditions. By 2030, all baby boomers will be at least 65 years old, and the U.S. Census Bureau forecasts that for the first time, older adults will outnumber children. This demographic shift is placing immense pressure on families and the healthcare system, underscoring the need for early planning.

The projected average cost of long-term care for someone turning 65 today is approximately $122,400, according to the HHS-Urban report.

However, many people will need care for several years, pushing their total lifetime costs into the hundreds of thousands—an amount beyond the financial reach of many Americans, say report authors Richard Johnson and Judith Dey.

As life expectancy increases and the U.S. population continues to age, the number of people requiring long-term care is expected to rise significantly.

“It’s clear that workers do not have that level of savings in their retirement accounts, checking or savings accounts, and the majority lack long-term care insurance,” said Bridget Bearden, a research strategist at the Employee Benefit Research Institute (EBRI). “So, where is the money going to come from?”

While many who need long-term care do not spend exorbitantly, the cost is still significant. Nationally, it averages around $6,300 per month for home health aides and $9,700 for a private nursing home room, based on 2023 data from the insurer Genworth.

Cost variations are substantial from state to state. For example, a private nursing home room can cost over $12,000 a month in Alaska but closer to $7,500 in Texas. These regional differences further complicate financial planning, as families may need to consider relocation or alternative care options to manage costs.

Many households, unfortunately, may not fully grasp the future costs involved. A poll conducted by the Employee Benefit Research Institute (EBRI) revealed that 73% of workers expect to provide long-term care for an adult loved one in the future. However, only 29% of these caregivers have estimated the future cost of that care. Among those who did attempt to estimate, 37% believed the annual costs would be less than $25,000.

The survey, conducted with 2,445 employees ages 20 to 74 in late 2024, highlights a common misunderstanding of the true financial burden.

Health insurance and Medicare typically do not cover long-term care expenses. Medicare, for example, may cover “skilled” care for up to 100 days, which is primarily for rehabilitation or nursing care, said McClanahan. However, it does not cover “custodial” care, which includes help with daily activities like dressing, bathing, and eating—the majority of long-term care needs.

To fill this gap, many families rely on informal caregiving, but this approach often incurs high personal and financial costs. According to a 2023 AARP report, unpaid family caregivers spend an average of $7,200 annually out-of-pocket, in addition to facing lost wages and career interruptions. This underscores the need for more comprehensive solutions to support both caregivers and care recipients.

Medicaid, which currently covers the largest share of long-term care costs, is not available to everyone. Many Medicaid recipients come from low-income households, and to qualify for long-term care benefits, families may need to deplete a significant portion of their assets.

“You basically have to be destitute,” McClanahan remarked. Amid discussions in Washington about potential cuts to Medicaid as part of broader tax reform, experts warn that changes to the program could make it more difficult for Americans to access long-term care benefits.

Moreover, relatively few households are insured against long-term care risks. Only about 7.5 million Americans held some form of long-term care insurance in 2020, according to the Congressional Research Service. This number is small compared to the 4 million baby boomers expected to retire annually from 2024 to 2027.

Some states, such as Washington, have implemented public long-term care insurance programs, and others, including California, Massachusetts, Minnesota, New York, and Pennsylvania, are exploring similar options.

Employers are starting to acknowledge the growing need for long-term care benefits, with some offering hybrid life insurance policies that include long-term care riders or voluntary group plans as part of their benefits packages. However, only about 10% of employers currently offer such options, according to the Society for Human Resource Management.

For those who are at high risk of needing prolonged care, such as individuals with a family history of dementia, McClanahan suggests considering hybrid insurance policies that combine life insurance and long-term care coverage. These policies are often more affordable than standalone long-term care plans, which tend to be expensive.

When selecting insurance, McClanahan advises caution regarding how benefits are paid out. Reimbursement policies require the insured to choose from a list of preferred providers and submit receipts for reimbursement, which can be difficult for some individuals, particularly seniors. On the other hand, indemnity policies—which McClanahan recommends—provide cash benefits as soon as the insured qualifies for care, allowing them to use the funds as needed. However, these policies often have lower benefit amounts than reimbursement policies.

Being proactive in planning for long-term care is essential, experts say. McClanahan highlights that the unpredictability of long-term care costs is one of the biggest challenges, as people can’t always anticipate when they might need care.

The most common mistake McClanahan observes is that people fail to think about long-term care or discuss it with their families until it’s too late. Experts suggest starting these conversations in middle age, covering topics such as preferences for aging in place versus moving to a care facility and strategies for financing long-term care. Tools like cost calculators and consultations with elder law attorneys can help families develop a personalized plan that accounts for their financial situation and health history.