How Can Seniors Afford Soaring Long-Term Care Expenses?

The headline for a New York Times special report published on November 15, 2023, succinctly captures a growing national problem: “Facing Financial Ruin as Costs Soar for Elder Care.”

The article chronicles the sagas of families across the U.S. as they struggle to obtain long-term care and then find ways to pay for the services needed.

"Millions of families are facing daunting life choices — and potential financial ruin — as the escalating costs of in-home care, assisted living facilities and nursing homes devour the savings and incomes of older Americans and their relatives,” the Times reported.

The Scope of the Problem

KFF Health News analyzed the federally funded Health and Retirement Study, the most authoritative national survey of older people about their long-term care needs and financial resources, and found that roughly 8 million Americans 65 and older have difficulty with basic tasks like bathing and feeding themselves, and nearly 3 million of them have no assistance at all.

These findings are consistent with government estimates that nearly 7 in 10 retirees will need some type of long-term care during their lifetimes, according to the U.S. Department of Health and Human Services.

Jennifer Schell, a financial writer for Annuity.org, compiled some sobering statistics that paint a picture of America’s long-term care problem, which includes the following:

• Nursing home care costs an average of $108,408 per year for a private room;
• Long-term care insurance firms paid out a record $13.25 billion in 2022 and Medicaid spent $138.9 billion on long-term care services in 2021; and
• 1.4 million Americans received hospice care in 2023.

As America’s population continues to age in the decade ahead, the numbers above are likely to increase.

Paying for Long-Term Care

Paying for needed health care services for seniors is a challenge facing our nation. The underlying problem is that the U.S. lacks a coherent system of providing such care to our most vulnerable demographic, according to the Times story.

“The private market, where a minuscule portion of families buy long-term care insurance, has shriveled, reduced over years by giant rate hikes by insurers that had underestimated how much care people would actually use,” it reported. “Labor shortages have left families searching for workers willing to care for their elders in the home. And the cost of a spot in an assisted living facility has soared to an unaffordable level for most middle-class Americans.”

The U.S. allocates a smaller share of its GDP to long-term care than do most other wealthy nations, according to data from the Organization for Economic Cooperation and Development, and also dedicates far less of its overall health spending toward such care.

“We just don’t value elders the way that other countries and other cultures do,” said Rachel Werner, executive director of the Leonard Davis Institute of Health Economics at the University of Pennsylvania, in the Times report. “We don’t have a financing and insurance system for long-term care.”

Unfortunately, the lack of a coherent national system causes many seniors to deal with these soaring expenses on their own.  It leaves them at risk of financial ruin during their precious golden years.

"As retirees live longer, many worry about outliving their savings,” reported CNBC.com. “However, many older Americans haven’t planned for a looming expense: the cost of long-term care.”

Seniors are Searching for Answers

Most seniors are “pretty much in denial” about long-term care planning, says San Francisco-based certified financial planner and public accountant Larry Weiss, with NEXT Financial Group, in the NewRetirement blog. “Most clients aren’t aware of the needs or likelihood they’ll need long-term care; they only know that long-term care insurance, from their perspective, is too expensive.”

Unfortunately, Medicare — while generally popular with seniors for providing inexpensive health insurance coverage — does not cover long-term care.

“(Medicare) only provides limited short-term coverage, up to 100 days for skilled nursing or rehabilitation services after a three-day hospital stay,” according to the Lake County Examiner.

Therefore, for those seniors who do not purchase long-term care insurance, they are left with basically two choices: Medicaid or personal funds.

Medicaid is the primary payment source for long-term care in the U.S.  It covers roughly 60% of all nursing home residents nationwide, according to the Kaiser Family Foundation. The catch is that a senior, to be eligible for coverage, must have very little income and assets of no more than roughly $2,000, including investments. For all practical purposes, most people who enter a nursing home do not qualify for Medicaid at first but pay for care out-of-pocket until they deplete their savings enough to qualify.

In other words, seniors must essentially choose to go broke to pay for long-term care expenses through Medicaid.

And if they use personal funds for whatever period of time they can, a new expense item of perhaps $100,000.00 per year is potentially disastrous if they have not planned for that in their retirement budget in advance.

The National Association of Insurance Commissioners (NAIC), the U.S. regulatory support organization created by the chief insurance regulators from all 50 states, formed a subcommittee a few years ago to study this very issue. They set out to identify some prudent strategies for how seniors could obtain financial help for funding medical expenses — specifically the costs associated with long-term care.

The NAIC eventually issued a report that identified four viable options for privately funding these expensive health care costs. Of these four recommended funding strategies, only one of them does not involve seniors buying anything or spending any money from their own pockets: Life Settlements.

A life settlement is a proven strategy for generating cash from an unwanted or unaffordable life insurance policy. In a life settlement transaction, a senior sells his or her life insurance policy to a licensed third-party entity for a cash payment. The entity then takes over the premiums on the policy and collects the death benefit when the insured passes away.

The funds received by consumers can be used in any manner they choose, including to pay for health care expenses without affecting other retirement assets. In fact, the NAIC report also notes that seniors “in immediate need of long-term care can sell their life insurance policies and receive the proceeds of the sale free from federal tax.”

Life settlement transactions are highly regulated, with laws governing transactions in the overwhelming majority of states, covering approximately 90% of the US population.  The life settlement industry has experienced continued annual growth as more seniors become aware of the option to sell their unneeded or unwanted life insurance policies. 

The best way to ensure that a retiree is receiving a fair market price for his life insurance policy is to work with an experienced life settlement broker who is obligated, per applicable law to act in his best interests throughout the transactional process.

For more information on Welcome Funds life settlements and to receive a free, no-obligation life insurance policy appraisal, please call 1-877-227-4484 or visit www.welcomefunds.com.