Over the next two decades, the number of Americans over 65 will double and exceed 20% of the U.S. population. The number of people over 80, who generally need more health care, will quadruple. Unfortunately, despite the greater need for health care, the number of caregivers available to serve a larger senior population is projected to grow very little.
Demography is the main culprit. The supply of long-term elder-care workers, traditionally drawn from a pool of women 25 to 44, is falling after decades of steady growth. In addition, more of the future elderly will be childless, which will increase total demand for paid caregiving.
According to widely used estimates, about 40% of the nation's 76 million elderly will require chronic custodial long term care services for an average of 2.5 years. The resulting caregiver shortage will increase care costs at a 5% compound annual growth rate.
As an example, the current cost of in-home or nursing home long term care in the New York area —where costs admittedly are among the highest in the nation — is now about $100,000. The cost will rise to $1 million in 2037 under our assumptions.
Many seniors still do not realize that Medicare covers only minimal LTC services. Medicare may cover nursing home rehabilitation for 100 days after a hospital stay but usually permits only 30 days. It allows only 17 days annually for physical therapy and pays for hospice short visits for six months before expected death. The 2005 passage of the Medicaid Deficit Reduction Act also substantially limited LTC services, so qualifying for Medicaid and nursing home care after sliding into poverty now may require more than five years. In most states, Medicaid covers only limited home care services.
Unfortunately, few seniors are economically or personally prepared for the projected shortage of good or available caregivers. This means that financial advisers should examine LTC planning and that clients and their families must realistically review their retirement funding.
The importance of developing and updating adequate financial, banking, legal and health plans is essential but often neglected. Women in particular should develop LTC plans, as they live longer than men and are at higher risk of needing LTC services.
Since most seniors do not have the retirement savings necessary to fund long term care for two or three years on their own, LTC insurance will remain essential despite its flaws.
Currently, family caregivers care for more than two-thirds of seniors who require care. Most LTC policies — aside from a relatively few flexible and expensive ones — will not pay for caregiving by an insured's family. In fact, most LTC policies still are not flexible enough to pay for a private independent caregiver.
Most policies require that a care agency or a licensed caregiver be hired at home. However, with the looming caregiver shortage and the difficulty of finding better care, consider policies that permit an insured person to hire private caregivers at home.
Financial advisers also should become aware of alternatives or supplements to in-home caregiving — for example, community- and government-provided senior services. One program in New York's Westchester County, for instance, allows seniors to share affordable housing.
Quiet Care, from the New York-based Living Independently Group Inc., provides a technology solution: by equipping a senior's residence with sensors, the company provides family members with a round-the-clock early-warning system about the safety and well-being of their elderly loved one.
When helping clients or family members submit claims to LTC insurers, advisers should be aware that an insured person's primary doctor may not be the best person to evaluate dementia or level of incapacity. Advisers should consider recommending that the family hire a geriatric nurse specialist to submit and support the claim.
Despite the likelihood of fewer caregivers' being available when aging baby boomers will need them most, purchasing LTC insurance still makes sense for those older than 50 and younger than 70. Costs may vary greatly depending on coverage, and the purchaser's location and age — and premiums may be increased during the life of the policy — but considering that so few people can pay for long term care on their own, an LTC policy is still the best alternative.
Alfred C. Capp Jr. is president of Financial Strategies and Services Corp., a New York-based firm that specializes in planning for seniors.
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