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The Unexpected Costs of Long-Term Care

In a 2013 poll by the U.S. Senate Commission on Long-Term Care, more than 65% of Americans said they have done little or no planning for the cost of care or other future living expenses. The problem here lies in who then carries the burden if strategies are not in place for the growing population of long-term care recipients.

An aging nation
With more than 12 million people across the country dependent on long-term care, it's no surprise that the cost of these services reached the $317 billion mark in 2011, according to the commission's report to Congress. What is surprising are the untallied costs of long-term care.

Based on research from AARP, more than $450 billion worth of care is provided by informal, unpaid caregivers annually. Nearly 42 million of these unpaid helpers were primary caregivers, while a total of 62 million people provided some sort of care during the year in 2009. Though it's hard to calculate the total amount of unpaid care given, the $450 billion figure is four times the amount of paid care by both public (Medicaid) and private sources.

The concept of caring for a loved one is not a new one: A Pew Research poll found that 75% of Americans thought of taking care of an aging parent in need as a responsibility. But with 71% of baby boomers having at least one parent alive and 29% of boomers providing some sort of financial support to a parent in the past year, the burden of providing care can be overwhelming.

The working costs of tender, loving care
In 2013, Genworth Financial conducted a "Beyond Dollars" survey of unpaid caregivers on various aspects of their support of a loved one. The survey found that one-third of the caregivers surveyed gave 30 or more hours of their time each week, while the average time devoted to caregiving was 21 hours per week.

Sixty-five percent of the people surveyed noted at least one impact to their work life:

Career-Related Costs of Care-giving | The Motley Fool | Data from Genworth Financial Beyond Dollars Survey.

A study by the Organisation for Economic Co-operation and Development (OECD) found that intensive caregiving is associated with a reduction in labor force attachment for caregivers of working age, as well as higher poverty rates.

And it's not just the caregivers who are being affected: A 2004 estimate of the cost to U.S. businesses for lost productivity, new-hire training, and other related expenses rose to over $34 billion. Though the estimate is a decade old, it serves as a keen reminder that the costs of providing care for a loved one extend beyond the immediate family.

The loss of work hours, promotions, and even jobs leads to reduced income. Nearly 60% of the "Beyond Dollars" survey respondents said they had to reduce their own spending, with the average caregiver providing $8,000 of financial support to their long-term care recipient.

More than dollars
Not only are the financial livelihoods of unpaid caregivers at stake, but so are their health and well-being.

The stress of caring for a loved one can take a serious toll. Nearly half of the "Beyond Dollars" survey respondents said they had experienced negative feelings like depression. The OECD's research also suggests that providing long-term care to a loved one can result in higher incidences of mental health issues.

In terms of family life, the picture doesn't get much rosier for informal caregivers. Problems with spouses (37%) and other family members (34%) were widely reported in the "Beyond Dollars" survey as well.

The future of caregiving
The first wave of baby boomers have already begun to turn 65. Almost 10,000 are doing so daily -- and this will continue for the next 16 years. As the nation's largest generation ages, the demand for long-term care is bound to increase. Data suggests that 69% of people over the age of 65 will require some form of long-term care in their lifetime.

Long-term Care Distribution By Length of Required Help | The Motley Fool | Data from Commission on Long-term Care.

But as the population ages, the number of caregivers will begin to decline due to aging and other factors like small family sizes. The following chart from AARP helps show how the average long-term care recipient will have fewer family members or friends to depend on for unpaid care:

Source: AARP.

The sharp decline in available caregivers will likely result in magnified stress for those who are providing help to loved ones. It may also result in a higher percentage of older people turning to paid care, even if they haven't planned on how to pay the ongoing costs.

Future planning
With few Americans taking the necessary steps to prepare for the often-inevitable expense of a long-term care requirement, the costs (financial or not) are being passed on to those left providing the care and support. Though the thought of needing long-term care may not be a pleasant topic for you our your loved ones, no retirement plan should be considered complete until the topic of ongoing costs of care are addressed.

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Read/Post Comments (7) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 12, 2014, at 11:53 PM, melanietillman wrote:

    People underestimate the cost of long-term care today, which often forces them to use up all their savings. There are even some who totally forget about long term care when they plan for retirement. This is worse than underestimating the cost and sad to say a lot of people are doing this. People should accept the fact that 70% of people who are 65 years old and above will require long term care and they should take this seriously as well. A semi-private room in a nursing home can cost you around $81,000 and an assisted living facility can cost you around $41,000 annually. How can you cover these expenses if you don't have a plan? so I suggest to do long term care planning early and here's a guide on how you can do it: http://www.ltcoptions.com/planning-for-long-term-care/long-t.... I hope this helps.

  • Report this Comment On May 12, 2014, at 11:54 PM, melanietillman wrote:

    People underestimate the cost of long-term care today, which often forces them to use up all their savings. There are even some who totally forget about long term care when they plan for retirement. This is worse than underestimating the cost and sad to say a lot of people are doing this. People should accept the fact that 70% of people who are 65 years old and above will require long term care and they should take this seriously as well. A semi-private room in a nursing home can cost you around $81,000 and an assisted living facility can cost you around $41,000 annually. How can you cover these expenses if you don't have a plan? so I suggest to do long term care planning early and here's a guide on how you can do it: http://www.ltcoptions.com/planning-for-long-term-care/long-t.... I hope this helps.

  • Report this Comment On May 13, 2014, at 8:26 AM, mgnathans wrote:

    Only one out of three who apply for a long term care policy can qualify. Your health is the real key for qualifying. Many wait until a health event to apply and then it may be too late. In about 2 years, a new blood test will be available that predicts Alzheimer's Disease and that could make it even more difficult to qualify. Reading between the lines...apply while you are healthy - and under 60 years of age - for the best rates. http://good-thrift.com/will-i-qualify-for-long-term-care-ins...

  • Report this Comment On May 14, 2014, at 1:19 PM, skaarman wrote:

    This is one of the better more intuitive articles I have read about Long-Term Care. It is the first article I can remember that mentions the issue of declining number of care givers per capita. Good job.

  • Report this Comment On May 14, 2014, at 1:48 PM, deckdawg wrote:

    Long term care insurance, as it is currently constituted, has not proven to be a good solution to the problem. It is very difficult to price this product: many insurance companies have even gotten out of this business. I have been pitched LTC insurance, and found the cost to be ridiculous. Very few people will actually buy it and keep up the premiums.

    A creative alternative might be to buy a life insurance product which could be borrowed against to finance LTC, or if LTC is not needed, left to heirs. Another alternative might be to just save more money ... perhaps set aside Roth accounts specifically for the purpose of funding LTC.

  • Report this Comment On May 15, 2014, at 11:33 AM, skaarman wrote:

    Regarding Deckdawg's solution. I agree that premiums for LTCi are high compared to other forms of insurance that cover things that are highly unlikely to occur. A term policy that is expected to end by age 65 is comparatively inexpensive. That's because the likelihood of passing away before age 65 is very unlikely statistically, where as the need for LTC after age 65 is more likely to be required than not, 70%. Have you seen what Life insurance premiums cost after age 70?

    Your solution of buying life insurance or putting money away has two issues. 1) it requires a lot of up front money. 2) does not address the inflationary cost of care. As demonstrated in the Caregiver Support Ratio, when the law of supply and demand kicks in the costs of care are going to sky rocket for all levels of care.

    Your solution is based on the notion that you probable won't need care and if you do it won't be required for a long period of time. What happens if your wrong and you are now dealing with 8 years of dementia? How much money would you have to set aside today in order to deal with this life occurrence sometime in the future? What would be the consequences to your family if they are thrown into being caregivers?

    My Grandparents thought the same as you, that is until my super healthy Grandfather had a stroke and had to receive some level of care for 6 years. During which time there were two recessions that decimated invested assets. That plan was really expensive.

    Compared to other forms of insurance, LTCi is relatively young, 45 years. There have been some issues with pricing because of underestimated and unexpected occurrences. The policies that are issued today while more expensive then those sold even 10 years ago, are more stable premium wise.

    The bottom line is "Does your plan really work or are you just hoping you won't need it?"

  • Report this Comment On June 05, 2014, at 7:10 PM, RachelMcQuade wrote:

    Long Term Care Insurance provides a solution to the problem. Because there is a chance you will buy Long Term Care Insurance and never use it, it's important to strike a balance between coverage and affordability. That isn't a reason NOT to buy the insurance, though.

    There is also a good chance you will buy Homeowner’s Insurance and your house will never burn down. However, people recognize the fact that should their house burn down, they would have to exhaust all of their financial assets in order to regain a normal life.

    It is no different with Long Term Care Insurance. If you have a substantial amount of assets, it is in your best interest to invest in Long Term Care Insurance. It comes down to making a small mistake and paying premiums for a policy you will never use vs. not having coverage and having to pay an average of $80,000 a year for a nursing home out of pocket, for 3-5 years.

    That being said, do your research. It can be tempting to purchase the first policy you find, but do not make that mistake. Be sure you are purchasing a policy from a highly rated provider that has financial stability and longevity. At LTC Tree, we help consumers shop the market and provide a quote comparison, all without a sales appointment.

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Jessica Alling
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Contributing writer for Fool.com covering the financial sector with an emphasis on the insurance industry.

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