Saving for
An estimated 70% of Americans over 65 will need access to assisted living care, according to LongTermCare.gov. But with assisted living costs averaging $54,00 a year, retirees may find that difficult to cover without planning ahead. That's where long-term care insurance comes in.
Long-term care insurance provides tax-free reimbursement or cash to cover costs associated with assisted living, including care facilities, skilled nursing care and personal care assistance.
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"Long-term care insurance is designed to protect someone who ultimately needs care at an assisted living facility or a nursing home," says Tom Kelly, employee benefits specialist and principal at healthcare consulting firm Buck. "A lot of people think that Medicare covers them, but it doesn't really in our current ecosystem."
The American Association for Long-Term Care Insurance found that only 3% of the U.S. population has long-term care insurance. Kelly underlines this as a poor retirement strategy and has been working with employers to add long-term coverage to their benefits offerings. He notes that 20 years ago, long-term care was a popular benefit in the marketplace, but workers ultimately felt they weren't getting their money's worth — either because they didn't actually need long-term care or because the cost of care itself wasn't comparable with the high annual premiums.
However, now a majority of long-term care policies are sold in combination with life insurance, explains Kelly. If the member requires long-term care, the insurer will provide coverage for costs of care, while leaving the maximum amount possible aside for one's beneficiaries once the person passes away.
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"Unlike the previous era of use it or lose it, 85% of long-term care sales are through hybrid products," says Kelly. "You either get to have a death benefit, or you're going to use the long-term care benefits."
Thirteen states including California, Illinois, Michigan and New York are considering universal long-term care coverage. Washington has already adopted a public trust for long-term care, with each employee who lives in the state taxed at a rate of 58 cents per $100 of income. But individuals who apply to utilize the benefit can only receive a maximum of $36,500 in total once they work and contribute to the public fund for as many as 10 years.
Kelly points out that $36,500 is simply not enough, especially since the average man will need care assistance for 2.6 years and the average woman will need it for 3.5 years, with costs coming out to over $50,000 annually. Washington residents could opt out of being taxed for the state program, but they had to purchase their own qualifying long-term care insurance policy by Nov. 2021.
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"We saw a huge number of employees running to the open marketplace, because they felt they could get better value," says Kelly of trends in Washington state. "We had clients where 60% of their employees took the employer-sponsored plan, when we typically only see 5% to 10% enroll."
Still, a public safety net could at least help retirees
On the bright side, not every worker necessarily needs to rush to buy a policy right now. The American Association for Long-Term Care Insurance recommends Americans start shopping for a policy when they turn 52 — which is hopefully a more financially stable point in workers' careers.
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Kelly still advises employers to consider long-term care as a vital component of a holistic
"Most employers have invested heavily in retirement readiness, but without long-term care coverage you will have to tap into your retirement [savings]," says Kelly. "Long-term care is key to protecting your retirement assets and financial well-being."
