The Imperative of Long-Term Care Planning

Defining Long-Term Care and Its Scope

Long-term care insurance (LTCI) fundamentally diverges from traditional health insurance, as its core purpose is to cover extended services and supports for individuals experiencing chronic illnesses, disabilities, or cognitive impairments, such as Alzheimer’s disease. These vital services are meticulously designed to provide assistance with activities of daily living (ADLs), which include essential tasks like bathing, dressing, eating, and maintaining continence. Furthermore, they extend to instrumental activities of daily living (IADLs), encompassing broader support such as housekeeping and meal preparation. This crucial distinction highlights that most conventional health insurance policies and Medicare programs do not provide coverage for these non-medical, custodial care needs, leaving a significant gap in an individual’s healthcare safety net.1

Care can be delivered in a diverse array of settings, offering considerable flexibility to policyholders. Options span from receiving personalized care within one’s own home or through community-based programs like adult day care, to more structured and professionally staffed environments such as assisted living facilities or nursing homes.1 The ability to choose the most appropriate and comfortable setting for care is a substantial advantage of LTCI, empowering individuals to maintain a degree of autonomy and dignity as their needs evolve.1

Eligibility for LTCI benefits is typically activated upon a medical professional’s certification of a sustained need for assistance. This usually involves demonstrating an inability to perform a specified number of ADLs (commonly two) or experiencing a significant cognitive impairment. Some policies further stipulate that the need for services must be expected to persist for at least 90 days, ensuring that the coverage addresses genuinely long-term rather than temporary care requirements.2 The widespread relevance of this planning is underscored by projections indicating that the vast majority of individuals turning 65 in the U.S. are likely to require some form of long-term care during their lives.4 Factors that increase this likelihood include advancing age, gender (as women typically have longer life expectancies and thus a higher probability of needing care), existing disabilities, the presence of chronic health conditions, and living alone.4

The pervasive need for long-term care for activities of daily living represents a distinct and often underestimated dimension of healthcare that impacts a substantial majority of the aging population. This observation points to an “invisible” healthcare challenge. The fundamental distinction between “skilled” medical care, typically covered by health insurance and Medicare for acute, short-term periods, and “custodial” daily assistance, which falls under the purview of LTC, creates a significant and frequently unaddressed coverage gap. This gap, combined with the high statistical probability of needing long-term care, indicates a systemic vulnerability for individuals and the broader healthcare system. It can be characterized as an “invisible” challenge because it is not an acute, sudden medical emergency, but rather a chronic, pervasive need that most individuals will eventually face, yet often remain unprepared for financially and logistically. This situation necessitates a fundamental shift in how individuals and policymakers approach long-term health planning, extending beyond a sole focus on medical treatment to encompass the vital aspect of daily supportive care.

Furthermore, the rising need for long-term care, primarily driven by an aging demographic, suggests that traditional caregiving models will face increasing strain. This trend will necessitate the development and expansion of diverse, flexible care settings that extend beyond conventional institutionalization. As the U.S. population continues to age, the demand for long-term care services is expected to surge.4 The strong preference for home-based care, as indicated by individuals’ desires to remain in their own homes 4, signals a significant societal shift away from solely institutional settings. This trend, coupled with ongoing efforts to rebalance Medicaid-funded long-term services and supports towards home and community-based services 11, implies that future LTC models will increasingly prioritize and expand home and community-based care. This evolution in care models has far-reaching implications, including the need for growth in the home health aide workforce, the encouragement of new technologies for in-home monitoring and support, and the design of insurance products that comprehensively cover a wider array of care settings, moving beyond a historical emphasis solely on nursing homes.

The Escalating Costs of Care

Long-term care represents an extraordinarily expensive and continuously escalating financial burden, posing a significant risk that can rapidly deplete personal savings and retirement assets.5 The costs associated with various care settings have demonstrated notable increases year over year. For instance, the annual median cost of a private room in a nursing home experienced a substantial 9% increase from 2023 to 2024, reaching an average of $127,750.13 A semi-private room in a skilled nursing facility also saw a 7% increase, climbing to $111,325 annually in 2024.13

Assisted living facilities recorded a 10% jump in their annual median costs from 2023 to 2024, now standing at $70,800.13 Even in-home care, provided by a home health aide, reached an annual median of $77,792 in 2024, with hourly rates typically ranging between $33 and $34.13 Projections indicate that these costs are poised to continue their upward trajectory; for example, the median price of a semi-private room in a nursing home could climb to nearly $177,600 per year by 2025, assuming a modest 2% annual inflation rate.12

It is also important to recognize that care costs can vary significantly by geographic location. Some states, such as Alaska, Oregon, and Hawaii, report substantially higher annual costs for nursing home care compared to the national average, while states like Texas, Missouri, and Oklahoma present lower costs.15 Within New Jersey, for example, regional variations in long-term care costs are also observed.16 The potential for long-term care expenses to exceed $200,000 for approximately one-in-five Americans turning 65 today vividly illustrates the catastrophic financial risk involved, highlighting the critical necessity for proactive financial planning.11

The compounding effect of high annual costs for long-term care, combined with the potential for individuals to require care for extended periods, creates a significant financial burden that can rapidly deplete even substantial personal savings and retirement funds. This observation points to a “catastrophic cost” multiplier effect. The high annual costs of LTC are not isolated, one-time expenses; they represent a recurring financial outflow that can persist for several years, as indicated by benefit periods ranging from two to five years or even a lifetime.1 This sustained financial demand creates a scenario where even a relatively short period of care can quickly accumulate to hundreds of thousands of dollars, often far exceeding what many individuals have allocated in their general retirement savings. This implies that traditional retirement planning, which frequently focuses on income replacement, may be fundamentally insufficient without a dedicated strategy for LTC financing. The primary risk is not merely the annual cost, but the

duration of the care need, which acts as a multiplier on the financial impact, making asset preservation a paramount concern for individuals and families.

Furthermore, the significant variations in long-term care costs across different states and regions suggest the influence of localized market pressures, supply-demand imbalances, and differing regulatory environments that collectively impact service pricing. These pronounced geographical cost disparities are likely driven by a confluence of factors, including the local cost of living, prevailing labor costs for caregivers, state-specific regulatory requirements (such as mandated staffing ratios in facilities), and the overall availability and density of long-term care facilities and services in a given area. Higher costs in specific states could signal a tighter supply of care options relative to demand or higher operational expenses for providers. For individuals, this means that national average cost figures serve only as a general baseline; conducting localized research based on current or anticipated future residence is absolutely crucial for accurate and realistic financial planning. While an LTC insurance policy purchased in one state will indeed pay benefits in any state 2, the

purchasing power of those benefits will vary considerably depending on the actual costs in the state where care is ultimately received. This dynamic further underscores the importance of incorporating robust inflation protection and selecting sufficient benefit amounts to account for potential geographic relocation or future cost escalation within a specific region.

Table 1: Average Annual Costs of Long-Term Care Services in the USA (2024)

Thomas Brzezinski

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  Types of Long-Term Care Insurance Policies