Few Adults Can Afford the Cost of Long-Term Care and How to Finance It

What federal employees need to know about long-term care expenses.

The Kaiser Family Foundation (KFF), a non-profit foundation that does research and communications programs, focuses on major health care issues in the United States. Its goal is to be an unbiased source of facts, information, analysis and journalism for the general public.

In a recent survey that was completed in November 2023, KFF explored what individuals thought about Long-Term Care (LTC), how individuals will pay for LTC if needed in the future, and whether these individuals have taken any steps to prepare for any LTC needs.

The need for LTC services is growing rapidly. Millions of older adults in the US and younger people with disabilities require assistance with activities of daily living (ADLs). These people may need the services provided in residential facilities, such as nursing homes and assisted living facilities, or in their homes with LTC services being provided by paid or unpaid caregivers. However, the KFF survey, conducted in 2022, found that most adults do not feel prepared to manage the costs of LTC.

Ed hosts a Long-Term Care Webinar for Federal Employees -

This column further elaborates on the 2023 KFF survey and what federal employees and retirees need to do in order to prepare for possible LTC expenses.The key findings of the 2023 KFF Survey are presented:

43 percent of adults surveyed said that they never had a serious conversation with a loved one about who will care for them if they need help with ADLs, or how the cost of such care would be paid for. Four in ten adults say they are not confident that they will have the financial resources to pay for the care they may need as they age.
90 percent of adults surveyed said that it would be impossible or exceedingly difficult to pay the estimated $100,000 needed for a year-stay at a nursing home. 83 percent of adults surveyed said that they could not afford to pay the estimated $60,000 for one-year of assistance at home from a paid nurse or aid. Note that “assistance” referred to is for the “ADLs” (activities of daily living which include eating, bathing, dressing, walking, using the toilet, and getting in and out of bed, or a chair). Health insurance and Medicare generally do not pay or reimburse the cost of providing assistance for ADLs.
These is a fair amount of confusion about how LTC is financed in the U.S. Medicaid is the main source of coverage for LTC services in the U.S. Medicare pays for a limited amount of LTC. Nevertheless, 45 percent of adults aged 65 and older assume that Medicare would pay the bill for their own or a loved one’s stay in a nursing home, if they had a long-term illness or disability. 40 percent incorrectly believe that Medicare rather than Medicaid is the primary source of insurance coverage for low-income individuals who need nursing home care or home care over a prolonged period of time.
Many of the individuals surveyed found that LTC and support services are difficult to find and afford. Among those surveyed who say that or a loved one has resided in a nursing home or a LTC facility in the past two years, about 62 percent say it was difficult to find a LTC facility to meet their needs. Almost the same percentage say it was difficult to afford the cost of the facility. About half say the same about finding and affording support from paid nurses or health care aides
Providing or paying for LTC and support services can also lead to financial consequences for families. For example, among those who contributed financially to their own or another relative’s LTC or functioned as a caregiver for a loved one, 56 percent said that they cut back on spending on food, clothing or other basic household items as a result of their financial support. One-third said that they had trouble paying rent or utilities.

Is Purchasing LTC Insurance the Solution?

Over the years, financial professionals have advised their clients to purchase LTC insurance as a way of protecting themselves in case they had to go to a nursing home, assisted living facility or they need LTC in their homes for an extended period of time. LTC insurance has been around for about 35 years, both in the form of individual LTC insurance policies and group sponsored LTC insurance policies. Federal employees and retirees (and eligible family members such as spouses) are eligible to apply for the Federal Long Term Care Insurance Program (FLTCIP). They have to qualify for the insurance, and over the years many employees, retirees and eligible family members have been rejected for insurance coverage for a variety of reasons.However, the LTC insurance market is suffering, bordering on “crisis mode” with fewer insurance companies offering LTC insurance. The LTC insurance market hit its peak in the early 2000’s with about 100-120 insurance companies offering LTC insurance. There has been a steady decrease in the number of insurance companies offering LTC insurance. Today, in 2024, there are eight companies offering LTC insurance. The FLTCIP is in the middle of a two-year shut down which started December 19, 2022. and is not accepting any new applications. The program is evaluating its operation, in particular to make the program more attractive and hopefully more affordable to federal employees, retirees, eligible family members.

With fewer insurance companies offering LTC insurance policies and the few remaining companies substantially increasing their premiums (including the FLTCIP) purchasing LTC insurance may not be the solution to addressing one’s future LTC needs.

Alternatives to Purchasing LTC Insurance

There are some alternatives for federal employees and retirees who have not purchased LTC insurance, namely “self-insurance.” “Self-insurance” means setting aside funds to be used to pay future LTC expenses, should they happen. For federal employees, “mentally setting aside” a portion of the TSP accounts to be used to pay for possible LTC expenses is an example of “self-insuring.” The same can be said about setting funds up in an IRA. Roth TSP and Roth IRAs. Roth accounts are particularly attractive and recommended because withdrawals from these accounts are tax-free.

The advantage of “self-insuring” for potential future LTC expenses is obvious. In case LTC is not needed, or if an individual dies before ever needing LTC, then any funds set aside should be inherited by a named beneficiary. The same cannot be said when an LTC insurance policyholder dies. Upon the death of the LTC insurance policyholder, all LTC insurance premiums paid by the deceased policyholder will be kept by the insurance company.

LTC Action Plan for Federal Employees and Retirees

The challenges associated with LTC affect many federal employees and retirees. The challenges are growing and will continue to grow in the future, especially with employees who are in mid-career. Many of these employees are addressing their future LTC and are currently dealing with parents and/or parents-in-law LTC needs..

Federal employees and retirees who are interested in learning more about LTC including the Federal Long Term Care Insurance Program are invited to attend a 3-hour webinar entitled “Long Term Care” presented by Serving Those Who Serve”. The webinar presents the options for paying for LTC and an overview of how LTC insurance works. here is no fee to attend the webinar. To attend, please register by clicking here. The webinar will be held on February 21,2024 (11:00 am to 2:00 pm) and again on May 23,2024 (1:00 pm to 4:00pm).

In Their Own Words: How Contributing LTC to Those Who Need It Affects Individual Finances

“Took out loans to cover some of the costs not covered by insurance.” A 60-year-old man from Ohio whose loved one received support from paid nurses or aid.

“Had to rely on family for food and help with bills some months. Terrible times.” A 36-year-old man from California whose loved one resided in a LTC facility.

“Had to take a leave of absence from my employer to care for my 85-year-old mother.” A 63-year-pld woman from Mississippi who provided care for a loved one.

*These policies have exclusions and/or limitations. The cost and availability of Long-Term Care insurance depend on factors such as age, health, and the type and amount of insurance purchased. As with most financial decisions, there are expenses associated with the purchase of Long-Term Care insurance. Guarantees are based on the claims paying ability of the insurance company.

Edward A. Zurndorfer is a CERTIFIED FINANCIAL PLANNER™ professional, Chartered Life Underwriter, Chartered Financial Consultant, Chartered Federal Employee Benefits Consultant, Certified Employees Benefits Specialist and IRS Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, and EZ Federal Benefits Seminars, located at 833 Bromley Street - Suite A, Silver Spring, MD 20902-3019 and telephone number 301-681-1652. Raymond James is not affiliated with and does not endorse the opinions or services of Edward A. Zurndorfer or EZ Accounting and Financial Services. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.