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Many People Underestimate Their Future Cost of Care

By | 2020-08-10T13:03:50+00:00 August 10th, 2020|

If you’ve been to the grocery store lately, you may have experienced some sticker shock. According to USDA forecasts, grocery prices are expected to increase an average of 3 percent this year. This surge is being led by beef prices, which are predicted to rise by 8 percent versus 2019 costs, as well as pork, which has increased by 4.5 percent, and poultry, increasing by 3 percent.

While this increase in food prices is somewhat exceptional — this is the biggest increase in grocery costs the U.S. has experienced since 2011 — it is to be expected that the price of goods and services increases over time. It’s the reason why many working folks anticipate cost-of-living increases in their paychecks, and retirees expect a bump in their monthly Social Security payments (2020’s boost was 1.6 percent).

But one expense that people may not realize also steadily increases is long-term care and other custodial care services. Indeed, a lot of people greatly underestimate the cost of care and have sticker shock when they see the price tag.

The ever-rising cost of care

The numbers certainly can be jaw-dropping when you tally up what your future care needs my cost you and your family. For example, according to Genworth, a leading provider of long-term care insurance, the median yearly cost of a private room in a nursing home in the U.S. in 2019 was $102,200. This represents a broad array of daily rates across the country, ranging from a low of $185 per day in Oklahoma to $994 in Alaska. In a post-COVID-19 world, it is very likely that private rooms will be more highly sought after, but it comes with a big price tag.

Turning to assisted living, Genworth researchers calculated that the median yearly cost of care in the U.S. in 2019 was $48,612. Again here, the monthly rate for assisted living facility care has a broad range, from $2,881 per month in Missouri to $11,288 in Washington, D.C.

But if you think those numbers are eye-popping now, keep in mind that, just like the price of groceries goes up each year, so does the cost of care services. What might it cost if and when you require care five, 10, or 15 years in the future?

In the past 15 years, the cost for facility-based and in-home care services in the United States has risen each year. Home care services cost increases have averaged 2.06 percent annually, which translates into an average annual increase of $892. For assisted living, the annual increase has been 3.64 percent on average, translating to an average annual increase of $1,321. For a private room in a nursing home, the cost increase has averaged 3.07 percent, meaning an extra $2,468 per year on average.

To put these numbers into further perspective, the cost of this type of care is rising faster than the U.S. inflation rate, which, according to the U.S. Department of Labor, is around 2.1 percent.

>> Related: Examining Key Figures on Long-Term Care Insurance

Won’t Medicare cover it?

The shock of the cost of care is understandable, but people often expect that this is an expense that will be covered by Medicare. Unfortunately, this may not be the case.

Medicare Part A will cover medically necessary skilled nursing care (a nursing home), but only for a limited time: 20 days at 100 percent of cost; days 21 through 100 at a portion of the cost with the balance being at the resident’s expense. After day 100, all nursing home expenses are out-of-pocket for the resident and their family.

Certain other requirements must be met in order for Medicare to cover all or some nursing home costs:

  • Care must be provided in a Medicare-certified facility. (Medically necessary services provided at home by a Medicare-certified home healthcare agency may also qualify for Medicare coverage.)
  • The recipient of care must have first had an “admitted” hospital stay of at least three days or longer. Most commonly, Medicare-covered skilled nursing care follows a serious medical occurrence like a stroke, heart attack, fall, or major surgery.
  • Admittance into the skilled nursing facility must take place within 30 days of the hospital stay.
  • A physician must decide that daily medical nursing care or rehab is necessary.

If your care needs extend beyond these criteria, you and your family will be required to pay 100 percent of the cost of care, out-of-pocket. Considering the current national average cost of skilled nursing care for a semi-private room is around $247 per day, and a private room averages $280, that bill can add up quickly. And again, the cost of care services in the United States is rising between 1.71 percent and 3.64 percent each year, depending on the level of services required.

Keep in mind also that not all skilled nursing facilities are Medicare-certified. Often referred to as “private pay” providers, these facilities do not accept Medicare and, therefore, residents must pay out-of-pocket for services beginning on day one.

>> Related: Long Term Care: How Much Does Medicare Actually Cover?

How a CCRC may save you money

All of these high-dollar figures and stipulations are among the reasons why some people decide that a continuing care retirement community (CCRC or life plan community) may actually be the more economical option for them.

While CCRCs sometimes have a hefty entry fee, and contract terms can vary, the lifetime cost of care at a CCRC may end up being less than remaining in the home should care services be needed. To be sure, this may not always be the case, but depending on a variety of factors, it is not inconceivable. Furthermore, for some people, the social and other wellness benefits of living in a CCRC may ultimately reduce the need for care.

CCRCs offer a variety of residency contract structures, which impact the cost of care services if and when needed. For example, some CCRCs offer an all-inclusive “lifecare” contract. With this contract type, if the resident requires skilled nursing care, they will continue paying the same monthly rate they were paying prior to requiring care.

In this case, once the resident begins receiving care, Medicare would pay the applicable reimbursement rates to the CCRC (if it is a Medicare-certified facility), even though the resident is still paying the same monthly rate as before. After Medicare reimbursement runs out, the CCRC must write-off the difference between the cost of providing care to that resident and the monthly service fee they are paying.

Other CCRCs offer a fee-for-service contract. In this case, the resident’s monthly fee will increase if and when care services are needed. Some CCRCs offer a modified version of a fee-for-service contract where the resident pays more when care is received but with some type of discount applied.

For example, before paying the full market rate for care services, the resident may first receive a certain number of days in the healthcare center at no additional cost above their typical monthly fee. Or, there may be a discount applied to the cost of care services received. Under this type of CCRC contract, the resident’s increased cost will be offset by Medicare-reimbursements for up to 100 days, as described above, if the CCRC’s healthcare center is Medicare-certified.

>> Related: A Primer on CCRC Residency Contracts

Calculating your future cost of care

Wouldn’t it be nice to have a crystal ball to foretell whether you will need care in the future and what it will cost? The truth is, no one really wants to think about a time down the road when their health may have deteriorated to the point that they require assisted living or skilled nursing care services. It can be scary to ponder our own mortality in this way.

However, I find that the unknowns of the future are less stressful if we do what we can to prepare for those “what ifs.” This is why it is important to understand what type of expense you and your family may be looking at should you require care for either a short time or an extended period.

Genworth offers a useful cost forecasting tool to help you better anticipate what care services may cost in your area, both now and in the future. And for less than $30 for 30 days of access, myLifeSite subscribers also have access to our proprietary financial calculator tool, which can help you run long-term financial projections based on various assumptions, pricing, and cost of care.

If you plan to use this tool, it will be helpful to have on hand the community’s pricing, as well as other basic information such as your approximate level of savings, investments, and income. Create your myLifeSite profile to get started.
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About the Author:

Brad Breeding is president and co-founder of myLifeSite, a North Carolina company that develops web-based resources designed to help families make better-informed decisions when considering a continuing care retirement community (CCRC) or lifecare community.