A recent article in The Washington Post, “As the Cost of Aging Soars, Families’ Wealth is Evaporating,” posited that despite all the hype about the “Great Wealth Transfer,” which predicts that $69 trillion to $84 trillion will change hands over the next two decades from baby boomers to their descendants, the cost of aging will eat into what heirs will actually inherit.
The article identifies a common problem that elder law and special needs attorneys see every day: The United States has never developed a sustainable and clearly understood framework for allocating the costs of long-term care among individuals, families, insurers and public programs. Our current system relies first on personal resources, private insurance and family caregiving, with Medicaid serving as the payer of last resort after an individual satisfies its financial eligibility rules. The projected “great wealth transfer” may therefore become far more concentrated among families who are wealthy enough to absorb years of care costs without exhausting their assets.
The discussion needs to begin with honesty. LTC is expensive, unpredictable and often prolonged. A client who can reasonably afford to contribute toward care should expect to use personal resources for that purpose. Public benefits shouldn’t be treated simply as inheritance-preservation devices. At the same time, no ordinary middle-class family can reliably save enough to eliminate the risk posed by many years of dementia care, assisted living or round-the-clock personal assistance.
The objective isn’t to shift ordinary care costs from individuals to taxpayers, but to develop a more predictable structure for sharing catastrophic risk while preserving personal responsibility.
Better Preparation
Baby boomer clients can take steps to better prepare for these added costs, but individual planning has its limitations. An individual can’t always save enough to eliminate the financial risk posed by several years of dementia care, assisted living or continuous personal assistance. At current costs, even a financially responsible middle-class household can be overwhelmed.
The first step is to stop treating LTC as a remote possibility and include it in retirement planning. That means evaluating not only whether someone has enough income to retire, but also what would happen if one spouse required extensive care for five or 10 years. Couples also need to consider how paying for one spouse’s care could affect the financial security of the healthier spouse.
Clients should obtain realistic information about the cost of care in their own communities and understand the differences among home care, assisted living, memory care and skilled nursing care. They must also understand that Medicare generally doesn’t pay for the ongoing custodial or LTC that people with dementia, frailty and chronic disabilities often require. That misunderstanding remains one of the largest gaps in retirement planning.
LTC insurance may be appropriate for some people, particularly when considered before age or health conditions make coverage unavailable or unaffordable. It is not, however, a universal solution. Clients need to examine benefit periods, daily benefit amounts, inflation protection, elimination periods and the conditions that trigger coverage. Hybrid life insurance and LTC products may also be worth evaluating, but they should be considered as part of the client’s overall financial plan rather than sold as an easy answer.
Clients should also plan with the expectation that assets accumulated over a lifetime may properly be used for their own support and care. The goal shouldn’t be to preserve every dollar for the next generation, regardless of need. Clients who can reasonably afford their care should expect to use personal resources for that purpose.
At the same time, maintaining some private-pay capacity may affect more than the preservation of lifestyle or amenities. It may affect access to care itself. For example, in New York, Medicaid reimbursement rates are substantially lower than private-pay rates, and Medicaid eligibility applications can take considerable time to process. During the Medicaid-pending period, a provider may be delivering costly care without certainty about when payment will begin or whether the application will ultimately be approved. As a practical matter, skilled nursing facilities and other LTC providers may prioritize applicants who can pay privately, at least initially, over those who must immediately rely on a pending Medicaid application. This doesn’t mean every family must preserve an unlimited private-pay reserve. But liquidity, timing and payment planning can affect how quickly someone is admitted and which providers are realistically available. As I often tell clients, “private dollars buy choice,” although even private-pay options are becoming more limited.
Legal planning is equally important. Clients should have current powers of attorney, health care directives and carefully selected decision-makers. Families need to know who will manage finances, coordinate care and make health care decisions if capacity declines. They should also discuss housing, caregiving expectations and whether adult children are realistically willing and able to provide care.
Too often, the assumed plan is that a child or another relative will simply step in, regardless of the financial, professional and personal consequences for that caregiver. That isn’t a plan unless the family has discussed it honestly and the proposed caregiver has agreed to it.
Clients with modest or middle-class resources should consult with an elder law attorney who can help them understand Medicaid eligibility, spousal protections, transfer rules, estate recovery and the availability of home and community-based services. Medicaid is the country’s primary payer for long-term services and supports, but it’s a means-tested safety-net program with complicated eligibility rules.
The immediate goals of planning are preserving the older person’s dignity and choices, protecting a spouse from impoverishment, avoiding unnecessary crises and preventing adult children from jeopardizing their own financial security to pay a parent’s expenses.
Many Baby boomers have saved, purchased homes, contributed to retirement accounts and done what they were told responsible adults should do. What they haven’t necessarily done is plan for the possibility of many years of paid care. Retirement projections often focus on ordinary living expenses, investment returns and life expectancy, but don’t adequately model the cost of dementia care, prolonged disability or the possibility that both spouses may eventually need assistance.
The true cost of aging, therefore, includes not only payments to facilities and home-care agencies, but also lost earnings, lost retirement contributions and strain on the caregiver’s own health and family.
Families are understandably frustrated when facilities appear more receptive to applicants who can pay privately. But from the provider’s perspective, a private-pay admission offers an immediate and more predictable source of payment, while a Medicaid-pending admission may involve lower reimbursement, extensive administrative requirements and months of uncertainty.
That’s an uncomfortable truth, but it needs to be said. Private resources can buy not only enhanced amenities, but also time, flexibility and access. An individual who can pay privately for an initial period may have more placement choices than someone who requires immediate Medicaid coverage.
Needed Legislation
Legislation should recognize that LTC is a foreseeable but unevenly distributed financial risk that cannot always be managed through personal savings alone.
The most promising reforms would create a more deliberate public-private framework for financing LTC. One option would be a limited public benefit designed to address catastrophic or prolonged care needs, supplemented by personal savings, income, private insurance and reasonable cost-sharing. Any public benefit should be structured so that individuals with substantial resources continue to bear an appropriate share of their own care costs. The purpose of public support should be to protect against catastrophic loss and preserve basic security, not to guarantee an inheritance. Reform should be fiscally sustainable, means-sensitive and designed to supplement, rather than displace, personal savings and private insurance.
This would be more realistic than expecting individuals to privately insure against an open-ended risk that the commercial insurance market has struggled to address. It would also be more sustainable than assuming that Medicaid can absorb the full cost once an individual becomes financially eligible.
Congress and the states should improve the availability, efficiency and accountability of home and community-based services. Most people want to remain at home, and home-based care can often delay or prevent institutional placement. Yet Medicaid home-care programs frequently have restrictive eligibility standards, workforce shortages and uneven availability. When clinically appropriate and cost-effective, home and community-based services should be treated as a meaningful and accessible alternative to institutional care. Caregiver legislation is equally important. Family caregivers provide much of the nation’s long-term support, often at high cost to their own earnings, health and retirement security. Policymakers should continue to consider targeted tax relief, respite services and workplace flexibility for family members who provide substantial unpaid care.
Any workable LTC policy must address the shortage of qualified direct-care workers. LTC can’t become more accessible without enough trained workers to provide it. That will require a combination of sustainable reimbursement, workforce training, improved retention and clearer career pathways. Cost containment can’t simply mean paying caregivers inadequately or expecting facilities and home-care agencies to provide increasingly complex care without sufficient staffing.
Medicaid reimbursement and program expectations must be aligned more honestly. Medicaid is a safety-net program, not a premium LTC product. Medicaid funding must support safe and appropriate care, but it can’t reasonably be expected to finance premium-level services or unlimited consumer choice at safety-net reimbursement rates. Legislators shouldn’t impose staffing, access and service mandates without identifying a sustainable means of paying for them.
Legislation must also address the administrative delay between the need for care and approval of benefits. A Medicaid benefit that exists on paper but can’t be processed promptly doesn’t provide meaningful access. Delayed eligibility determinations shift financial risk to providers, families and, in many cases, the nursing facility caring for a Medicaid-pending resident. States should make eligibility determinations promptly, streamline unnecessarily burdensome procedures, adequately staff eligibility functions and consider provisional payment mechanisms where appropriate. Providers shouldn’t be expected to assume months of uncompensated financial risk while an eligibility determination remains pending.
Reimbursement must also be sufficient and timely enough to keep accepting Medicaid recipients economically viable. When public reimbursement doesn’t reasonably reflect the cost of delivering care, providers predictably favor private-pay residents, limit Medicaid admissions or withdraw from portions of the market. The practical result is that financial eligibility for Medicaid doesn’t always translate into timely access to a willing provider.
Medicaid estate recovery should also be reconsidered. Recovery may be defensible in principle when an individual had assets available after death, and the public paid substantial care costs. There’s a legitimate social expectation that those who can contribute toward their care should do so.
However, estate recovery often falls most heavily on families whose only meaningful asset is a modest home. In some cases, it can consume a family’s only significant asset while generating relatively modest recoveries for the program. A more balanced approach would preserve meaningful hardship protections and focus recovery efforts where they are administratively sensible and economically justified.
Finally, we need better public education. Many people enter retirement believing that Medicare will cover LTC if they eventually need it. By the time they learn otherwise, insurance may no longer be available, and meaningful planning opportunities may have passed. Government, insurers, financial professionals and attorneys should provide the public with clearer information about what Medicare, Medicaid, private insurance, and personal savings will and won’t cover.