Long-Term Care in Retirement Planning: What Financial Advisors and Insurance Agents Need to Know

Your client and her children are furious with you.

Why? Because you never talked with her about the possibility of needing long-term care. Your client, a widow who has now suffered a debilitating stroke, must pay for a nursing home with money she planned to leave to her adult children. They’d prefer that their inheritance pay for the care she needs, rather than going without the needed care, but they feel you failed to inform her of those possibilities. They then convince her to fire you and file a lawsuit based on those perceived errors in how you managed her retirement plan.

While this scenario may seem extreme, it’s not unimaginable today.

Long-term care (LTC) costs can rapidly escalate and destroy a retirement plan, leaving the client with very little in the way of assets or support. Whether you’re an insurance-only producer or a financial advisor, there are also potential risks to your business that should be considered, including losing all of the client’s insurance policies and assets under management (AUM), losing out on future business with the children or successors of your client, and damaging your reputation in your community and the industry.

Insurance agents and financial advisors are on the frontlines of what has become a long-term care crisis. The escalating costs of LTC, a shortage of caregivers, gaps in services, and government funding shortfalls make long-term care one of the biggest threats to older Americans’ financial security in retirement.

“I’m getting more and more calls from agents and advisors asking how they can help clients needing to fund long-term care,” said Jackie Slaughter, CLTC, Associate Director of Relationships for LTC at Senior Market Sales^® (SMS). “Fortunately, there are more ways for Americans to mitigate against the risk today — more products, greater flexibility, more innovation. The other day I helped someone diagnosed with Parkinson’s disease get a policy.”

While Slaughter said more advisors are reaching out, the majority avoid talking about LTC with clients because discussing health and end-of-life care can be uncomfortable or they’ve been burned by failed attempts at securing coverage for clients with traditional LTC insurance in its earliest days.

“But it’s a whole new world today. The LTC market has matured, clients are asking for LTC coverage, and there are ways to avoid the bad experience of rejection in underwriting,” she said. “The reality today is that agents and advisors must help clients plan for funding long-term care, because failing to do so can be devastating to the careful plan they build. But it also can be very rewarding to agents and advisors, both personally and by growing their business.”

Advisors and agents need to understand the long-term care crisis in order to fully appreciate the need and urgency to account for it in retirement planning, Slaughter said.

The Complicated Patchwork of Long-Term Care

At the heart of the issue is a disjointed system of care with gaps in both coverage and people’s knowledge of how the system works.

What is Long-Term Care?

Long-term care includes services provided to people who are unable to perform basic activities of daily living (ADLs), which include bathing or showering, dressing, getting in and out of bed or a chair, walking, using the toilet, and eating. LTC can be provided at home, in the community, in assisted living or in nursing homes.

In the United States, LTC is paid for by a mix of public and private funding.

Medicare and most health insurance, including Medicare Supplement insurance (Medigap), do not pay for long-term care. However Medicare does cover some types of care that can be confused with long-term care — some in-home care, hospice care, and short stays at skilled nursing facilities — but with limits and restrictions. In a nutshell, Medicare only covers medically necessary services, and most long-term care isn't medical care.

Relatively few people have private insurance that pays for LTC, because they believe it can be costly and generally requires applicants to pass a health screening. Once individuals have exhausted their Medicare and/or private insurance benefits, they are responsible for covering the full cost of care.

What’s the Difference Between Medicaid and Medicare?

Medicare is federal health insurance for workers age 65 and older and some people under 65 with disabilities or health conditions.

Medicaid is a joint federal and state program that helps cover medical costs for some people with limited income and resources, but it also serves as a catastrophic insurance program for the elderly in need of long-term care. Medicaid coverage and eligibility vary by state, including the “spend-down” process.
 

Medicaid will pay for some long-term care services, such as nursing homes, for people under certain incomes, but the eligibility standards are strict and vary by state. These restrictions plus Medicare’s lack of LTC coverage and the limited availability of other public LTC coverage options often lead to what some call “forced poverty” — they “spend down” their income or assets until they are financially eligible enough to qualify for Medicaid to pay for a nursing home.

Medicaid pays for more than half of all long-term care in the country, according to a report prepared by Mathematica for the Centers for Medicare and Medicaid Services (CMS). Of the portion of LTC being paid for with private funds, only a small sliver comes from private insurance, with other sources including personal savings, income from investments, pensions, retirement funds and reverse mortgages.

The public’s widespread reliance on Medicaid has overburdened federal and state budgets, leading some states to implement public programs. Washington was the first in the nation to set up a publicly funded trust dedicated to LTC. Money is deducted from workers’ paychecks to finance LTC benefits, but before the program launched, workers could opt out by buying private LTC insurance. After that opt-out deadline passed, other exemption paths opened as well, but the fate of the entire program remains uncertain as it already faces challenges.

A public-private program also exists in most states. Piloted by four states in the 1980s by a private philanthropic foundation, the Long Term Care Partnership Program was expanded nationwide by the Deficit Reduction Act of 2005 to help stabilize Medicaid by delaying people’s use of the program.

The program encourages people to purchase LTC insurance to protect their assets. Individuals who purchase a partnership-qualified LTC insurance policy get an added benefit: a dollar-for-dollar asset disregard, or “spend down” protection. For example, say a person buys an LTC policy with a $200,000 benefit pool and ends up using the entire benefit. They then need to apply to Medicaid to be able to pay for care in a nursing home. In the Long Term Care Partnership Program, that person could keep an additional $200,000 of their money and still qualify for Medicaid.

The Great Misunderstanding: Who Pays for Long-Term Care?

Many people fail to plan financially for the possibility of needing long-term care because they mistakenly think that Medicare pays for LTC.

In a KFF study conducted in 2022 as part of a broader reporting project by KFF Health News and The New York Times, 23% of adults assume that Medicare would pay the bill for their own or a loved one’s time in a nursing home if they had a long-term illness or disability. That number rose to 45% of those ages 65 and older.

And the confusion doesn’t end there.

Four in 10 adults overall incorrectly believe that Medicare, rather than Medicaid, is the main source of insurance coverage for low-income people who need nursing care or home care over a long period of time, according to the study.

Even so, most people think LTC is an individual, rather than government responsibility, according to a 2015 study of LTC awareness and preferences. The same study showed that understanding of the long-term care system is low, especially Medicaid. And 2022 LIMRA data indicate many consumers lack a full understanding of what LTC insurance is.

Clearing up these misperceptions is an obvious opportunity to open the door to helping clients plan for long-term care. When you consider that 70% of adults age 65 and older will require LTC at some point, yet only 3.1% of Americans have purchased long-term care insurance, the opportunity and need are immense.

To further solidify their understanding of the importance of LTC planning, you must communicate the high cost of care.

The Rising Costs of Long-Term Care

Long-term care costs have far outpaced inflation for more than two decades.

The 2023 Cost of Care Survey from Genworth found that compared to 2022:

Assisted living facility rates increased by 1.4% to an annual national median cost of $64,200 per year.

• The cost of a home health aide, which includes “hands-on” personal assistance with activities such as bathing, dressing, and eating, has increased 10% to an annual median cost of $75,500. Homemaker services, which include assistance with “hands-off” tasks such as cooking, cleaning, and running errands, have increased 7.1% to an annual median cost of $68,600.
• The national annual median cost of a semi-private room in a skilled nursing facility rose to $104,000, an increase of 4.4%, while the cost of a private room in a nursing home increased 4.9% to $116,800. 

The Genworth study attributed the cost-of-care increases to inflation and insufficient supply to meet an increasing demand.

The Caregiver Shortage

Fueled by the massive baby boom population and an elongating need for care due to increased incidents of chronic diseases and longer lifespans, demand for caregivers already outstripped supply before the COVID-19 pandemic. But the health risks and stressors of the pandemic added to the high turnover of frontline caregivers, as did better working conditions and higher salaries elsewhere in the tight labor market. (The average salary for a home health and personal care aide in 2023 was $33,530 per year.)

Specifically, at-home care costs spiked.

The Genworth 2021 Cost of Care data revealed the highest year-over-year increase in both homemaker services, such as cooking and cleaning, and home health aides who help with bathing and eating, for example. The 2023 survey saw the trend continuing. The increases correlate with Medicaid expanding home and community-based services, and a growing preference by the aging population for trained at-home care instead of nursing homes.

Despite the increasing demand and need for at-home care, the supply of home care workers is not keeping up. Between 2013 and 2019, the number of available home care workers for every 100 patients in need has fallen by nearly 12%, according to research reported in HealthAffairs.

Even with the number of nursing homes dropping by 4% and the number of nursing home residents dropping by 12% between July 2015 and July 2023, the pool of caregiver jobs in both homes and facilities is insufficient. Employment levels in the long-term services and supports (LTSS) sector were still 10% below pre-pandemic levels in October 2023, according to KFF.

Whether government intervention will help remains to be seen.

Following the disproportionate number of COVID deaths in nursing homes, some states have enacted minimum staffing requirements per resident, and the Biden administration in 2022 issued similar directives. But nursing homes have up to five years to comply, and critics question the regulations’ effectiveness, saying they fail to address the reality of a labor shortage — largely, there are not enough applicants.

The Human Impact of Unmet Caregiving Needs

In February 2024, the Long Term Care Community Coalition (LTCCC) issued an alert based on its analysis of nursing home staffing data. The alert showed that despite the requirements for sufficient staffing levels, “many nursing home facilities remain understaffed, leaving residents at greater risk of substandard care, abuse and neglect.”

The heartbreaking impact of this shortage is well-documented.

One AARP article tells of a veteran with incontinence sleeping on trash bags and relying on a housemate to help him to the bathroom because he couldn’t find a care worker to help him. A joint KFF report with The New York Times shares the story of an adult daughter of a stroke victim sacrificing her promising career to care for her mother and running up $15,000 in medical and credit card debt to provide the care.

These accounts show the toll of the caregiver shortage not only on the elderly but also their unpaid caregivers.

Family caregivers — in particular, middle-aged and older adults — provide the lion's share of long-term care for the nation’s older adult population. The U.S. Bureau of Labor Statistics reports that 14% of the population, 37.1 million people, provided unpaid eldercare in the United States in the two-year time period of 2021 and 2022.

Older women are “essential pillars of the U.S. care infrastructure”, often unpaid, according to the Women’s Bureau of the Bureau of Labor Statistics. On any given day, women ages 55 or older account for just over one-third (35.3%) of all unpaid eldercare providers in the U.S.

The number of family caregivers also is not expected to keep up with demand. There are seven potential family caregivers per older adult today, but it’s estimated that there will be only four potential family caregivers per older adult by 2030, according to a report cited by the Centers for Disease Control and Prevention.

The Financial Costs of the Long-Term Care Caregiver Shortage

While caregiving can have positive effects for some, a compelling body of evidence suggests that many caregivers experience negative psychological effects, with higher rates of depressive symptoms, anxiety, stress, and emotional difficulties.

Whether a spouse or an adult child, family caregivers sometimes have to leave their jobs, tap their retirement savings or incur debt to help their loved one. A report published by the Employee Benefits Research Institute (EBRI) from its 33rd annual Retirement Confidence Survey found that caregivers are more likely to have lower levels of assets and more likely to have problems with debt than non-caregivers. AARP Research found that caregivers, on average, spend a quarter of their annual income on caregiving expenses.

The Impact of Long-Term Care on a Client’s Wealth

Richard W. Johnson, senior fellow in the Income and Benefits Policy Center at the Urban Institute, called the prospect of becoming disabled and needing long-term services and supports “perhaps the most significant risk facing older Americans.”

“The prospect of becoming disabled and needing long-term services and supports is perhaps the most significant risk facing older Americans.”

—Richard Johnson, senior fellow in the Income and Benefits Policy Center at the Urban Institute

In a brief for the Urban Institute, where he directs the Program on Retirement Policy, Johnson cited research that showed older adults with health problems tend to have less wealth than healthier older adults, and wealth tends to fall when people develop health problems.

Insufficient Savings to Pay for Long-Term Care

The high likelihood of needing LTC and the high cost of care are enough to show the risks of failing to plan for LTC, but Americans’ lack of savings paints an even bigger threat.

Americans on average have saved only 78% of the amount they'll need in retirement, and 52% of U.S. households may not be able to pay for essential expenses in retirement, according to a 2023 Fidelity report.

The 2023 updated analysis to a report on retirement security by the National Council on Aging and LeadingAge LTSS Center @UMass Boston found that 45% of people 60 and older had household incomes below what they need to afford basic living needs.

If those people plan on federal and state assistance to fill the void, it might not be as reliable as they think.

The two foundational pieces of most middle-income Americans’ retirement — Social Security and Medicare— face funding shortfalls that could impact recipients by the mid-2030s. Proposed solutions could result in Americans having to pay more or work longer before receiving benefits. Or worse yet, if no solution is reached, they risk smaller Social Security checks and reduced Medicare benefits.

With so many challenges in the long-term care landscape and retirement as a whole, solutions will need to come from all levels — from policymakers fixing a broken system to private industry continuing to innovate insurance products.

While long-term care insurance had a rough start, many agents and advisors are not aware of new products resonating with consumers or alternative funding sources for LTC. Knowing the options is the first step in helping clients and turning around the LTC crisis.

How Long-Term Care Insurance Has Evolved

After LTC insurance was introduced in the ‘70s and ‘80s, annual sales increased almost every year throughout the 1990s. But that trend of annual increases ended abruptly in 2003. The product’s early low pricing, lower-than expected interest rates, unexpectedly high claims costs, low lapse rates, longer life expectancies and inaccurate actuarial models caused insurers to raise premiums or leave the market. LTC sales fell, as fewer options were offered and some consumers could no longer pay the high premiums.

The introduction of hybrid life-LTC insurance — which can pay for long-term care if an individual needs it or a life insurance benefit when they don’t — has helped the sector rebound somewhat in recent years. Consumers have seen value in these hybrid policies as well as those that can meet other needs such as retirement income.

Such product development will be needed to meet the high demand for LTC insurance coverage. A 2013 report that examined the LTC insurance market’s development, growth and reasons why companies entered and exited the market found: “there is a core of major insurers highly committed to this market, and under the right circumstances more carriers could be drawn back into the market.” The report says lowering selling costs and changing peoples’ attitudes about the value of LTC insurance will be needed.

“When people understand the risk of LTC costs to not only their finances but their lives and their family caregivers’ lives, they want to act. They see the real value in products that mitigate this risk,” SMS’ Slaughter said. “The LTC crisis is a financial literacy crisis. When we educate clients about retirement and plan for them, we must talk about long-term care.”

By doing so, you’ll play an important role — helping increase demand and address risk challenges — that will help to drive prices lower and make LTC insurance more affordable and accessible to all.

Other Long-Term Care Planning Options

LTC insurance is not the only option in planning long-term care. The important thing is to have the discussion with clients and plan for it somehow. Other planning options include:

• Transferring a life insurance policy’s cash value to an LTC or hybrid insurance policy
• Buying an LTC annuity, which creates a fund specifically for LTC
• Using a health savings account (HSA) to pay LTC insurance premiums and out-of-pocket LTC expenses associated with receiving medical care
• Exploring if a client’s employer offers a group plan (many group plans won’t require health history)
• Setting aside more money to invest in 401(k)s or IRAs
• Withdrawing funds from an asset if the tax consequences are not too detrimental
• Selling a life insurance policy for a cash payout from a life settlement provider

No singular effort will solve the many challenges of long-term care and the retirement planning landscape. For your part, whether you’re an insurance producer or a financial advisor, your role as a client’s trusted retirement advisor is to make them aware of the risks of not planning for the possibility of long-term care expenses in retirement. There are several ways to provide the education and the solutions, whether you do this yourself in-house or you refer them elsewhere.

How to Get Started With Long-Term Care Planning for Clients

The first step in long-term care planning is a mind shift — don’t associate the term “long-term care” with only long-term care insurance. “Long-term care planning” is the process; “long-term care insurance” is one solution of many.

For too long, insurance agents and financial advisors have conflated the idea of long-term care with the product of LTC insurance. And perhaps because of traditional scopes of service, product biases or bad experiences with LTC insurance’s early problems, they avoid the LTC discussion with clients altogether. This is a disservice to your business but especially to your clients. A sound retirement plan must account for the possibility of long-term care. LTC is not a problem with a singular solution of LTC insurance. New innovate products and other strategies can be used.

The SMS white paper, “The Retirement Planning Mind Shift: New Thinking for Growth in a New Era,” challenges all professionals in the retirement planning space to examine whatever is holding them back from addressing LTC planning and other pieces of the retirement puzzle. LTC planning in particular is one area identified in the white paper as one of the industry “sweet spots” — those areas with the greatest opportunity to improve both client outcomes and an agent’s or advisor’s business performance. Collectively, more professionals undertaking LTC planning could result in a greater impact, from lessening the strain on government funding to lowering the cost of LTCi and other solutions.

How Does LTC Planning Fit Within Retirement Planning?

It’s a critical piece. Get the white paper to get the big picture.

How to Approach Clients About Long-Term Care Planning

Once you’ve shifted your mindset to include LTC planning in your process, your next step is to adjust your practices, starting with how you approach clients.

Most importantly, throw out the outdated product-first approach. Starting the LTC discussion by mentioning a specific product like LTC insurance before they understand the need for it can lead to early client objections for many reasons — they may think LTC insurance has a bad rap, view the premium as too high, or feel like you’re just trying to sell another product.

Instead, start with open-ended questions, such as:

1. Who will care for you if an injury, illness, medical incident or aging limits your ability to care for yourself long-term?
2. How would you pay for long-term care should you need it?
3. When you look at retirement, where do you envision living?

Such questions can reveal gaps of care, fears, dreams, or misconceptions that open the door for you to educate them on the risks of failing to plan for long-term care — the stress on family members thrust into a caregiver role, the potential depletion of their assets, being forced to sell their home in order to qualify for Medicaid to pay for LTC.

After educating the client, you then can explore possible solutions by applying your expertise — or that of your partners, if you’re outsourcing the LTC planning portion of a retirement plan. Whether you refer clients to an outside agency or provide the solution yourself, it is critical to partner with people who have deep experience in the LTC space. Why?

Because some LTC solutions will require health histories, an LTC planning expert can help identify solutions that do not require underwriting or that would likely pass underwriting when it’s required. This lessens the chance that your clients undergo underwriting only to be rejected — an unpleasant and unfortunate experience that has scared away clients and advisors from LTC insurance in the past.

“Sure, some agents avoid LTC planning out of this fear of a rejected app, or because discussing a client’s health seems intrusive or uncomfortable,” SMS’ Slaughter said. “But the reality and truth is that with more solutions and strategies available today, underwriting is not always required, and when it is, you simply factor that in to your proposed solution or solutions.”

What’s the Secret to Successful Long-Term Care Planning?

“The secret to long-term care planning is working with experts or specialists,” said Slaughter, who has more than 25 years of LTC experience. “Providing well-vetted long-term care solutions requires thorough discovery of the client’s needs, education of the client, and exploration of multiple solutions before submitting an application. People who go in to a client discussion trying to sell a product aren’t doing what’s in the client’s best interest and might set themselves up for failure.”

What distinguishes an LTC agency or insurance marketing organization (IMO) as an expert LTC partner? Look for one with:

• Extensive LTC product knowledge
• A wide variety of LTC solutions from top-rated carriers
• Experience identifying the best solution for which your client might qualify
• Marketing and financial literacy materials to help your client understand the importance of LTC planning
• Technologies to help you provide an efficient and enjoyable customer experience
• Back-office support to scrub applications, overcome processing obstacles and assist with commissions so you can scale
• Industry insight to guide you through regulatory and economic changes

Finding the Best Partner to Offer LTC Planning

So, now you’re convinced you need to address LTC planning with your clients, but you’re not an LTC expert or don’t know how to find one.

You don’t have to be an LTC expert when you work with SMS. As a leading IMO with more than four decades in the senior space, SMS has the expertise and support to help any planning professional provide LTC planning to clients.

Are you a noninsurance professional who currently doesn’t offer LTC planning but would like to? SMS can help you uncover the opportunity that works best for your clients and for your business model. Speak with an LTC marketing consultant to discuss your options by calling at 1.888.456.8884, option 4.

Are you an insurance-licensed professional wanting to expand into LTC planning? SMS can help you get contracted and certified, learn the basics, help with your first case and any cases in which you need help. Our SMS long-term care team can guide you, find your clients the best products for their individual situations and provide the best back-office support in the industry. To learn about all the LTC support available, call the SMS LTC team at 1.888.456.8884, option 4.

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For agent use only. Not to be used for consumer solicitation purposes. This article is intended solely for general educational purposes and the content developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice and is not a recommendation to buy, sell or roll over any asset, adopt a financial strategy or use a particular account type. Consumers should consult with their tax or legal advisor regarding their individual situations before making any legal or tax-related decisions. Not connected with or endorsed by the U.S. government or the federal Medicare program.