The Hidden Crisis in Long-Term Care
How to protect your loved ones from unnecessary hardship.
In a recent article, I examined the statistics on the likelihood that a 65-year-old in the US would end up needing long-term care.
The data reveal a head-scratching gap: While 22% of the population of people 65 and over will need long-term care for more than five years, just 4% of the population over age 65 is expected to need paid long-term care for longer than five years.
Unpaid caregiving, often delivered by family members, especially adult children, and close friends, explains the difference. Such care is often provided to save older adults from exhausting their resources to pay for care and/or needing to receive care through Medicaid funding. But delivering unpaid care also has the potential to exact a steep toll on the individuals providing it: on their careers and own finances, as well as their physical and emotional health. It can also create strife within families, as the burden of care inevitably falls on a single sibling or two.
For those reasons, it’s important to think through the implications of relying on unpaid long-term care. And if you think you might need to rely on friends and family for caregiving, it’s helpful to think through logistics and create a formal plan to help head off some of the challenges that informal caregivers may confront.
Examining the Toll
More than two thirds of older adults who need long-term care receive it from family and friends, and the estimated economic value of that care amounted to roughly $600 billion in 2021, according to a report from AARP. For some context around those very large numbers, Americans paid $433 billion out of pocket for all other healthcare in 2021 and $245 million out of pocket for long-term care (to paid caregivers and nursing homes, for example).
The economic value of unpaid long-term care is also growing by leaps and bounds as the population ages, longevity boosts the incidence of cognitive decline, and the cost of paid care escalates. AARP’s estimate of the value of unpaid care was $354 billion in 2006.
The fact that so many people are providing care without remuneration has implications on multiple fronts, and those effects are often magnified for lower-income workers, Black and Hispanic people, women, and the growing ranks of “sandwich generation” caregivers—people who are simultaneously providing unpaid care to an older adult while also caring for children and grandchildren.
Careers: More than 60% of unpaid caregivers are employed on a part-time or full-time basis, and more than half of them are paid on an hourly basis. In a 2019 survey, 19% of working caregivers said they had quit a job in order to cover care for a family member. Meanwhile, 70% of working caregivers said that they have had to leave work early or decline promotions so that they could provide care. No doubt because of these work disruptions, unpaid caregivers had higher levels of debt and lower savings than people without caregiving responsibilities, according to a report from TIAA Institute.
Out-of-Pocket Costs: In addition to the career-related toll of unpaid caregiving, unpaid caregivers also frequently reported out-of-pocket expenses associated with their caregiving responsibilities—to help with housing and healthcare costs, for example. Those costs average more than $7,000 a year per unpaid caregiver, according to the TIAA Institute report.
Physical and Emotional Health: Research from the Johns Hopkins Bloomberg School of Public Health found that those who provided substantial healthcare assistance, compared with those who provided none, were more likely to report caregiving-related emotional difficulty (34% versus 15%) and physical difficulty (22% versus 6%).
How to Protect Loved Ones
Given all of those challenges for informal caregivers, the question is how to protect your loved ones from incurring them. Here are the key steps to take:
Assess resources and develop a plan for paying for care. The key first step in ensuring that you don’t burden loved ones with your care is to determine how you might cover the cost of care if it should arise. The key options are to purchase pure long-term-care insurance or a hybrid product, self-fund long-term-care expenses and factor that into your retirement-spending plan, or rely on government resources. (I’ll write more about each of these options in future articles.) If it’s possible that you’ll need to rely on Medicaid for all or part of your care, plan to visit a Medicaid-planning attorney early to learn the rules in your state. Like any legal advice, that can be costly, but it can be money well spent if it helps ensure that you qualify for Medicaid-provided care when you need it. Most communities have groups that provide free legal aid, and most communities also have eldercare agencies that can provide assistance. However, there are often long waiting lists for help, accentuating the importance of information-gathering before you’re in a crunch.
Once you’ve determined your most likely avenue to pay for your care, communicate the details of that plan with your loved ones. Let them know if you have long-term-care insurance, of course, or if you’d like them to sell your home or use specific assets to pay for your care.
Discuss the potential for long-term-care needs long in advance of a care need. Financial planner and medical doctor Carolyn McClanahan says that it’s wise to start discussing long-term care—and not just the financial aspect—when you’re in your 50s and 60s. She recommends first asking where you’ll live if a long-term-care need arises. If your current home is the answer, assess whether it’s aging-friendly or needs modifications.
Next assess the extent to which family will participate in your care, including providing or coordinating care, managing home upkeep, managing finances, and participating in healthcare decisions. And if you are opposed to the idea of your loved ones providing care for you, be sure to communicate that to them, too. McClanahan advises her clients to document in writing the results of these conversations. She says that this is also the time to discuss with your family how care will be paid for. If there is a chance that your assets or insurance won’t cover your care, make sure your family understands the resources available in their state and how to qualify so that they’re not scrambling when a care need arises.
I’ll chime in here and say that if your plan is to age in place, it’s crucial to consider the full gamut of care that you might need and factor in the implications for family and friends. My parents had in-home care and lived in an aging-friendly home; they had a house cleaner and someone to do lawn maintenance. But I was nonetheless there constantly: to manage the caregivers and help with time off, to grocery shop and pay bills, and to manage household maintenance. I loved my parents, lived close by, and had an exceptionally generous employer (thanks, Morningstar!). But it was a stressful time for all of us. If you don’t have an extremely committed adult child or other loved one nearby, think twice about aging in place.
Once a care need becomes evident, create detailed family agreements. If a family member or other loved one is providing care on an ongoing basis, McClanahan recommends consulting with a Medicaid-planning attorney early in the process to determine the next steps. While some older adults may pay their children or other loved ones for care, out of pocket and without any documentation, that can be a mistake, especially if Medicaid may need to cover care at some point.
That’s why it’s often advisable to formalize the caregiving arrangement with what’s called a personal care agreement. That’s a contract that stipulates in writing the compensation that will be provided for such care, the type of services that will be provided, and the expected duration of the care, among other factors. Having such a document helps ensure that you’re paying payroll taxes for the caregiver and that the caregiver’s compensation is not a gift, an important factor in case you eventually need to qualify for Medicaid-provided care. In addition to creating a personal care agreement, McClanahan says a Medicaid-planning attorney should educate the family on the other documentation they might need to qualify for Medicaid, such as a ledger of the hours and type of care the family caregiver has provided.
In addition to the personal care agreement, which is mainly for paid caregiving arrangements, McClanahan also creates family agreements for unpaid caregiving and other responsibilities. Such agreements help ensure that both parties understand and are on board with the arrangements.