What Costs $80k Per Year and Makes Your Knees Ache?

For quite a few Americans, the answer is old age. Even if you personally manage to avoid the financial hit, there’s no guarantee that you won’t be wrestling with the problem on behalf of a parent, a grandparent, an aunt or even a sibling. America, we have an aging problem.

The New York Times’ Ron Lieber took up the topic last week in a political piece called, “Plan on Growing Old? Then the Medicaid Debate Affects You.” In it, he asks us to face up to the fact that a wide swath of our otherwise financially well-off middle class find themselves relying on Medicaid in later years. We don’t like to think about old age, he argues, so we don’t engage in the crucial political debate about who pays for it and how.

In our defense, the other problem in this debate is how incredibly complicated the situation has become. So, here are the basics:

As Lieber notes, one of the leading long-term care insurers put the average nursing home cost in the country at $82,128 per year for a semi-private room. A recent Kaiser Foundation report showed the following: one in three Americans who make it past age 65 will end up in a nursing home at some point, which added up to 1.4 million people in nursing homes in 2015 – mostly women and mostly white (because that group has the longest life span). One in three nursing home residents has some sort of cognitive impairment, whether from stroke, Alzheimer’s, or other conditions. Medicare, the retirement health program that you pay into throughout your working life, does not cover nursing home or long term in-home care. Medicaid, the social welfare program, covers only indigent seniors. States get to set many of its eligibility guidelines, so can vary significantly throughout the country. The number of seniors in America is expected to double by 2060.

Now let’s look at how this affects you. A high-earning couple may well sock away enough money to have a generous $80,000 to $100,000 per year to live on during retirement. But if one of them needs nursing home care in his or her 70’s, that retirement budget will immediately go out the window. The couple might be able to cover the extra costs for a while, but if it goes on too long the second spouse is likely left with a serious financial problem. So, what are their options?

If they are lucky, the couple have long-term care insurance (in my practice, we always evaluate the need for long-term care insurance for clients in their 50’s and older). But many people can’t afford or didn’t plan for long-term care. That would leave our couple with the option of asking family for assistance or applying for Medicaid. Under the federal program, every state must provide Medicaid assistance for nursing home care, but states set the rules for who qualifies. State have the option of providing some assistance for in-home care (generally, a less costly option than nursing homes). In Massachusetts, the couple would receive full Medicaid assistance for nursing home costs if their total income (including from retirement plans) is no more than $21,307, and they have less than $3,000 in assets not including the family home, an employer-owned pension, their burial plots and certain other assets. But that money our couple saved in regular retirement accounts, bank accounts or other properties? They need to spend that down to get full assistance. Clever efforts to move their assets into trusts or over to family members can result in a temporary loss of eligibility.

Clearly, the standard advice to save up for retirement is just not good enough. And with our current nursing home shortages and aging population, the situation is likely to get worse. We would do well to follow Lieber’s suggestion and get involved in the political debate about how our nation copes with aging. Just as importantly, we need to face the more upsetting question of whether someone in our own families is likely to need help. When it comes to long-term care, the options are generally better when you start planning early.