Prepare for the Rising Cost of Long-Term Care

published 4 May 2010

How much is long-term care expected to cost in 20 to 30 years? I’m in my fifties now and am wondering what the price might be to receive care in a nursing home or my home in the future.

The cost of long-term care is already high and is expected to grow at a brisk pace for the next 20 to 30 years. The median cost of a private room in a nursing home now is $206 per day across the country, which adds up to more than $75,000 per year, according to Genworth Financial’s recent Cost of Care study. And the median cost of care from a licensed home health aide is $19 per hour, which equals $152 per day for eight hours of care -- or more than $55,000 a year.

The median nursing-home cost rose by 5.1% from 2009 to 2010, and the average pace of growth has been 4.5% per year for the past five years. If the growth rate were to continue at 5% per year, then one year in a nursing home would cost nearly $200,000 in 20 years and about $325,000 in 30 years. You can estimate the future cost of care in your area at Genworth’s Cost of Care site. The prices vary a lot by location: The median cost currently for one year in a nursing home in Connecticut is $137,000, but it’s less than $59,000 in Texas.

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Home-care costs haven’t risen as quickly, in part because they’re tied to labor rates rather than health-care inflation rates. But they still increased by 2.7% over the past year and 1.7% per year over the past five years. If home-care costs rise by 3% per year, then the price tag could be more than $100,000 annually to receive home care for eight hours per day in 20 years and about $135,000 in 30 years. Home-care prices also vary considerably by location. The median hourly cost now for a home health aide provided by a state-licensed agency in Alaska, Minnesota and Rhode Island is $25 per hour, but it’s just $15 per hour in Alabama and West Virginia.

Those figures show how important it is to consider potential long-term-care costs when planning for retirement. The Community Living Assistance Services and Supports (CLASS) Act, part of the health-care-reform bill, will introduce a voluntary federal long-term-care program next year that people can pay for through payroll deductions. But the $50 to $75 in daily benefits the federal program will provide falls far short of the average cost of care, and premiums for the program may end up costing more than a private long-term-care insurance policy with similar coverage. See What Health Reform Means for Long-Term Care for more information about the CLASS Act and its limitations.

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Ask Kim Long-Term Care Insurance

As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.