What will Long Term Care services cost when you need them? Today $84,680 per year will buy you 10 hours per day of professional home care or a private room in an average-priced Metro-Denver nursing home*. While I do not know the future cost with certainty, I do know what the increase have been over the past five years. Nursing home and assisted living costs have grown an average of 6%-7% per year.** Home Care costs have grown an average of 2% per year during this period.** The costs of operating a nursing home or assisted living facility are both labor-intensive and capital-intensive (facility financing costs). The cost of providing home care is almost entirely labor. As our population ages, each year we have more people needing long term care services and fewer available caregivers to provide the service. That shortage of labor can only drive up the cost of future care.
U.S. inflation, as measured by the Consumer Price Index – All urban Consumers (the generally accepted inflation rate) has been as follows:
- 2005: +3.4%
- 2006: +3.2%
- 2007: +2.8%
- 2008: +3.8%
- 2009: -0.4%
So how can we have “inflation” running between -0.4% and + 3.8%, from 2005-2009, yet the cost of care in assisted living and nursing homes growing by an average of 6%-7% per year? The answer is the Consumer Price Index is a changing (some may say manipulated) “market basket” of items supposedly routinely purchased by consumers. The growth rate for Long Term Care services cost is based upon actual changes in pricing. This strengthens my argument for using at least a 5% annual inflation projection for assisted living & nursing homes. But what about the only 2% annual cost increase for home care? For now, there are too many home care agencies chasing too few customers. This will change as our population continues to age…resulting in many more people needing care and fewer workers to take care of them.
All of this seems like a lot to justify my using a projected 5% annual inflation rate for Long Term Care services. Actually, I think 5% is conservative. Given a 5% annual cost growth rate, this is what you can expect to pay for one year of care in your future:
- Today: $ 84,680
- In 5 years: $102,929
- In 10 years: $131,366
- In 20 years: $213,982
- In 30 years: $348,554
If you are now age 50, needing care in thirty years (at age 80) is a reasonable assumption. $349,000 for one year of care for one person. If you are now age 60, one year of care will likely cost $214,000 when you are age 80. Where will the money come from? Planning is the answer.
* The 2010 MetLife Market Survey of Nursing Home,Assisted Living, Adult Day Care Services, and Home Care Costs. October, 2010.
** Genworth 2010 Cost of Care Study, April 2010.
Disclaimer: Raymond Smith, The Long Term Care Specialist, does not give legal or tax advice. Consult your tax advisor or attorney for these matters.
© Raymond Smith, The Long Term Care Specialist, 2011
Planning for Long Term Care 