The Long-Term Care Conundrum in the United States

The Long-Term Care Conundrum in the United States
January 1, 2025 6 mins

The Long-Term Care Conundrum in the United States

The Long-Term Care Conundrum in the United States

Long-term care is expensive, and costs are rising due to shortages. With the population aging at the fastest rate in a century, finding solutions to pay for care is an urgent priority. How can employers support this growing population?

Key Takeaways
  1. The annual cost of a room in a long-term care facility can be over $100,000.
  2. U.S. states are considering new taxes to help fund long-term care services.
  3. Life insurance with long-term care policies are gaining in popularity.

With the Baby Boomer generation retiring, many employees are concerned about how they will pay for potential future care. This is especially true of workers whose parents or older relatives are facing the prospect of paying for long-term care (LTC) services. Since Baby Boomers are the largest generation, several issues have moved to the forefront, including growing shortages as older nurses and care aides retire. Baby Boomers also have fewer children to help take care of them, and those children have fewer resources with which to do so. With the average annual cost of a stay at a nursing home at well over $100,000,1 some have suggested that the “Great Wealth Transfer” from Baby Boomers to Generation X and Millennials will in large part be diminished.2

Contrary to what many may assume, Medicare doesn’t generally pay for LTC services. Rather, those costs are covered by the individual, their families and by Medicaid. However, Medicaid’s strict asset limits, claw-back provisions and limited options mean it is no panacea. That leaves seniors and their families on the hook for the cost of care. How can employers help their employees plan for their future?

Legislative Solutions for the Long-Term Care Conundrum

To combat spiraling costs, the state of Washington implemented a long-term care insurance program funded by a payroll tax to help fund LTC services. A few other states, including Maryland, New York and Pennsylvania, have taken steps toward finding funding mechanisms for expanded LTC care, but no proposals are expected to come to fruition any time soon. California even created a task force to explore creation of a long-term care insurance program, however no legislative proposal was introduced during the 2024 session.

Washington’s payroll tax was implemented in 2023 after a delay and numerous changes to the long-term care insurance program. For example, a protest by employees that were ineligible for benefits under the program but still required to pay the payroll tax, resulted in modifications to recognize several new exemptions. Most recently, a 2024 ballot initiative to make insurance program participation optional was defeated. This means other states, which may have been reluctant to move forward due to uncertainty around Washington’s program, may now begin to act.

17%

Individuals and their families paid out of pocket for 17 percent of the $415 billion in LTC services in 2022, up from $64 billion in 2020.

Source: KFF

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Activity in other states has slowed dramatically. They were watching Washington as a potential way forward, but the delays in implementation and changes to the program may have influenced them.

Abbey Hendricks
Vice President, Legal Consulting Group, Health Solutions, North America

With new tax revenue seemingly off the table in most states, costs are likely to continue to be shouldered by seniors and their families. That leaves families looking for solutions like LTC insurance. Until about a decade ago, the LTC insurance market was robust, featuring guaranteed issue and group policies. However, insurance carriers mispriced the LTC product, failing to account for the rapid rise in the cost and demand for care. As a result, most carriers pulled out of the marketplace, leaving traditional individual LTC products and hybrid life insurance with LTC riders as the best alternatives.

Annual Cost of Long-Term Care Services
long-term-care-2024-chart-2

Source: Cost of Care Survey, Genworth

A Solution Employers Can Promote

While the issues surrounding long-term care seem vast, there is a solution. Life insurance with LTC coverage is a policy that can solve the conundrum facing many families and, by extension, many employers looking for ways to support their workforce. It is a life insurance policy in which a portion of the death benefit can be used for LTC costs. If the insured employee or covered family member doesn’t need such care, the policy works like ordinary life insurance, paying out a death benefit to the designated beneficiary.

This type of policy helps insured employees and covered family members if they need additional services, such as skilled nursing or in-home professional care. Insured employees can typically draw around 4 percent of the death benefit face value per month for 25 to 75 months once they qualify under the policy. Policies like these tend to be rate stable, meaning premiums do not increase year-over-year. Life with LTC coverage offers the best of both worlds — a hybrid product that covers LTC costs when employees need it and a death benefit when they don’t.

Employers that offer their employees an option to purchase life insurance with LTC coverage can help address several needs of their people, including:

  • Providing a critical benefit for employees that are caring for elderly family members
  • Improving emotional wellbeing
  • Advancing financial wellbeing and employee retention

How to Deliver Life Insurance with LTC Coverage to Employees

The success of life insurance with LTC coverage ultimately depends on how well employers understand, plan for and communicate the benefit. Employers need to provide employees with the resources and support required to fully understand and enroll in the program. An effective communications campaign, educational webinars and benefit counselor support will help employees make informed benefit decisions based on their personal financial situations. Advisors can also support the program’s technical and implementation aspects, walking employers through state regulations and acting as an intermediary for employees.

81%

of employees think long-term care insurance is very or somewhat important. However, only 25 percent of employers offer it.

Source: Transamerica Center for Retirement Studies

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Determining which LTC program to offer employees can seem like a challenge. By becoming better informed and better advised, companies can make benefit decisions that directly improve the financial wellbeing of their employees.

Marc Lower
Regional Growth Leader, Consumer Benefit Solutions, North America
Aon’s Thought Leaders
  • Abbey Hendricks
    Vice President, Legal Consulting Group, Health Solutions, North America
  • Marc Lower
    Regional Growth Leader, Consumer Benefit Solutions, North America

1 10 Things About Long-Term Services and Supports, KFF
2 The 'wealth transfer' from boomers won't save Gen X and millennials, NBC News

General Disclaimer

This document is not intended to address any specific situation or to provide legal, regulatory, financial, or other advice. While care has been taken in the production of this document, Aon does not warrant, represent or guarantee the accuracy, adequacy, completeness or fitness for any purpose of the document or any part of it and can accept no liability for any loss incurred in any way by any person who may rely on it. Any recipient shall be responsible for the use to which it puts this document. This document has been compiled using information available to us up to its date of publication and is subject to any qualifications made in the document.

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