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According to a recent analysis by the National Council on Aging, the LeadingAge LTSS Center at UMass Boston, and the University of Massachusetts, as many as 80% of older Americans will not be able to afford more than four years in an assisted living facility or two years in a nursing home. This is a startling revelation, highlighting the imminent crisis in long-term care affordability in the United States.

Who will this affect the most? Middle-income Americans, earning between $52,000 to $156,000, will be heavily impacted. They often find themselves in a precarious situation—their assets are too high to qualify for government aid yet insufficient to cover the escalating costs of long-term care. This is because Medicare does not cover long-term care, which means that these individuals often earn too much to qualify for Medicaid but too little to afford increasing care costs.

The ripple effect of these financial burdens can heavily impact families, often leading to younger generations prematurely dipping into their retirement savings to support elder family members. This creates a negative cycle, leaving the younger generation underprepared for their own retirement financial emergencies.

A senior consulting with a financial expert on the rising cost of long-term care.
Reverse mortgages can be a good source of income for individuals aged 62 or older with substantial home equity.

Are there any immediate solutions? As things stand, there are several financial strategies available to those unable to afford necessary care. Among these are reverse mortgages, long-term care insurance, hybrid insurance policies, benevolent funds at care facilities, and life settlements.

For individuals aged 62 or older with substantial home equity, reverse mortgages can serve as a useful income source. This strategy can be particularly beneficial for those intending to receive home care or for households where a spouse continues to reside at home. The downsides are hefty closing costs and potential reductions in inheritance. 

Long-term care insurance, while potentially costly, often amounts to less than the out-of-pocket costs for long-term care, making it a viable option for those without serious health issues. An alternative is a permanent life insurance policy with a long-term care rider, also known as a hybrid policy.

Also, those unable to pay for long-term care can receive benevolent care from some nursing homes and assisted living communities. These facilities accept individuals who can’t afford the full price of care or have depleted their resources, and the benevolent fund covers the shortfall.

And life settlement, while generally considered a last resort, may be an option in a financial crisis. This involves selling an insurance policy to a third party, typically receiving between 5% and 25% of the death benefit’s value.

What is the long-term solution? Many experts believe that the solution to affordable elder care involves increasing the income and assets of older Americans or reducing the cost of long-term care. Some states are even considering an employer-provided social insurance program for long-term care modeled after Social Security.

Regardless of broader policy debates, household-level financial planning is critical. Relying on hope to avoid health issues or the need for long-term care is not a sustainable strategy. Ultimately, the rising cost of long-term care cannot be pushed aside for future generations—it is a present crisis that needs immediate attention and concrete solutions.