The formal cost of long-term care services: How can society meet a growing need?

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Long-term care costs based on claims data

The need for long-term care services is a major issue for aging Americans and their families. Although many people know that they may need long-term care services as they age, few Americans are knowledgeable about the costs of long-term care services, which will depend on a number of factors including the disabling condition and the fees charged by service providers. Prior research studies generally have not determined the lifetime cost of long-term care based on actual payment data. In order to gain a deeper insight into the cost of long-term care, PwC recently conducted a study of data from eight long-term care insurance carriers. We analyzed claims data of over 200,000 users of LTC services to determine the nature of long-term care costs.

estimated lifetime care insurance cost

We estimate that the current average lifetime cost of formal long-term care is $172,000

PwC research into long-term care costs

Based on our research, we estimate that the current average lifetime cost of long-term care is $172,000. This amount includes all paid services and excludes informal care. This average cost will include all costs associated with expected care for a person whose level of disability is consistent with dependence in at least two activities of daily living or has a cognitive impairment. If a person has LTC insurance, this cost would include not only the insurance claim payments but also costs of care during any deductible periods and above any policy maximum limits. This average cost varies considerably by factors such as gender, type of service, cognitive status and geographical location.

A personal and societal issue

The picture we paint in this report has several implications for financing of long-term care risks. The average estimated cost is a significant sum and long-term care financing should be a consideration in any personal retirement financial plan. Funding typically comes from one or more of the following four sources: personal savings, insurance, financial support from family, and Medicaid. The estimated ranges of costs of care and duration of care that we illustrate above can be useful to strike a balance between the cost of insurance and the amount of desirable coverage.

Although the industry and its products are currently in a state of flux, long-term care insurance remains a potentially large market. Based on the findings in this report, there may be renewed interest in certain existing long-term care insurance options that are beneficial to consumers. 
Aside from retirement planning for individuals, the number of people age 70 and above in 2047 will be twice as large as today, growing from 33 million to 66 million. From a public policy perspective, these estimates indicate that the future cost of providing long-term care services may well be very high. In simple terms, the current cost of paid care is estimated at $2.8 trillion growing to $5.6 trillion (in 2016 dollars).

Probability of a Claim Exceeding Each $50,000 Cost Band
Threshold

Probability

$50,000 65%
$100,000 52%
$150,000 39%
$200,000 30%
$250,000 24%
$300,000 19%
$350,000 15%
$400,000 12%
$450,000 9%
$500,000 7%
$750,000 2%
$1,000,000 <1%

Since Medicare and Medicaid are funded on a pay-as-you-go basis, their future expenditures will be borne by future workers. It follows that if population demographics remain similar to what they are today, long-term care funding for these government programs will be increasingly costly to future generations. In the discussion of potential public financing schemes, the results of this study may be useful to policymakers as they try to determine the appropriate amounts for public versus private financing.

How PwC can help

The 1,100 professionals on PwC's global actuarial services team help clients act decisively on their most important issues. We apply our risk and analytical skills to turn complex data into the predictive insights that inform practical business solutions.

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Larry Rubin

Life Actuarial Partner, PwC US

Peggy Hauser

Life Actuarial Managing Director, PwC US

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