Considering In-Home Care in Retirement? Here’s What It May Cost

Many retirement planning discussions start with a simple question: Where does the retiree wish to spend their golden years? The common answer is probably not surprising – more than 3 out of 4 people age 50 and older want to remain in their homes as they age.¹ A follow-up question for the retiree may be whether they would also like to receive long-term care (LTC) in the home. Long-term care is daily support for activities of daily living, such as bathing, dressing, and using the bathroom.² About 70% of current 65-year-olds are expected to require some type of long-term care, with 1 in 5 needing it for more than five years.³

For those who do hope to receive in-home care in retirement, technology may make that desire more realistic in coming years. In fact, in-home care for LTC needs can sometimes have significant financial benefits when compared to facility-based care, especially if that assistance is provided by uncompensated loved ones with little or no cost to the retiree.

Even if a family caregiver is not available, professional home care has typically been lower than the price of a room in a nursing home or the fees at continuing care retirement communities.⁴ However, prices are likely to increase. One estimate has in-home care costs rising 20% by 2030,⁵ and there’s also concern that a potential shortage of workers could drive up costs even further.⁶ There are other costs typically associated with aging in place, such as home improvements that may be needed to make the home safer and more accessible.⁷ As a result, financial professionals and their clients may need to readjust their expectations around the cost of long-term care, even for those planning to receive in-home care.

Technology Will Remove Common Barriers to In-Home Care

 

The primary barrier to aging in place has typically been the challenges that come with older adults living independently. For example, as people age, slowing motor reflexes could affect their ability to drive safely, preventing them from getting their groceries or traveling to a doctor’s appointment.⁸

Technology advancements, including the boom in telemedicine and the increased capabilities of connected devices, are expected to continue to make it easier to do a number of tasks without leaving the home. These can range from having groceries delivered to meeting with and providing data to a doctor, making living independently a more viable option despite limitations that come with age.

Telemedicine Thrust Into the Spotlight

Telemedicine, also sometimes called telehealth, uses technology to connect health care providers with patients virtually. It’s the modern-day version of an old-fashioned idea: Bring the doctor to the patient instead of requiring the patient to visit the doctor.

The coronavirus pandemic has had a tremendous impact on the use and acceptance of telemedicine, says Christine Calouro, a policy associate with the Center for Connected Health Policy.⁹ During the spring of 2020, the federal government changed the Medicare rules governing telemedicine in response to the public health crisis. As a result, more providers are now able to offer telemedicine services to their patients, and more people enrolled in Medicare have gained access to covered telemedicine services.¹⁰

The Coronavirus Pandemic Sparks Increase in Teleheath Use

Percentage of medical claims in the U.S. that included telehealth

Source: Monthly Telehealth Regional Tracker. FAIR Health, as of December 2020.

“A lot of patients weren’t even aware that [telemedicine] was a possibility. Now, everyone has become aware,” Calouro says, adding that consumer demand could drive more use of telemedicine as well as additional changes to how it’s covered by providers like Medicaid.

The percentage of health insurance claims that included a telehealth visit grew dramatically from 2019 to 2020,¹¹ and 83% of patients say they expect to use telemedicine even after the pandemic’s end.¹² It’s estimated that the telemedicine market could grow to seven times its current size by 2025.¹³

Connected Health Care Also Plays a Role

Can telemedicine really replace visiting a physician’s office, where the staff takes patients’ vital signs and other critical measurements? As connected health care improves, that may be the case. Connected health care refers to medical equipment with remote monitoring capabilities, such as blood pressure cuffs and pulse oximeters. The equipment, which medical professionals provide or, in some instances, patients can purchase over the counter, delivers data back to the provider usually via Wi-Fi or Bluetooth. This enables physicians to monitor patients who are in the comfort of their homes.

In the future, connected health care and enhanced versions of connected devices that already exist – such as refrigerators, scales, and medicine dispensers – could collect our health and behavior data to help keep us healthy. Remote monitoring, combined with advancements in artificial intelligence (AI), offers other potential applications. For instance, video surveillance technology can help physicians monitor people at risk of seizure or falling in their homes, even if a caregiver isn’t present.¹⁴

Physicians will be able to use the increasing amount of data from connected health care devices and telemedicine appointments to create more detailed patient profiles. Advanced analysis of the data using artificial intelligence may allow physicians to identify trends that help prevent health conditions or treat them more effectively and efficiently.

Technology Could Help Retirees Spend Less

The expansion of telemedicine may have a broader impact beyond just reducing retirees’ office visit tally: hospitalization may also decrease. Frederick Health Hospital in Maryland found that its telemedicine program for patients with chronic conditions reduced ER visits by half and decreased hospitalizations by 90%.¹⁵ The telemedicine program included weekly calls and monitoring patients using special software, identifying health issues before they became serious enough to require a hospital visit.

Reducing Hospital Stays Could Help Lower Out-of-Pocket Costs

Sources: Trends in Hospital Inpatient Stays by Age and Payer, 2000-2015; Agency for Health care Research and Quality, January 2018. Age and Gender Tables, Table 12: Out-of-Pocket Spending by Gender and Age Group and Type of Service, Calendar Year 2014; Centers for Medicare & Medicaid Services, March 24, 2020. NHE Projections 2019-2028, Table 6: Hospital Care Expenditures; Aggregate and per Capita Amounts, Percent Distribution and Annual Percent Change by Source of Funds: Calendar Years 2012-2028; Centers for Medicare & Medicaid Services, March 24, 2020.

If telemedicine and connected technology continue to help reduce the number of in-person physician visits and hospitalizations that someone requires, the cost savings could be significant. An average consumer saves $100 per telemedicine visit, a savings that factors in health care expenses, travel costs, and the time spent seeking care.¹⁶ People age 65 and over in the U.S. visited a physician’s office nearly five times on average in 2016,¹⁷ so for a couple who could replace even half of their in-person visits with telemedicine over a 30-year retirement, the savings could be $15,000.

How much of a financial impact could a lower number of hospitalizations have? As of 2015, about 1 in 4 adults age 65 and older had an inpatient hospital stay every year,¹⁸ and in 2014, people age 65 and older spent $8.7 billion out of pocket on hospital expenses.¹⁹ Total out-of-pocket payments for hospital services across all age groups are expected to increase 50.5% between 2018 and 2028.²⁰

The 2021 Medicare Part A deductible is $1,484 before it begins covering a hospital stay. Using that figure, eliminating 15 of these stays over a 30-year retirement, or one every other year, could save a retiree $22,260. Added to the telemedicine savings, that could be more than $36,000 in health care savings.

Home Care Costs Are Growing Quickly

 

While retirees receiving care at home may expect to spend less on hospitalizations or doctor’s visits if technology can reduce their need, the cost of caregiving itself is increasing. Typically, home care costs have grown at the slowest rate of the three general types of long-term care, but that has changed in recent years.⁴

Demand for home care services is expected to increase. New demand, combined with demographic changes, may result in a need for 4.7 million new home care workers by 2028 to fill new jobs and replace those leaving the workforce.⁶ That potential labor shortage is one of the factors expected to result in rising home care costs in the years to come.^4,6

Long-Term Care Cost Increases, 2004-2020

Source: Cost of Care Trends & Insights. Genworth Financial, December 2, 2020.

Home Health Costs Are Rising Faster in Recent Years

Sources: Genworth Cost of Care Surveys, 2012-2020. Genworth Financial, conducted by CareScout®, as of December 2020.

In fact, between 2019 and 2027, the total expenditure on home care in the U.S. was expected to increase by roughly 72% to $186.8 billion, outpacing the projected 52% growth in spending on nursing care and continuing care retirement communities (CCRCs) during the same period.²¹

While some of that increase in total spending on home care will be due to population increases, experts said that a rise in health care prices was also a “significant contributor” to the projected increases.²¹

Ways to Manage Costs

Technology may enable retirees to reduce the number of hours they need to have a caregiver. Mobile apps, for instance, can help retirees schedule transportation, order meals, shop for groceries, receive medication reminders, and manage their finances. Wearables and remote monitoring are already making it safer for older adults to live independently.²²

Additional innovations may improve this even more. Companies are developing robots and other devices that monitor health indicators and can offer recommendations for improvement. Technology solutions may have upfront or ongoing costs to patients, but using them to enable extended home care may allow someone to need fewer hours with a caregiver and be less costly than the fees for room, board, and basic care at a nursing home.

Initial Planning Should Focus on Desired Lifestyle

Retirees who wish to receive home care as they age should work with their financial professionals early on and discuss what they would like their care setup to look like, as that will have a major influence on the overall cost of care and their retirement lifestyle. For example, where does the person want to live? Living with a family member who will serve as a caregiver may reduce housing costs dramatically, but could come at the expense of some independence. Would the person prefer to keep their home and have a combination of family and professional caregivers help them?

There could be other costs to consider associated with family caregivers. Nearly half of caregivers reported facing their own financial challenges, such as loss of income, as a direct result of providing care.²³ Financial professionals and their clients may want to discuss options for providing financial assistance for the caregiver, such as an annual financial gift or even a legal contract. While it may feel strange to have a contract with a family member, the arrangement would set clear financial expectations, which may help avoid family conflict and tax consequences for both the person making the payments and the person receiving them.

Staying in an existing home could also require accessibility renovations. The average spending per owner on home improvements increased by 57% between 1997 and 2017 for the 55-and-older age group, significantly higher than any other age group.²⁴ Some of this increase is attributed to older homeowners living longer and, therefore, spending more on home improvements that allow them to safely remain in their homes.

Older Adults Spending More on Home Improvements

Source: Improving America’s Housing 2019. Joint Center for Housing Studies of Harvard University, 2019.

Homeowners making accessibility improvements spend more on average for all types of projects than homeowners remodeling for other reasons.²⁴ That’s partly because many accessibility-focused remodeling projects include higher-priced changes to kitchens and bathrooms, or potentially even structural changes to allow for single-floor living.

Once preferred living arrangements have been determined, financial professionals and their clients may have a better idea about how much caregiving may be required from a professional and build that into future expense projections.

Because Medicare does not currently cover most long-term care costs, retirees may want to consider several options to save for and prepare for long-term care expenses. For instance, annuities may help provide guaranteed income that retirees can use to pay out-of-pocket expenses. Those with a health savings account can use the funds to pay for long-term costs (confer with a tax professional to understand any tax consequences).

On the insurance side, traditional long-term care insurance allows the policyholder to claim benefits if they need long-term care, but if long-term care is not needed, no benefits are paid. Hybrid life insurance and long-term care policies can provide long-term care coverage for both home care and community care expenses if the policyholder needs it and a cash value that can convert to a death benefit if long-term care isn’t required.

Managing health care from the home will be more realistic for a larger percentage of retirees – even those requiring long-term care – as a result of technology advancements, changes in the marketplace, and a range of financial instruments to help manage health care expenses. Financial professionals and their clients should regularly discuss goals and financial strategies to properly plan for a successful retirement.