As the American population ages, long-term care (LTC) is expected to significantly impact their lives, yet financing it poses a considerable financial challenge for individuals, especially those on fixed incomes. Many retirees may not plan to use their home equity to cover these costs, but it often becomes a necessity.
This insight comes from a recent research brief released by Boston College’s Center for Retirement Research.
According to the brief, “Retirees face the risk of substantial healthcare spending shocks for medical or long-term care (LTC), either due to high cost-sharing in their health insurance or a complete lack of insurance for LTC.” It further states, “If these shocks are severe enough, they can have a devastating effect on a household’s financial situation.”
While retirees tend to be relatively well-insured against medical emergencies, the brief highlights that they are still primarily vulnerable to LTC expenses, often leading them to unexpectedly leverage their home equity to manage these costs.
“When inquiring about alternatives if they could not cover their healthcare expenses, over 60% indicated they would consider spending down to Medicaid, while only 30% mentioned using their home equity or moving in with family,” the brief noted.
However, Medicaid presents its own set of strict eligibility criteria, and a slight decline in home values for those affected by healthcare-related financial shocks indicates that “households do utilize their home equity to address LTC emergencies,” the brief reported.
Despite retirees’ expectations, the data gathered for the brief suggests that “accessing home equity is actually a common reaction to LTC shocks,” the brief elaborated. “These shocks also lead to decreased anticipated bequests.”
Ultimately, the availability of Medicaid benefits is regarded as a crucial resource to help older Americans mitigate the financial impact of economic shocks related to LTC and other healthcare costs.
“The findings highlight the relative lack of coverage retirees have against LTC shocks and emphasize the importance of Medicaid as the payer of last resort for those who require LTC later in life,” the brief concluded.
