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4 Ways the Pandemic Is Affecting Long-Term Care

COVID-19 has disproportionately affected people in nursing homes and other long-term care settings. Will lasting change follow?

Editor’s note: Read the latest on how the coronavirus is rattling the markets and what investors can do to navigate it.

The coronavirus pandemic has had an effect on many (most?) aspects of our lives, and its impact on people in long-term care settings has been especially devastating.

The New York Times has reported that 42% of all COVID-19-related deaths relate to nursing homes and other long-term care settings, a stunning statistic when you stop to consider that less 1% of the population lives in nursing homes or assisted living facilities. While elderly residents have been particularly vulnerable during this pandemic, so have workers. The median fatality rate of COVID-19 cases for people in long-term care settings is also much higher than the general population: 16% versus 3%.

The pandemic has taken a toll on long-term care residents in smaller but still meaningful ways, too. While some long-term care facilities have loosened the restrictions on outside visitors, many long-term care residents have experienced deep isolation during this period. That has exacerbated the mental health challenges that many such individuals face. It has also created extreme duress for their family members, who have been forced to settle for FaceTime or Zoom meetings in lieu of in-person contact.

I'll be updating my annual compendium of long-term care statistics soon. But in the meantime, here are four ways the pandemic is affecting long-term care decision-making.

Impact on Care Setting Pre-pandemic, many individuals expressed a preference for receiving long-term care in their homes rather than an institutionalized setting. Long-term care insurance policies reflect that: More than 96% of comprehensive long-term care policies sold in 2019 allowed for a benefit for in-home care that was equal to the benefit for care delivered inside a long-term care facility, according to a survey by Milliman. Accordingly, just a tiny slice of newly originated long-term care policies covered care in a facility only.

Because the coronavirus has had such a large impact on nursing home care, it has likely accentuated consumers' preferences to receive long-term care in their homes. That could translate into even greater downward pressure on occupancy rates at nursing home and assisted living facilities. Occupancy rates in skilled nursing facilities stood at 75.5% at the end of May, a decline of nearly 9 percentage points from the year prior, according to The National Investment Center for Seniors Housing & Care. Not surprisingly, long-term care facility finances are also under pressure: Nursing home margins, thin even in better times, have shrunk further over the past year, owing to declining occupancy and the expense of coronavirus-related safety measures. That's likely to contribute to further cost-cutting and closures of some facilities.

Impact on Government-Provided Care Government, both at federal and state levels, is the largest payer of long-term care expenses in the United States. Medicaid supplies roughly half of the dollars spent on long-term care services and support in the U.S., and long-term care expenditures account for 21% of total Medicaid outlays, according to The Kaiser Family Foundation. Six in 10 nursing home patients are covered by Medicaid, according to KFF.

The fact that so much long-term care is backed by Medicaid has put additional pressure on nursing home finances. That’s because Medicaid reimburses long-term care facilities at a lower rate than the amount paid by consumers who are paying privately, and care facilities have instituted new safety measures in the wake of the pandemic. Some states have temporarily increased their reimbursement rates to cover additional pandemic-related expenditures.

The pandemic may also accelerate the trend toward home-based long-term care provided through Medicaid, which was already underway before the pandemic. For example, in 1981, nearly all of Medicaid's spending on long-term care was spent on care delivery in institutionalized long-term care settings. But by 2016, that figure had dropped to 43%, as home-based care picked up the slack. Because the pandemic has hastened the demand for in-home services, the Centers for Medicare and Medicaid Services have put in place regulatory waivers to increase access to home-based health services.

Impact on Long-Term Care Insurers The fact that COVID-19 has ravaged people in long-term care settings--and indeed older age cohorts at large--has, perversely, had a positive impact on the finances of some long-term care insurance providers. Genworth, a leading provider of stand-alone long-term care insurance, noted that the financial performance of its long-term care insurance unit has improved so far this year. That's because deaths of insured parties have reduced its outlays for care. (The reduced long-term care outlays were offset, in part, by higher life insurance claims during the period.)

Whether positive trends for insurers' financial health will translate into a modulation of premium increases--or lower starting premiums for new long-term care insurance buyers--is an open question. Many insurers view COVID-19 as transitory, and some have even requested approval of premium increases during this period. That owes to a few factors. First, low interest rates reduce the amount that the insurer can earn on premiums and have contributed to premium increases. In addition, long-term care insurance tends to be incredibly sticky. Once people purchase it, they tend not to abandon it. The fact that insurers have been unable to shake off insured individuals with higher premiums has prompted them to push through even higher premiums.

Impact on Caregivers The devastation of COVID-19 has also exacerbated already-existing caregiver shortages. While occupancy rates have declined at long-term care facilities, in-home care is inherently more labor-intensive. There are many reasons for the caregiver shortage, including low pay and stricter U.S. immigration laws (more than a third of in-home healthcare workers are immigrants). A shift to more home-based care is apt to worsen the caregiver shortage.

Of course, no discussion of long-term caregivers should ignore the fact that most such care in the U.S. is unpaid care delivered by friends and family members, especially spouses and adult children. If older adults and their families shift to more home-based care, more of those caregiving duties will likely fall on unpaid caregivers. That care isn't without costs. Between 13% and 22% of caregivers are employed, and 70% reported experiencing work-related difficulties because of their caregiving responsibilities. A third of the people providing unpaid long-term care describe their health as fair or poor, and a third of people providing unpaid care to individuals with dementia are 65 or older.

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About the Author

Christine Benz

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Christine Benz is director of personal finance and retirement planning for Morningstar, Inc. In that role, she focuses on retirement and portfolio planning for individual investors. She also co-hosts a podcast for Morningstar, The Long View, which features in-depth interviews with thought leaders in investing and personal finance.

Benz joined Morningstar in 1993. Before assuming her current role she served as a mutual fund analyst and headed up Morningstar’s team of fund researchers in the U.S. She also served as editor of Morningstar Mutual Funds and Morningstar FundInvestor.

She is a frequent public speaker and is widely quoted in the media, including The New York Times, The Wall Street Journal, Barron’s, CNBC, and PBS. In 2020, Barron’s named her to its inaugural list of the 100 most influential women in finance; she appeared on the 2021 list as well. In 2021, Barron’s named her as one of the 10 most influential women in wealth management.

She holds a bachelor’s degree in political science and Russian language from the University of Illinois at Urbana-Champaign.

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