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What is Long Term Care Inflation Protection?

What is Long Term Care Inflation Protection?

With egg prices seemingly doubling overnight, and the consumer price index up a dizzying 6.5% in 2022, inflation is top of mind. Though it may be more noticeable while filling up a shopping cart or a tank of gas, one area that deserves attention for seniors, and those planning for retirement, is long-term care insurance with inflation protection.

The Senior List estimates that the average cost for a private room in a nursing home in the United States in 2022 was $111,600 a year (1). This is up 3.3% from The American Council of Aging’s 2021 report where a room was $108,000 a year (2). For many this number is already expensive, but things will not get any cheaper.

What’s Causing Long-Term Care Prices Increases? 

Though the same culprits affecting all Americans like the increased cost of food, energy, medicine, and housing do play a part in rising costs to long-term care, there are a few longer trend items that are at play. 

Aging Population

The United States, like many other countries, is facing a growing number of seniors. MSN Money reports that by 2030 those 65 or older will make up 20 percent of the population (3). For reference only 13 percent of the US population was 65 or older in 2010. This trend shows no signs of slowing and with an increased demand for senior living facilities that is greater than the speed at which new facilities can be created, prices will continue to balloon.

People are Living Longer

More than an increase in the number of people hitting 65, people are living longer than in the past. This means longer stays which require more funds, but also keeps long term care communities at capacity, unable to take on new residents. With increased demand, and low supply, senior living communities can demand more money.

Senior Care Employees Require Hire Wages

As senior care becomes ever more crucial and retirement communities struggle with being understaffed, employees are often tasked with more responsibilities. This in turn requires higher wages to retain quality employees.

How to Build Inflation Protection into your Long Term Care Plan

With many not needing services for 15+ years, you may be wondering what can be done to implement inflation protection so that funds are there when you need them? When purchasing a long term care insurance plan, some policies offer an automatic inflation protection. This protection clause can work using one of several methods that increases the policy amount each year. Here are the most common:

Simple Inflation Protection

The benefit policy grows by a set percentage based on its original value. For instance, if the policy offered a 3% inflation protection on a $100 a day policy, after the first year the policy would be worth $103 a day going up $3. In the second year, it would not go up 3% of the $103 but yet again go up the fixed $3 based on 3% of the original policy.

Compound Inflation Protection

As its name suggests, compound inflation protection builds off itself offering more protection than the simple inflation protection. Using the example above, the $100 a day policy with 3% inflation protection would be $103 after the 1st year. However, in the second year, the $103 would be subject to a 3% raise, so the policy would then go to $103.09.

In the short term it may not seem like a difference, but after 20 years, the simple inflation plan would be $160 a day vs $180.61 for the compound interest plan or a $7500 difference per year.

Consumer Price Index Compound Inflation Protection

With this plan, the benefit policy would increase depending on the consumer price index. Previously we said how the consumer price index (CPI) was up 6.5% in 2022. With this policy, the $100 used above would go up $6.50. Then if the next year the CPI was 4.2%, the $106.50 would increase 4.2%.

This policy is great at covering large swings in prices dealing with home goods, food, and energy but does not take into account health care costs. This can potentially create a gap when food and gas prices don’t rise as much as healthcare.

Speak with Our Long-Term Care Insurance Specialists

For over 25 years, Blakeford Senior Life has been a nonprofit provider of quality senior lifestyle solutions and health services to senior adults. LiveWell is a revolutionary suite of benefits expertly managed and personally delivered to your home and includes compound inflation protection. To learn more about long-term care insurance and what will work for you, give us a call 615-665-0694 or contact us to get all your questions answered.


1. The Senior List: Nursing Home Costs and How to Afford Them

2. American Council of Aging: 2021 Nursing Home Costs by State and Region

3. MSN: Baby boomers retiring will affect the economy – here’s how