While all but a fifth of persons age 65 and older will need some type of long-term care, those in that age group commonly underestimate the costs of such care and also commonly believe mistakenly that health insurance will cover those costs, a new report says.

“Paid LTC is very expensive – in 2023, the median annual costs were $116,800 for a private room in a nursing home, $75,500 for home health aides, and $64,200 for an assisted living facility,” said the report from the Center for Retirement Research at Boston College. “The extent of the general price risk households face in the future is unclear. The shortage of qualified workers and growing need for specialized care has driven up the general price of paid LTC.”

It noted that of the 80 percent who will need LTC care at some point, more than half will need high-level care such as nursing home care, and a fifth will need it for more than three years. “Many in this group have Alzheimer’s disease or related dementias – they often need around-the-clock supervision and can live for many years with the disease,” it says.

“LTC costs, of course, are not well insured, which makes it more important that individuals have a sense of the costs they may face,” it says, noting that only 15 percent of those aged 65 and older have LTC insurance.

However, funding such costs ranked only fifth in a survey asking what concerns them about their retirement security, it said, possibly reflecting that they are underestimating such costs. For example, 63 percent underestimated the cost of assisted living compared with only 3 percent who underestimated the cost; the rest were about evenly split between those who got it about right and those who couldn’t judge.

Similarly, 32 percent underestimated the cost of nursing home care, the most expensive type of LTC, while 39 percent got it about right and the rest couldn’t judge. Only with the least expensive type, home health care, did more overestimate the cost than underestimate it.

Said the report: “One reason that households have such big misperceptions about both the risks and the costs of LTC is that survey after survey has found that many mistakenly believe that Medicare covers LTC . . . older households tend to underestimate their healthcare risks in retirement and have very little sense of how much medical shocks or LTC services may cost.”

For example, a survey from 2022 found that 45 percent of respondents ages 65 and up think that Medicare covers LTC and another 9 percent think that their other health insurance covers it. Medicaid does provide coverage but that applies only after assets have been spent down to low levels, it added.

“The implications of older households underestimating healthcare risks are that many may have to make substantial adjustments or consider unpalatable options. The majority of older households say they would spend down to Medicaid and prefer to preserve their home equity. In reality, many end up tapping home equity and only a minority end up on Medicaid,” it said.