Costs for nursing homes and adult care jumped by the largest monthly amount in July, according to new inflation data.
The latest report from the Bureau of Labor Statistics released Thursday showed that the costs for nursing homes and adult care increased by 2.4% in July from the previous month, the biggest gain on records dating back to 1997. Overall consumer prices were up 0.2% month over month.
"We will need to wait to see if this was a one-time aberration or part of a longer-term trend," Beth Mace, an economist and senior advisor at the National Investment Center for Seniors Housing & Care, told Yahoo Finance.
"Keep in mind that the unusually large July increase followed three months of declines in April, May, and June. It’s certainly something to watch, but not to be alarmed by at this time," she said.
While it may be too soon to tell whether it's a blip or a trend until more data follows, the increase does underscore how much people need to plan for their oldest and costliest years as they save for retirement.
"In general, the costs in health and medical expenses tend to rise faster than other sectors of the economy. This could very well be illustrative of that tendency," Edward A. Miller, chair of the department of gerontology at The University of Massachusetts Boston, told Yahoo Finance.
But "the rise in prices could reflect, in part, a rebound in demand as occupancy rates rise once again [after the pandemic]. The demand is only likely to grow going forward given the aging of the large baby boom cohort."
And that will likely mean "continued and steep increases in prices going forward," Miller added.
Contrary to a common belief, Medicare does not cover all healthcare–related expenses, including the cost of long-term care facility services, such as a long-term stay in a nursing home.
"The high cost of these services can translate to tens of thousands of dollars in out-of-pocket costs for people who need this care, many of whom end up having to spend down all of their savings to qualify for coverage through Medicaid," Juliette Cubanski, deputy director of the program on Medicare policy at KFF, a nonprofit organization focused on health policy, told Yahoo Finance.
Long-term care facilities such as skilled nursing homes and assisted living facilities are by far the most expensive category of out-of-pocket spending, according to an AARP breakdown. The average traditional Medicare beneficiary who stayed in such a facility in 2019 spent $25,395 out of pocket.
An apartment in an assisted-living facility had an average rate of $73,000 a year as of the second quarter of 2023, according to the National Investment Center for Seniors Housing & Care (NIC) — and costs go up as residents age and need more care. Units for dementia patients can run more than $90,000.
"But few people are well-prepared for these expenses," Miller said. "They seem so far off in the future — denial is common — or they feel that family will be available to take care of them or they believe, erroneously, that Medicare covers long-term care or that Medicaid will do so without them having to impoverish themselves first."
He’s right about that.
A hefty 34% of those polled by Schwab in a new survey were like deer in headlights when it came to estimating what their expenses might be in retirement. But one thing for certain is that healthcare costs, including assisted living and nursing care, are likely to be a bigger chunk of your budget than you might anticipate.
About 15% of the average retiree's annual expenses will be health-related, per Fidelity. The after-tax cost for medical expenses throughout retirement for a single, 65-year-old retiree is $157,500, or $315,000 for the average retired couple at the same age, according to Fidelity’s 2023 Retiree Health Care Cost Estimate, which tracks retiree healthcare expenses annually.
One way future retirees can prepare now to meet those future cost challenges is a health savings account, or HSA for short, which allows investors to contribute, invest, and withdraw money tax-free when used for qualified medical expenses.
Read more: The best high-yield savings account rates for August 2023
If you use your HSA money on something other than qualified medical expenses, your withdrawal will be subject to income tax, plus a 20% penalty. But at age 65 and older, you can take penalty-free distributions from the HSA for any reason. However, in order to be both tax-free and penalty-free, the distribution must be for a qualified medical expense.
HSAs are not an option for everyone, though. Some workers do not have access to this type of account at their jobs, while others may not have a high-deductible health plan which these are tied to.
One tiny piece of good news. HSA account balances increased by 11.9% over year-end 2022, according to a new survey from Bank of America, which tracks about 4 million clients’ employee benefit programs.
"We're seeing positive trends across HSA contributions, with more participants saving rather than spending on current expenses," Lisa Margeson, managing director of external affairs, retirement research, and insights at Bank of America, told Yahoo Finance.
That's encouraging because it "highlights the importance of preparing holistically for retirement and long-term wellness."
Kerry Hannon is a Senior Reporter and Columnist at Yahoo Finance. She is a workplace futurist, a career and retirement strategist, and the author of 14 books, including "In Control at 50+: How to Succeed in The New World of Work" and "Never Too Old To Get Rich." Follow her on Twitter @kerryhannon.
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