Long-term care (LTC) will likely play a large part in the lives of Americans as the population continues to age, but financing it can be a financial challenge for people particularly on a fixed income. While many retirees often do not intend to tap their home equity to finance such moves, they may often end up doing so.

This is according to a new research brief published by Boston College’s Center for Retirement Research.

“Retirees face the risk of a large healthcare spending shock for medical or long-term care (LTC) either because their health insurance involves significant cost sharing or because they lack insurance entirely in the case of LTC,” the brief said. “ If these shocks are big enough, they can devastate a household’s finances.”

Retirees are reasonably well-insured against medical shocks, the brief said. But they remain largely exposed to LTC expenditures, leading some to go against their expectation and to tap their home’s equity to cover these costs.

“When asked what alternatives they would consider if they could not afford their healthcare expenses, over 60% said they would consider spending down to Medicaid, while only 30% said they would consider using their home equity or moving in with their children,” the brief said.

But Medicaid comes with onerous eligibility requirements, and a measured decline in home values for the affected cohort impacted by a financial shock related to healthcare suggests that “households do draw down their home equity to finance LTC shocks,” the brief said.

Despite the stated expectations of retirees, the data used in the brief’s construction suggests instead that “tapping equity is actually a typical response to LTC shocks,” the brief explained. “Such shocks also lead to reductions in expected bequests.”

Ultimately, the availability of Medicaid benefits is seen as an essential tool to help older Americans avoid feeling the full impact of economic shocks stemming from LTC or other medical expenses.



“[T]he results speak to the relative lack of protection retirees have against LTC shocks, and underscore the importance of Medicaid as a payer of last resort for those who develop LTC needs at older ages,” the brief said.

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