Wage Inflation and Long Term Care Planning

By:  Melissa Barnickle of Baygroup Insurance

Today’s long term care insurance buyers have enjoyed a sustained multi-year period of low inflation. I say “enjoyed” because today’s buyers are normally pre-retirement, and therefore value low mortgage and interest rates more than their retired counterparts.

Working consumers especially value low-interest rates, while retired investors relying on a fixed income from investments tend to value high-interest rates.  

So, the topic of inflation is definitely a case of a two-edged sword, long term care being no exception.

In fact, one of the reasons for rate increases on older long term care insurance policies is actuarial miscalculations on interest rates. When pricing these older policies some 30-odd years ago, the actuaries rationally assumed that interest rates would trend overall higher. That would mean the insurers would earn higher income on premiums collected. The more interest an insurer earns on premiums, the more funds they have to pay claims, and the more stable the pricing can be on those policies. What ended up happening is that low-interest rates have driven higher premium rates.

Back to wage inflation.

Wages for in-home caregivers have been relatively stable. They’ve been almost immune to inflation— for decades.

However, there are some forces at work that may reasonably be expected to increase the cost of in-home care, as well as assisted living facility and nursing home care. They include:

  • $15 minimum wage trends many states are experiencing
  • Efforts by labor unions and departments of labor to increase caregiver compensation
  • The full implementation of a regulation enacted in 2015 by the Labor Department that reversed a longtime exemption for many home care workers. This regulation requires payment by the hour— and, therefore overtime when hourly limits are reached.
  • Immigration policies that may impact the pool of available caregivers

While the hyperinflation of the mid-1970s to the mid-1980s is a distant memory, most of us understand that inflation rates will likely increase. At least for caregiver wages.

No matter the cause, inflation isn’t simply an academic topic when planning for long term care. It’s a topic that deserves our concern. If forecasts of higher inflation and higher care costs do come true, having a long term care insurance policy to buffer you against these higher costs is a smart decision.

Contact Baygroup Insurance at or call us at 410-557-7907 for more information about long term care planning and how you might be affected by wage inflation in the future.