Is CPI Inflation Adequate?

You will definitely want to pick up Prudential’s 2010 Long-Term Care Cost Study, which measures trends in costs associated with the major forms of long-term care services. (See the link to this survey under “What Does Long-Term Care Cost?” on this site.)

I’ve seen the cost of care increase an average of 5-6% compounded annually between the year I entered the LTCI business (1988) and present. When the CPI inflation option came on the market in 2006, my research showed that from 1913 – 2006, the average CPI increase is about 3.5%, so I’ve never been comfortable with it, unless you make the starting benefit significantly higher (e.g. $7500 monthly benefit vs. $4800). Urban CPI doesn’t keep up with LTC costs, and the 2010 report from Prudential really underlines this thinking. Take a look:

“Consumer misconceptions continue to exist about long-term care services and coverage options,” said Malcolm Cheung, vice president, Prudential Long-term Care Insurance. “Of those surveyed 25 percent said they had no idea what a day in a nursing home costs and more than a third continue to believe private health insurance and Medicare will cover their future extended care costs.”

Increases in long-term care costs slowed somewhat since 2006. However, from 2004 to 2010 the compound annual growth rate averaged six percent according to Prudential’s report. By comparison, the consumer price index increased at a rate of just 2.5 percent during this same period, emphasizing the importance of choosing the appropriate type of inflation protection when purchasing long-term care insurance.

The study found that home health care costs grew by 13 percent since 2008 largely due to a 17 percent increase in costs to $54 per hour for Licensed Practical Nurses, which represents only about one-quarter of home service usage. The national average cost for a Home Health Aide or Certified Nursing Assistant remained flat at $21 per hour. Assisted living facilities saw the smallest increase with the average annual cost for a room rising only 2 percent in the last 2 years, compared to a 13 percent increase in the prior two-year period. The average daily cost for a private nursing home room in 2010 is $247, or $90,155 annually, a 14 percent increase since 2008.

The CLASS Act contains the urban CPI inflation method.

Thanks to the September 22, 2010 LTC E-Alert from the Center for Long-Term Care Reform ( for compiling this information. Please support this organization as its founder, Steve Moses, has worked tirelessly for three decades to pave the way for a sound long-term care insurance market. I simply could not do without the daily e-alerts.



  1. Whoa! Superbly captivating content. Therefore i’m bookmarking this weblog today. Thanks a lot!

    1. I’m so glad it helped you. I think there is a lot of misunderstanding about how fast the cost of LTC is growing. That’s why how you handle inflation in your LTC insurance benefit selection is of the utmost importance. Ask your insurance professional to show you what the policy will pay in 10, 20 or 30 years so you won’t be disappointed at claim time. Please share this information with as many people as you like. It’s so important that people understand that planning for long-term care is not a personal decision. Our decision to plan or not plan for LTC affects our loved ones all around us. I wholeheartedly believe that planning for long-term care is the kindest thing we can do for our kids. I also believe that this is the year to get LTC insurance because there are so many changes in the product offerings happening right now that consumers need to know about. My new book “Protecting Your Family with Long-Term Care Insurance” was written exactly for that purpose.

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