Government healthcare spending is set to skyrocket, costs of long-term care are steadily rising, while at the same time, most seniors’ wallets are strained thanks to the prolonged economic recession. Add to that dwindling government benefits programs such as Medicare and Social Security that are unfortunately linked to an enormous federal deficit problem, and the future of long-term care doesn’t look so rosy for the nation’s growing senior population.

Seniors aren’t Financially Prepared for Long-Term Care Costs

Retirement preparedness is at dangerously low levels, with two-thirds of Americans fearing they won’t have enough money for retirement, reveals a Gallup survey on biggest financial worries.

And it’s not just that people are worrying about not being able to afford their care; other studies show many won’t have the necessary resources.

Nearly half of the oldest baby boomers, at 47.2%, are thought to be “at risk” of not having enough resources to pay for “basic” retirement expenditures and uninsured health care costs, according to the 2010 EBRI Retirement Readiness Rating.

Long-term care was found to be the least understood and the greatest perceived threat to financial security for middle-income Americans, says a survey about retirement healthcare. Further, 66% of Medicare recipients either didn’t know if the program covers long-term care, or overestimated its long-term care coverage.

“Financial fallout from healthcare related expenses can devastate savings and strip away the enjoyment of one’s retirement years,” said Chris Campbell, vice president of strategic marketing and business development for Bankers Life and Casualty Company, in a statement about the survey.

Rising Costs of Senior Care

Meanwhile, last year’s Survey of Nursing Home, Assisted Living, Adult Day Services, and Home Care Costs, conducted annually by the MetLife Mature Market Institute, found that costs of long-term care continue to rise.

Nursing home care cost an average $87,235 a year in 2011, while assisted living base rates rose to $41,724 a year, according to MetLife. And while home health aide service rates stayed about the same at $21 an hour, adult day services increased to $70 a day.

The average senior entering into an independent living facilities is in his or her mid-80s, while the average age for seniors to enter assisted living is getting pushed back to late 80s or early 90s, according to a market researcher, and the median age of nursing home residents at nearly 83.

With many choosing to retire in their mid-60s, how many of today’s boomers will be able to afford these kinds of costs 15, 20, or even 25 years down the road?

Dwindling Government Benefits Programs

The 65+ demographic currently makes up about 13% of the nation’s overall population, and it accounts for 36% of total U.S. personal health care expenses.  The elderly and disabled account for about 25% of Medicaid enrollment, but in 2003 consumed about 70% of the program’s spending on services.

However, the number of those 65+ is expected to triple by 2050, with 10,000 baby boomers turning 65 each day until 2030.

It makes sense, then, to learn that government healthcare spending is accelerating at an alarming rate. Federal programs like Medicare and Medicaid are expected to more than double, says the Congressional Budget Office in its economic outlook for fiscal years 2012 to 2022. In fact, by 2022, federal spending on healthcare programs will climb to $1.8 trillion—or 7.3% of the nation’s GDP.

About half of that spending growth will come from Medicare (whose spending is expected to rise 90% in the next 10 years), and about a third from Medicaid, the CBO says.

Meanwhile, back in 2011, the Social Security and Medicare Board of Trustees released a report announcing that the two programs were dwindling and would reach exhaustion faster than previously expected.

The Social Security Trust Funds will be exhausted in 2036, and the Medicare Hospital Insurance Funds by 2024, according to the report, respectively one year and five years sooner than former projections.

Senior Care Facilities, Medicaid & Medicare

A large number of nursing home residents today rely on Medicaid to pay for their care, but the federal budget squeeze means most states aren’t getting enough funding to fully reimburse facilities, and states can expect even less federal Medicaid matching in the coming years, according to a report conducted by the National Association of Medicaid Directors.

In 2011, skilled nursing facilities faced a more than $6 billion shortfall in Medicaid funding, revealed a report by ElJay, LLC, a firm with expertise in Medicaid cost reporting and analysis. This represented a 13% higher margin of loss compared to the previous year’s shortfall, and there’s a projected negative Medicaid margin of more than 14% for 2012, according to the study.

Currently about 63% of nursing homes residents have their stays funded by Medicaid, says the American Health Care Association (AHCA), while about 45% of the total nursing home bill is paid by the program, according to AARP.

While Medicare doesn’t pay for long-term nursing home stays, it does primarily support about 13% of nursing home residents, but keeping in mind the shorter duration of coverage, it actually serves as a primary payer for 52% of residents who have been in a nursing home for less than 30 days, says AARP, and it paid for 17% of the nation’s total nursing home bill in 2005.

A number of facilities either have been or are looking for a primarily private-pay census, but with personal finances not faring well after the Great Recession, it’s unclear whether or not this will be sustainable in the long term.

For those in the senior living industry, what does this mean? How will upcoming generations of retirees be able to afford their long-term care costs? How will facilities combat further cuts to Medicare, and state shortfalls for Medicaid matching? In the next few days, Senior Housing News is going to take a closer look into some senior housing and care options, alternatives, and opportunities.

Article topics will include:

• The plight of nursing homes as senior housing/care models continue to evolve
• “Affordable” assisted living models that use a state Medicaid waiver
• “Transitional” senior housing/”Granny” pods that can be built in an adult child’s back yard
• Senior living providers partnering with home health care agencies
• Design trends and aging-in-place

Any other suggestions for articles that fall under this general topic of long-term care costs, affordability, and the future of senior housing can be left in the comment section below or emailed.

Written by Alyssa Gerace

Insurance companies, commercial banks and public housing management departments will be encouraged to start trials of reverse mortgages as part of the 12th Five-year Plan, which goes from 2011-2015, according to a recently-published notice on the Beijing Municipal Bureau of Civil Affairs website, Global Times reports.

Reverse mortgages are catching on in other parts of the world after they grew in popularity in the United States in the past few years, and now China believes they might be a way for elderly people to be able to pay for care and nursing homes in their old age.

“Pushing forward a new financing model for the rest home industry is a good idea, especially with an aging population,” Zhu Fengbo, president of rest home development company Beijing Sun Cities Group, told Global Times. ”But it will take a long time for the new model to work, due to the government’s changeable and unpredictable real estate policies, which are confusing for developers, ordinary people and financial institutions.”

Another factor is potentially fluctuating property values, which makes it hard to estimate the value of seniors’ properties.

“It will be difficult to promote the new model in big cities, let alone small ones,” Liu Kailong, general manager with Anhui Tiankang Property Ltd, which manages a rest home project in Chuzhou city, East China’s Anhui Province, told Global Times.

Most people are also determined to leave their homes to their children after they die, Liu continued.

However, fees for rest homes are considered high to many low-income seniors, especially those living in smaller cities, and Liu’s rest home project is losing money because of high developing and construction costs.

Similar to the United States, China’s population is aging rapidly. The 60+ demographic, currently at 12.5% of the overall population, is expected to jump to 20% in 2020, and still higher to 31% in 2050, according to the China National Committee on Aging.

Read the Beijing Global Times article here.

Written by Alyssa Gerace

The initiative, under the Village to Village Network umbrella, started about ten years ago in Massachusetts and has since spread to dozens of other locations across the nation; many of these villages belong to the network, while others remain independent. There are currently 55 villages with another 120 in development in the network.

The first, Beacon Hill Village, was founded by a group of seniors who desired to remain in their homes and age in place, rather than go some sort of senior living facility. They organized the neighborhood in such a way that their needs were met within the community.

Villages vary in size and demographics, averaging 100 members with entrance fees ranging anywhere from $25 to $1200 a year. In 2010, more than 90% of village members were aged 65 or older, according to research done by University of California, Berkeley, and 87% owned their own homes.

Each village compiles a referral list of trusted local service providers for assistance that seniors might need with transportation, finances, housekeeping, home repairs, and all sorts of other services, such as reverse mortgages. Then, once a village member needs a service, they can call the village office, and from there are connected with a service provider from the referral list, instead of needing to do research and make multiple calls.

Being added to a village’s referral list is up to each individual village and the needs of its members, so any sort of affiliation depends on the relationship that could be formed between a village and a service provider.

“It makes nothing but sense,” said W. John Moore, president of Eureka, Calif.-based Senior Finance Center, which specializes in reverse mortgages, in regards to forming a relationship with a village. “A lot of times, people need to make modifications to the home [for aging in place], and funding may need to come from a reverse mortgage for a lot of folks.”

Although no villages are located near where he’s based, Moore says he would absolutely make an effort to affiliate with one were it to develop nearby.

With people aging in place and staying in their homes longer, the need for increased cashflow might crop up, making many villages a possible marketplace for reverse mortgages.

Most village members are home owners on the moderate to low end of the middle income range, indicates research from the UC Berkeley, which could translate into a wealth of candidates for the loans.

“With the downturn in the economy, the loss of retirement savings, and the challenges in the housing market, villages are going to become more of an opportunity for seniors,” says Susan Poor, senior policy advisor for NCB Capital Impact, a non-profit investment organization that partnered with the original village in keeping with its goal to provide access to long term supports initiatives for seniors, among its other programs.

The village model allows people to access their home equity, she says.

“It’s a concept of people being able to stay in their homes, and leveraging the limited assets that they have,” Poor says.

Right now, that home equity appears to be largely untapped.

“To date, I have not heard of any villagers that have utilized the product or are actively engaged in that as a business service in their village at this point,” says Candace Baldwin, the co-director of the Village to Village Network. “It doesn’t meant that there aren’t villages that might be interested, or have a need for that.”

If reverse mortgages are a product the village deems they’d like to have available, after members have identified it as a need, then the village would build a strategic alliance with a lender, says Baldwin.

“I certainly see that there’s a need for lending services, period, and for financial planning, long term, which is a service that many villagers have identified as a need in their communities,” she says.

The idea of a reverse lender or broker forming a relationship with a village could catch on, and many originators report a strong referral-based business.

“It seems like a clever idea,” says Anthony Webb, a research economist at the Center for Retirement Research at Boston College. “I can see benefits from the point of view of the lender, or the broker. If you have a broker who’s active in a particular area, as these people often are, then I can see it would be to the broker’s advanatge to have them as a member of the network.”

Written by Alyssa Gerace

With many of those housing units encompassing senior housing, the lack of budget for repairs could slow the movement for some seniors out of their longtime homes and into public housing facilities.

The study, titled “Capital Needs in the Public Housing Program,” updates an analysis from 1998 to estimate the current capital needs in U.S. public housing.

“The new capital needs estimate far exceeds our annual budget for these repairs and illustrates why America needs a long-term strategy to address the loss of thousands of public housing units annually,” said HUD Secretary Shaun Donovan. “At a time when budget deficits require the Federal government to tighten its belt, many of the nation’s public housing units are buckling under a severe backlog in capital needs.  Public housing owners are forced to make tough choices between repairing roofs and replacing plumbing—or worse, demolishing units altogether—because there simply isn’t enough money to go around.”

The existing capital needs for senior developments is substantially lower than for family developments at an average of $11,646 and $22,190 respectively. Both types of housing are in need, however, at a time when funding is short and uncertainty exists for publicly financed projects.

For senior housing, accrual costs are lower than in family developments, and life cycles are shorter for many systems in family developments because of higher wear and tear, according to the study.

View the report.

Written by Elizabeth Ecker

“The baby boomers have dominated  housing market trends at each stage of their lives—first as children in the households that were part of the great wave of suburbanization, then as young adults entering the housing market for the first time, and most recently as middle-aged households trading up to bigger and better homes and helping to fuel the homeownership boom of the 1990s and 2000s,” says JCHS. “As they approach retirement age, the baby boomers will once again heavily influence overall housing demand…Over the next decade, it is much more certain that the baby boomers will boost the number of senior households to unprecedented heights.”

Although most baby boomers will want to age in place upon retirement, says JCHS, it pointed to a report showing that more than 30% of household heads aged 65-74 said in 2007 that they had moved in the previous ten years, many into smaller units.

“If the older baby boomers match this mobility rate, some 3.8 million would downsize their homes over the coming decade, lifting the demand for smaller units,” the report reads. “Their sheer numbers also mean that the baby boomers will have a major impact on the housing markets of preferred retirement destinations, which so far have been the non-metropolitan areas in the South and West.”

The report showed that since many young adults are reluctant to establish their own households in favor of remaining in their parents’ homes, the baby boomer generation will deeply impact age distribution of households, as it’s a much larger group than the previous generation and will add significant volume to the senior population. JCHS says most baby boomers will end up either aging in place, downsizing, or moving into senior housing as they reach retirement age.

As for geographic locations, JCHS says many boomers have moved out of cities in favor of relocating to the lower housing costs that can be found in the suburbs. According to the report, the suburban senior population will grow by millions in the next 20 years, and seniors will remain in these homes to age in place. JCHS lists reasons for this which include being forced to continue working past typical retirement age due to eroded retirement savings or home equity, retiring in stages where one spouse remains in the work force because of age differences, or wanting to stay close to grandchildren.

Read the full report.

Written by Alyssa Gerace

An article in the Massachusetts newspaper the Milford Daily News cites several instances of senior housing facilities with falling occupancy rates since 2008. Most operators of the housing facilities say seniors are staying in their homes longer and are opting for in-home care rather than assisted living or nursing care. The decision often falls on the families and children of the seniors, who are opting to wait out the housing downturn and hope for home equity to return, rather than lose the value of their homes.

“Rather than sell their home, which is typically a senior person’s major asset, they’ve chosen to increase the senior person’s home care rather than moving and selling their home during a difficult time in the housing market,” Betsy Willard, director of a Wayland, Mass.-based Sunrise assisted living facility told the Milford Daily News.

“What we saw was some of our folks were coming to us a little bit later than normal,” another assisted living operator told the paper. “I think families were a little more conscious of mom’s investments and financial manners.”

View the Milford Daily News article.

Written by Elizabeth Ecker

There’s a direct correlation between the timing of the development and the aging baby boom demographic, and the HECM for Purchase will be one way for seniors to buy into these new homes, whether they are downsizing or upsizing.

“We’re looking at these units as being a tremendous alternative to condo living,” says Jerry Pinero, a developer on the project. “Especially for seniors, it’s implied that if you’re going to live in a condo, you’ll have stairs or elevators. With these, you pull up, you pull in or out. It’s suitable for people who are 65 or 75 and they can stay there for the rest of their lives.”

Pinero cites the Pew Research figure that 10,000 people each day in the U.S. are turning 65. Recent trend findings on the demographic also bode well.

According to Evanston, Ill.-based Mather LifeWays Institute on Aging, of the top 10 senior living trends, two were “choice and value” and the number one tend was aging in place. “Residents will seek services and programs that will support ‘aging well’ in place,” said the study, which was based on a survey of 600 senior living organizations representing more than 1,000 communities across 15 states.

Senior housing communities have always offered an option, but the aging in place trend may also lead some to seek new homes where they can stay for years to come. With many families having lost retirement income, some may turn to reverse mortgages to finance these moves.

The HECM for Purchase allows borrowers to take their home equity from one home and use it toward another in one fell swoop.

Data from Reverse Market Insight (above) shows the volume of HECM for Purchase loans actually declined in 2010 for the majority of the top 15 states for HECM for Purchase loans, after gaining some popularity following its launch in January 2009.

(See RMD’s report on the first year of the program, which posted growth from just 18 units in its launch month, to more than 130 in December 2009.)

Still, many say, the product is widely unknown, compared with its HECM Standard and growing HECM Saver counterparts. That may not be great news for Priory Estates, but the development hopes the growing age bracket will help the product gain popularity—along with all reverse mortgages.

“It’s a parallel between the 55+ community and reverse mortgages,” says Pinero of the timing of the project. “The awareness of this type of product is out there, there’s no doubt about it. It’s been so scarcely utilized; only just in the last five to seven years have they gained in popularity.”

If all goes according to Weso’s plan, the project should break ground by the end of 2011, just as the first baby boomers are turning 66.

“I have never seen a necessity for a particular product to the extent that I see the necessity for this now,” he says.

Written by Elizabeth Ecker

David Crowe, chief economist for the National Association of Home Builders estimates housing starts for these communities will rise 30 percent from 2010.  While it’s still a relatively modest production number, starts in 55+ communities are projected to increase another 46 percent to roughly 79,000 housing units in 2012.

“By the year 2020, as Baby Boomers move into this age bracket, almost 45 percent of all U.S. households will include someone at least 55 years old,” said Crowe. “The number of those households seeking housing better suited to their changing needs will therefore rise dramatically.”

A joint study by the 50+ Housing Council of the NAHB and the MetLife Mature Market Institute shows the recession has made 55+ buyers more practical when selecting a new home but financial concerns have become a bigger problem.  Using data from the Department of Housing and Urban Development’s 2009 American Housing Survey (AHS), the report shows that older borrowers previously relied on home sale proceeds to finance a new home, but as the economic downturn continues, that option has been greatly diminished due to the deteriorating housing market.

In 2009, only 55 percent of new age-qualified active adult home buyers reported that their down payment came from a previous home sale, significantly down from 100 percent of respondents in 2005 and 92 percent in 2007. In 2005 and 2007, no active adult community buyers reported having to tap cash or savings for a down payment. In 2009, 45 percent of the average buyer’s down payment came from cash or savings.

“Most 55+ consumers – those who chose to move and those who stay in their homes – report that they are happy with their homes and communities,” said Sandra Timmermann, Ed.D., director of the MetLife Mature Market Institute.  ”But those who did move to an age-qualified community – about 3 percent – reported the greatest satisfaction, rating their homes and communities at nine on a one-to-ten scale.”

The desire to live near family friends is the overwhelming motivation for moving said the report.  The design, amenities and appearance of the residence and the community remain important, but less so than before the recession.  55+ buyers moving into rental homes, both multi-family and single-family, cited a desire for less expensive housing as second in importance to living near friends and family.

The report also features an entire chapter dedicated to reverse mortgages and shows a small but growing share of older Americans are taking advantage of the loans.  While less than 1% of 55+ households reported having a reverse mortgage in 2009, the share of reverse mortgages has increased each year and in 2009 was almost almost eight times greater than in 2001.  Almost two-thirds of reverse mortgage borrowers are between ages 62–79, with an average age of 77. Although only about 1% of all 55+ homeowners, more than 241,000 seniors hold a reverse mortgage, a 54% increase from 2007.

“The fact that eligibility requirements become more lenient and the HECM amount increases with advanced age of borrowers explains why reverse mortgage borrowers have such a skewed age distribution,” said the report.

Despite no income requirements, the data shows that low-income homeowners are more likely to use reverse mortgages to supplement their income.  According to the report, the average income of reverse mortgage borrowers is less than $35,000, while seniors with and without mortgages earn close to $81,000 and more than $53,000, respectively.

In addition, more than a third of all reverse mortgage borrowers live in 55+ communities, with roughly 7% residing in age-qualified active adult and 29% in other 55+ communities.

To view a copy of the report, see here.