Will the Nation Go Broke Paying for Senior Housing & Long-Term Care?

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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

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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.

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

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  • “Long term care is the largest unsecured risk facing Americans today” – Money Magazine.Jonathan Pond, America’s Financial Planner, says that 90% of estates are spent this way: 1) nursing home, 2) IRS, 3) children, 4) grandchildren, 5) charity.  More people are worried about the IRS taking their money than about having to spend it on a nursing home.Some 75 million boomers are ill prepared to cover the costs of long term care especially since Medicare and health insurance does not cover the bulk of long term care and Medicaid only does once someone has spent their live savings to the poverty level.  http://www.longtermcare.govWith only about 10% of those buying long term care insurance (http://www.nationalltc.com) the rest will spend their estates on paying for care and some will end up on welfare health care (Medicaid) after spending all their money.The Federal Deficit Reduction Act provided for every state to have a Partnership program to provide asset protection for those who buy qualified long term care insurance policies.  http://www.partnershipforlongtermcare.com/An alternative are linked-benefit products, Life insurance or Fixed annuities with long term care riders. In most states you can also use your qualified money (IRA/401k) to fund your plan.  http://guidetolongtermcare.com/linkedbenefit.html

    • durtbagg,

      Are you certain that you are quoting Mr. Pond correctly?  Not even 10% of all estates are required to file estate tax returns.  Even fewer owe any FEDERAL estate taxes.  So how could 90% of all estates have the second largest payout be to the IRS?  This is not only ignorant but also terribly misleading.

      I have been involved with many estates.  After children but long before grandchildren or charity comes spouses.  If you are quoting Mr. Pond correctly and Mr. Pond actually made these statements, Mr. Pond knows marginally little about estates.  Since you only make a partial citation, in what issue of Money Magazine can one find this quotation?   

      What is very clear is that medical costs are a very significant payout in many cases.  Not even the IRS has data which will provide information concluding what the highest categories for payouts are.  The IRS gets so few estate tax returns who is supposedly providing Mr. Pond with this data?  What evidence is there that this is true 90% of the time following the death of an American?

      Will long-term care insurance actually help that much?  What if the largest payout is not nursing homes?  What evidence do you provide?

      Long-term care insurance has its place.  It will help a significant number of more affluent members of society pay for some costs but it is not a cure all and should be an important part of a balanced estate plan but rarely its centerpiece as some LTC insurance people want to make it.

        

       

  • Do you know the most amazing thing about this article?
    It’s that not one comment has appeared on it although it appeared both yesterday and today!
    The reverse mortgage and the long term care industries should be connected at the hip! In a large way they service the same exact market.
    Whether most realize it or not there is a very real “long term care crisis” going on right now in this country today. The combination of longer life spans, ever increasing health care costs and record low rates of returns on CD’s, annuities and savings (vehicles commonly used by seniors) has literally millions of seniors in a panic over their long term care needs.
    How many of those millions could afford their long term care if they eliminated their present mortgage payment?
    How many of these millions would rather stay in their present home and bring health care services into the home rather than move into a “living facility?”
    A reverse mortgage could very possibly make long term care affordable for millions who currently think this type of luxury is unaffordable…

    • While I am not as strong about the situation, it is definitely something which is too often overlooked until it is too late.  These costs have been known to destroy some really great estate planning.

      No estate plan is perfect but any estate plan which does not take into consideration long-term care issues is sadly lacking.

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