Future Financing of Long-Term Care

By Scanlon, William J. | Consumers' Research Magazine, June 1998 | Go to article overview

Future Financing of Long-Term Care


Scanlon, William J., Consumers' Research Magazine


Two and one-half years ago, CR outlined some of the emerging financing problems surrounding long-term care ("Time to Plan Ahead for Long-term Care," January 1996). The combination of government-provided financing, budgetary constraints, and a burgeoning elderly population highlighted in that article continue to distort not only the cost of care, but the incentives for planning ahead, and thus could make matters more complicated for families in the future. The following, drawn from recent congressional testimony, surveys some of the pressing issues on this front.--Ed.

Long-term care* presents a significant burden for many individuals and for public programs. Long-term care in nursing homes currently costs an individual more than $40,000 per year, with a substantial share of nursing home residents paying that out of their own pockets. In addition to this out-of-pocket spending, Medicaid and Medicare expenditures for long-term care for the elderly--those aged 65 and older--exceeded $51 billion in 1995. More than a million elderly with extensive disabilities live at home, relying heavily on their families for assistance. The aging of the baby boom generation, particularly as members become age 85 and older, will have a dramatic impact on the numbers of people needing long-term care services and will challenge individuals, families, and public programs to finance and furnish that care.

My comments focus on four areas: (1) an overview of current spending for long-term care for the elderly, (2) the increased demand that the baby-boom generation will likely create for long-term care, (3) recent shifts in Medicaid and Medicare financing of long-term care, and (4) the potential role of private long-term care insurance in helping to finance this care. These comments are based on the General Accounting Office's previous work and on other published and ongoing research.

Elderly's Long-Term Care Spending. Spending for the elderly's long-term care was $91 billion, or about $12,000 per disabled elderly person, in 1995, the last year for which data on expenditures from all sources are available. The elderly and their families represent the largest single group of purchasers of long-term care, spending almost $36 billion dollars out of pocket, or almost 40% of the total $91 billion expenditures for long-term care.

This spending does not include the substantial unpaid support provided to the elderly by family and friends. Studies have found that about 65% of disabled elderly living in the community rely exclusively on unpaid sources for their care. Public funding for long-term care comes primarily from Medicaid, which finances almost one-third of long-term care--$28.5 billion in 1995--and Medicare, which funds one-fourth--$22.7 billion. Long-term care expenditures for the elderly are disproportionately used to purchase nursing home care; about 70% of total elderly long-term care expenditures are for nursing homes.

Aging Baby Boomers Will Expand Demand. The baby-boom generation, about 76 million people born between 1946 and 1964, will contribute to rapid growth in the number of elderly individuals who need long-term care and the resources required to pay for it. Forecasts of the exact number who will need such care are uncertain because of differing conclusions about the effect of better health care and life-styles on the subpopulation that may eventually need long-term care. Nevertheless, the number will be very large even if the most rosy scenario prevails.

Today's elderly make up about 13% of the total population. The number of individuals aged 65 and over will make up about 20% of the total population in 2030, when the first of the baby boomers will reach their 85th birthdays. From 1997 to 2030, individuals 85 and older, the most rapidly growing age group and the group most likely to require long-term care, will more than double--from about 3.9 million to about 8.5 million individuals--and by 2050 will more than double again--to about 18 million individuals. …

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