In generational theory, baby boomers are defined as people born after World War 2, between 1946 and 1964. There are currently over 77 million Americans in this category, a significantly high population when compared to other age groups. In fact, this age group is currently the second largest age group in America after the millennial generation. In essence, these are people who are currently between the ages of 55 and 70. They have either retired or are due to retire within the next decade. In the next few years, this massive group of people is going to need long-term home care or hospice care within the next few years and have a massive impact on Medicare and Social Security in America.
The Baby Boomer Population
A 2016 report titled “Aging in the United States” by The Population Reference Bureau (PRB) notes some interesting demographic trends. We note some of these trends below.
The population of Americans aged 65 and older is expected to double from 46 million to 98 million by the year 2060. Further, the percentage of people aged 65 and older will increase from 15 percent to 24 percent.
The population of baby boomers is increasingly racially and ethnically diverse. Prior to 2014, the population of non-Hispanic white baby boomers comprised about 54 percent of the population but is projected to grow to almost 80 percent by 2060.
The report also notes that older adults are working longer. It is projected that by 2022, 27 percent of men and 20 percent of women aged 65 and older will still be in the labor force.
Another interesting trend noted in the report is that some parts of the country have higher populations of aging populations. For example, about two-thirds of the population in Maine and New Hampshire comprises baby boomers. The case is the same for Vermont and Montana that both have baby boomer populations in excess of 30 percent. In these regions, incommensurate numbers of young people relocating elsewhere is blamed for this trend. The converse is true in states such as California, Georgia, Texas, Utah, and Arizona which have the lowest concentration of baby boomers.
The educational levels of baby boomers have also increased significantly. In 1965, only 5 percent of people aged 65 and older had a first degree. By 2014, over 25 percent held a bachelor’s degree.
Further, the average life expectancy has increased a great deal over the last sixty years. In 1950, the average life expectancy in the US was 68 years. This had grown to 79 years by the year 2013 as a direct result of reduced mortality at older ages. There are now greater numbers of older people alive that need long-term care. Even more important is that the gender gap in life expectancy has significantly narrowed from a 7-year gap in 1990 to less than 5 years in 2013, between and men and women.
The report also notes that the number of people living with Alzheimer’s was 5 million in 2013.
Finally, the poverty rate of Americans over the age of 65 has dropped by a wide margin over the last 50 years from a high of 30 percent in 1966 to about 10 percent today. This suggests that more older Americans can afford to pay for home care or hospice services.
What do these Trends Reveal?
These population trends reveal that the demand for home care and hospice services is set to skyrocket in the next few years. Conservative estimates as that the aging baby boomer generation will lead led to a massive 75 percent increase in the number of people over the age of 65 who need long-term support services from about 1.3 million in 2010 to over 2.3 million by the year 2030.
Without any medical breakthrough, the number of people living with Alzheimer’s could triple to 14 million by 2050 – an extra 14 million elderly people who will require home care or hospice services.
Is the Response and/or Interventions Sufficient?
Despite the numbers and trends noted above, the federal government, states and private entities are falling short of meeting the burgeoning demand for long-term care. The result is that old folk are paying dearly for it. The following is a brief summary of the responses and interventions.
Medicare is a federal health insurance program run by the Centers for Medicare and Medicaid Services (CMS). It provides benefits to millions of Americans over the age of 65 years as well as those under age 65 but receiving Social Security Disability Insurance (SSDI).
According to Medicare.gov, Medicare does not cover long-term care or custodial care, if that’s the only care someone needs. Medicare only covers:
- Care in a long-term care hospital
- Skilled nursing care in a skilled nursing facility provided the person meets a number of stiff conditions such as having days left in your benefit period. The benefit period ends when you haven’t received any inpatient hospital care or in a skilled nursing care facility for 60 days in a row. Further, the skilled nursing services needed must be as a result of a hospital related medical condition or a condition that begun while you receiving care in a skilled nursing facility for a hospital related medical condition.
- Eligible home health services. Of note here is that people who require more than part-time or “intermittent” skilled nursing care are ineligible.
- Hospice & respite care. However, this is for people who are certified terminally ill and have a life expectancy of fewer than six months.
Clearly, it is obvious that while Medicare is a good initiative, the interventions do not go far enough and leave out millions of American baby boomers who need home care and/or hospice care.
Medicaid is America’s largest publicly funded provider of long-term service and support. The program is administered by states that are mandated to adhere to established federal standards. Financing is by both the federal and state governments. Its main purpose is to help people with low income and assets to pay some or all of their medical bills. Coverage includes:
- Doctors visits
- Hospital costs
- Long-term care services in nursing homes
- Long-term care services provided at home, such as visiting nurses and assistance with personal care.
However, unlike Medicare, Medicaid does not pay for custodial care in nursing homes and at home. And, one of the biggest drawbacks of Medicaid is that to qualify for long-term care services, one must not have income and assets that exceed the levels set by your state. These financial requirements vary from state to state but are about $2,000 in monthly income and $2,000 in assets. Essentially, if your monthly income or total assets exceed the specified income and assets, then you are ineligible for Medicaid. Once again, this shuts out millions of Americans especially the middle class that doesn’t qualify for Medicaid and can’t afford out-of-pocket expenses for self-funded home care. You literally have to spend your own assets down to very low levels in order to qualify.
The program is also biased towards institutional care in places like nursing homes despite the proven savings made when Medicaid dollars are spent on community-based and home support services.
States are now seeing an increase in Medicaid spending because aging baby boomers do not have any other viable options to access long-term care once they attain the financial eligibility requirements.
Private Long-Term Care Insurance
Private long-term care insurers have been around for the better part of three decades. However, the long-term care sector of the insurance industry has been shrinking. No one is buying, insurers are dropping out and those that choose to remain in the market are increasing premiums, eliminating discounts, increasing deductibles and reducing the available product portfolio. All these are leading to even lower numbers of people taking up the product. There are three fundamental issues that have led to this situation.
The first is the underestimation insurers of how long people would live once they started needing long-term health care. As we have already seen, people are now living much longer than all previous estimates. This means that insurers made errors when costing their products in the 1990s and early part of this century leading to massive losses.
The second is the underestimation by insurers of the number of people who would let their policies lapse without renewing them as premiums increased. Their reckoning was that as premiums increased, more and more people would be unable to afford the premiums and hence lapse their policies before making a claim. A higher lapse rate without a corresponding increase in claims is profitable for insurers. However, the converse has happened. As already noted earlier, more people aged over 65 are choosing to continue working and the poverty rates amongst this population have also dropped significantly. The result is that this population has been able to pay for the higher premiums and remain on cover with the result of massive claims on long-term care insurers and hence making the business unattractive. In fact, the lapse rate on long-term insurance has only been about 1 percent as compared to 5 percent for other insurance products. Insurers responded by raising premium rates which then led to a reduction in the uptake of new policies.
The second reason long-term care insurance is on a downward spiral is the declining interest rates. Insurers make money by investing premiums and receiving a return between the time they collect premiums and the time claims fall due. And, the mode of investment is highly regulated. In most states, insurers are allowed to invest in ultra-safe bonds. But, and this is the biggie, US 10-year treasury bonds have a return of just about 2 percent. This has had a devastating effect on the bottom lines of long-term care insurers.
In essence, long-term insurers cooked their own goose by underestimating how long people would live, overestimating the lapse rate and overestimating the interest income from invested premiums. Due to the high premium costs of long-term care insurance, only about 16% of those ineligible for Medicaid are able to afford private plans.
As the foregoing sections show, the only viable long-term care for low-income Americans is Medicaid, even with its limitations. However, Medicaid and other health programs are increasingly at risk from a sustained effort by a GOP controlled Congress and Senate houses to end or drastically alter the Medicaid program to the detriment of America’s poor. The most recent attempt to repeal and replace Obamacare is a clear testament. The most recent bill to be introduced in the Senate proposed ending the open-ended entitlement of Medicaid. It also proposed to repeal the majority of Obamacare tax increases to fund Medicaid coverage. In essence, the Government would have handed a massive tax cut to the affluent and hence lead to a cut in funding for Medicaid despite the fact that one in five Americans is on Medicaid and also two-thirds of people in nursing homes rely on Medicaid. There is also the accusation that the current US President is sabotaging Medicaid by threatening to withhold insurer subsidies. These subsidies are important because they allow insurers to keep deductibles low for low-income earners. This just goes to show that the future of Medicaid is uncertain.
On a positive note, the shortcomings and challenges in current interventions is a great business opportunity for American entrepreneurs and companies willing to invest in home care and hospice services. It may sound distasteful, but the business of dying has never been more lucrative. According to one report by the National Association for Home Care & Hospice, the annual spend on home care and hospice in 2009 was $72 Billion. The Office of the Actuary at the Centers for Medicare and Medicaid Services (CMS) projects that from 2016 to 2025, spending will grow at an average of 5.6 percent. Clearly, the home care and hospice industry will continue to grow at a phenomenal rate as baby boomers look to age in their own homes. For anyone looking to invest in this sector, the time is ripe.
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