Issue Brief

July 2002

Long-Term Care: What Does the Future Hold?

by Eileen Baumgartner  

“The cost of long-term care is the greatest unfunded liability 

facing most Americans.”  

Steven Chies, First Vice-Chair of 

the American Health Care Association

Introduction

When people talk about long-term care, they usually discuss it in the context of health care. But long-term care is much more than just health care. Long-term care includes an array of services needed by people with physical or mental disabilities, including dressing, bathing, transferring, feeding, and other services to help frail or disabled people live full lives.

Long-term care can be delivered in a variety of settings from a skilled nursing home to an assisted living center to an individual’s private home. A wide variety of people—from skilled professionals such as dietitians, nurses, and therapists to well-meaning friends, neighbors, and family members who may have no formal training at all—currently provide long-term care

Today, a combination of private and public sources finance long-term care for the elderly. The private sources include personal savings, insurance, and voluntary service provided by family and friends. Public support comes predominantly through the Medicare and Medicaid programs.

Background

There is a great deal of discussion in the media, academic journals, and think tanks about the future of long-term care. Much of this discussion expresses concern about the financial burden that will be placed on working people when the “baby boom” generation reaches retirement.

Many figures are bandied about to show that this will be a serious problem, and much of this information is used to pressure public policy makers and individuals into making changes now. While this discussion is helpful, it is wise to look at the issue of changing demographics in its entirety. 

For public policy purposes, it isn’t just the ratio of senior citizens to working people that matters, but, rather, it is the ratio of all dependents to working people that matters. In this context the term “dependents” includes children as well as retired people.  

When looking at the ratio of working people to seniors and children, the picture changes significantly. Although there is still a great need for planning and policy review, the context of the debate is different.

Since the enactment of Social Security in 1935 and Medicare in 1965, the federal government has been the main source of support for older people, retirees, and people with disabilities. It is the federal government that collects payroll taxes and sends out Social Security checks. It is the federal government that established Medicare so that all older people and disabled people could have health insurance after they left their employers’ plans. And it is the federal government that instituted Medicaid to help states provide a health care safety net for people who could not afford the care they needed.

States and local governments have been the main source of services for young children. In fact, almost all state constitutions contain provisions making the education of children a primary responsibility of the state; in most states, education is the highest expense.  States and localities have also helped finance long-term care through public assistance and institutional care for the disabled.

Dependency Ratio

Most analysts who study the problems that will arise as the baby boom generation begins to retire focus on the burden of older people on workers. They note that today there are five workers for every retiree, whereas in 2030, there will only be three workers for every person over 65. This dramatic change poses some serious policy challenges.

When examined through the lens of a total dependency ratio, however, the situation is different. Total dependents include children as well as seniors because workers support both groups. Today there are 1.6 workers for every dependent. According to the mid-level estimates of the census, in 2030 there will only be 1.4 workers for every dependent (in those years senior dependents are estimated to be over 67 because that’s when Social Security kicks in).  

Admittedly, this is a rough measure of dependency and the cost of public services needed by the elderly may be different from those needed by the young. Yet, a decline of 12.5% in the ratio of workers to dependents is significantly less threatening than a drop of 40% in that ratio.

Having said all this, there will still be a dramatic increase in the number of seniors, particularly the portion of the population over 85. The US Census Bureau estimates that the number of people in that age group will grow 171 percent between 2000 and 2030 compared to an overall population growth of 27 percent in that same time frame. Since this is the group of elderly most likely to need long-term care, its growth poses a significant challenge.

The Challenge of Long-Term Care

According to the 1999 National Long-Term Care Survey, approximately seven million seniors had some sort of disability in 1999. That figure included almost one million who needed assistance with at least five activities of daily living. In addition, there are another five million people under the age of 65 who need long-term care. 

Given the significant growth that is projected for the population over the age of 85 in the next few decades, it is safe to assume that the number of people needing long-term care will also grow dramatically.

This presents a major challenge, but it is a problem that can be managed with some thoughtful planning. There is enough time to think about the best way to do this, but there is not time to dawdle. And, it needs to be sorted out soon so that the necessary political will can be developed to make whatever adjustments are required.

In addressing this problem we need not only to review the appropriate role of government in financing long-term care, but also to examine carefully the levels of government that are involved in that care. If workers are going to have to shoulder a bigger burden for older people and a smaller burden for children, what does that mean? Do state and local taxes go down and federal taxes increase to shift the public burden to the level where services have traditionally been financed? Do tax burdens stay where they are, and states and localities start providing more services for the elderly?

The Cost of Long-Term Care

The problem of financing long-term care can be divided into two questions. 

1. What is the individual responsibility of people to prepare for their own future needs through personal savings, long-term care insurance, and family support?

2. What is the collective responsibility of the society to be met through government services and support? 

Historically, long-term care has been provided primarily by families and nursing homes or other institutions, largely financed through private resources. This situation has changed. Now people have many more care choices and public resources have become a much more important part of the long-term care equation. Data from 1998 show Medicare and Medicaid paying 56 percent of all long-term care expenses with more than 70 percent of nursing home patients receiving some assistance from Medicaid. 

There are legitimate public policy questions about how much of the cost of long-term care the public should be expected to pay. There are also legitimate questions about what we should expect individuals to do to keep from being dependent on public support in their old age. 

Current estimates show that in the year 2000, $137 billion was spent on long-term care for persons of all ages. Some estimate that these costs will nearly quadruple be 2050.  Obviously, any estimates made that far in advance are subject to error, but no one expects these costs not to grow significantly. At the same time, Social Security and Medicare will experience dramatic increases in costs as more and more people enter their senior years.

In fact, recent estimates by the Medicare trustees show federal spending for Social Security, Medicare, and Medicaid is expected to surge so much in the next few decades that these three programs will nearly double as a share of the gross domestic product (GDP) by 2035. If the Medicare trustees are proven correct, these three programs will account for almost 15% of the nation’s GDP.

Within the context of the above estimates, the federal share of Medicaid more than doubles, growing from 1.2% of GDP in 2000 to 3.2% of GDP in 2035. Today, Medicaid pays more than one-third of the cost of long-term care for the elderly and without fundamental changes it will remain one of the largest funding sources for elderly care. 

The Political Problem

Public programs cannot grow at this rate without sustaining major challenges in the political arena. In the last few years, there have already been many proposals to “privatize” Social Security and Medicare. There have also been serious pressures to reduce federal support for Medicaid. And these pressures will likely increase as the federal budget moves from a surplus condition into a state of continuing and deepening deficits.

Historically, whenever the federal government takes 20% of the GDP in taxes there is a national tax revolt and Congress acts to lower taxes. Even at the height of World War II, federal revenues never reached 21 percent of the GDP. No one knows why this happens, but there appears to be a basic level of the economy that the electorate is willing to devote to services from the national government and not more.

In 2002, it is estimated that federal receipts will be 18.8% of the GDP. If the three federal programs that serve the elderly and disabled use up 15% of the GDP, there will be real pressure within and outside the government to reduce their costs. And Medicaid, because it is a shared program between the states and the federal government will likely feel that pressure most keenly. This will impose serious strains not only on the federal government but also on states.

Possible Solutions

Public Support for Private Solutions

First and foremost the public sector—both federal and state governments—need to work with the private sector in helping the public understand the emerging challenge. The public sector can provide information and help individuals and families prepare for their future needs. Not all individuals will need long-term care but those who do will experience very high expenses. Helping people understand this and educating them to their risks is a valid role for the public sector. Educating them about the possibilities of saving or insuring against this risk is a job for both the public and private sectors.

Governments at all levels can provide long-term care insurance as an employee benefit thereby acting as a model for the private sector and helping to develop and ensure the viability of a strong long-term care market. Also, as that market grows, state governments will have to exercise their regulatory authority prudently to ensure that policies are sound.

A third thing that government can do to help individuals prepare for their own long-term care expenses is to recognize the role of family care-givers. This can be done in a variety of ways. The government can support training for people who care for their elderly family members and friends. It can also provide tax breaks for people who care for family members, but these need to be handled with caution because they can have the inadvertent effect of increasing costs at the same time they reduce revenues available to meet needs.

Public Sector Solutions

There will always be a need for a government safety net for those individuals who cannot provide for their own care. Medicaid, although it was originally designed as a health care safety net program for the general population, uses more than two thirds of its funds to provide a safety net for the long-term care needs of the elderly and disabled. As more and more of the population lives to be very old (people over 85 years of age), the likelihood of them running out of personal resources increases and the need for a safety net grows.

The fundamental policy question that needs to be asked is, “Can Medicaid continue as it is, or does it need fundamental change?” Unfortunately, most of the discussion about the needs of the elderly and the financial pressures they create is focused on Social Security and Medicare. To the extent that Medicaid is included in the conversation, it is primarily the federal costs that are discussed at the national level. Medicaid is, however, a cooperative program between the federal government and the states, and there are real budget pressures on the Medicaid program at the state level as well as the national level. 

It would be advisable for the President or Congress to put together a group of policy makers and analysts from all levels of government and the private sector to look at the coming challenge. In addition to paying the bills there are many other issues that need to be addressed. Such questions as who will be the long-term care workforce of tomorrow?  Will today’s child-care workers be tomorrow’s eldercare providers? Is the educational system set up to handle the people who need to be trained? Can it serve family caregivers? Where do hospitals and other health care facilities fit in the picture?

Conclusion

Today, long-term care for the elderly is financed with a combination of public and private funds. In addition, the Department of Health and Human Services estimates that unpaid care from friends and family members comprise anywhere from 27 to 44 percent of the total value of long-term care services provided in the country. In the future, there will still be public and private funds paying for long-term care, but, because of the changing demographics in the country (i.e. higher rate of divorce, larger numbers of people living alone, etc.), the level of voluntary unpaid care may decline significantly.

It is important that the government work through these issues at all levels so that the mix of public and private support for long-term care is appropriate. It is also important that the public commitment is sustainable and reliable. Then all older and disabled Americans will be able to live out their lives in dignity with the support they need.

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Sources

Aging Committee: Hearing Finding Summary, A Report presented by the Senate Special Committee On Aging, United States Senate, One Hundred and Seventh Congress, U.S. Government Printing Office, Washington, DC, 2002.

Analytical Perspectives, Budget of the United States Government for Fiscal Year 2003, US Government Printing Office, Washington, DC, 2002.

Barth, Ron. 2002. “Long-Term Nursing System Unsustainable” The Patriot – News, Harrisburg, PA, April 11, 2002.

Budget of the United States Government for Fiscal Year 2003, U.S. Government Printing Office, Washington, DC, 2002.

Chies, Steven. 2002. Testimony of First Vice-Chair of the American Health Care Association before the U.S. Senate Special Committee on Aging, Washington, DC, June 2002.

Citizens for Long Term Care. 2002 Long Term Care Financing Reform:  An Integral Part of Social Security and Medicare Reform. Washington, DC, June 2002.

“Coalition Pushes for Long Term Care Financing Reform in Social Security, Medicare Reform Debates; Releases Report at Senate Hearing.” 2002. U.S. Newswire, Washington, June 19, 2002.

Durenberger, David. 2002 Testimony before the U.S. Senate Special Committee on Aging, Washington, DC, June 20, 2002.

Durenberger, David. “Will You Still Need Me, Will You Still Feed Me When I’m 64?” NIHP Newsletter, Minneapolis, Minnesota, November 2000.

Friedman, Saul. 2002 “Family & Relationships / Gray Matters / Some Medicaid Musing Before Summer Break.” Newsday, Long Island, NY, July 2, 2002.

Historical Tables, Budget of the United States Government for Fiscal Year 2003, U.S. Government Printing Office, Washington, DC, 2002.

Kaiser Commission on Medicaid and the Uninsured. Medicaid’s Role in Long-Term Care. Washington, DC, March 2001.

“Nursing Home Insurance is Complicated, Pricey, Not for Everyone Long-Term Decision,” Cincinnati Post, Cincinnati, OH, July 2, 2002.

O’Briant, Don. 2002. “Healthy Living: Longer Life Span, More Concerns.” The Atlanta Journal – Constitution, Atlanta, GA, May 21, 2002.

O’Shaugnhessy, Carol. 2002. Trends in Long-Term Care Financing In Selected Countries. Testimony before the Senate Special Committee on Aging, Washington, DC, June 20, 2002.

Rockefeller, John D. IV. Statement before the U.S. Senate Special Committee on Aging, Washington, DC, June 2002.

Simon, Ruth. 2002. “Insurers Pitch Long-Term Care to the Younger Set” Wall Street Journal, New York, NY, June 11, 2002.

Stone, Robyn I. and Joshua M. Wiener. 2002. Who Will Care for Us?  Addressing, the Long-Term Care Workforce Crisis. The Urban Institute, Washington, DC.

Strazewski, Len. 2002.  “Marketing Long-term Care Insurance.” Rough Notes, Indianapolis, IN, June 2002.

Taylor, Liz. 2002.“Who’s Going to Pay for Boomers’ Long-Term Care?” Seattle Times, Seattle, WA, June 26, 2002.

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The August NIHP Issue Brief will examine 

the various Medicare Prescription Drug proposals 

before Congress this year.