News Release

Most States Face Long-Term Care Funding Crises as "Baby Boom" Becomes "Senior Boom," ACLI Study Finds

Washington, D.C. (January 14) - From President Clinton to key members of Congress, federal officials are already sounding a warning signal about the national crisis that looms for America's long-term care system, as more than 70 million baby boomers age into retirement and double the nation's elderly population. But new research by the American Council of Life Insurance shows that most states will face painful crises of their own - as the long-term care demands of the coming "senior boom" outpace the states' ability to fund their local Medicaid programs.

Medicaid - which is administered by the states and jointly funded by federal and state taxes - is the primary public program that funds nursing home and other long-term care services for the elderly. Medicaid currently pays more than 40 percent of the nation's nursing home bills.

"All 50 states will feel the strain, because they will experience at least a tripling of their Medicaid expenditures for long-term care by the year 2030, when the last of the baby boomers retires,." said Janemarie Mulvey Ph.D., the ACLI's Director of Economic Research and co-author of the study Who Will Pay for the Baby Boomers' Long-Term Care Needs? "But some states will be much harder hit than others - not only because of the aging of their own populations, but because of the expected migration of elderly boomers into their states.

"It's not just the number of elderly that's rising rapidly, but the cost of nursing home care, which is expected to more than double by 2030," Mulvey said. "That combination means total spending for nursing home care and other types of long-term care will explode, compared to what we're spending today."

U.S. Census data shows that over one-third of America's baby boomers live in just five states - New York, Pennsylvania, California, Ohio and Texas. And those states will see huge increases in Medicaid expenditures. Some of those boomers will migrate, to spend their retirement years in other places. But even so, in 2030 nearly 30 percent of the nation's 65-and-older population will live in those five states. ACLI projections indicate they will consume nearly 40 percent of the entire national Medicaid tab for nursing home care.

New York, which already has the highest Medicaid expenditures per elderly resident, will spend the most on Medicaid nursing home care in 2030 - a whopping $17.7 billion, more than quadruple the $3.9 billion it's spending today. New York's elderly population is expected to increase 53 percent to 3.6 million.

California will be the state with the largest elderly population in 2030 - 6.1 million, up 96 percent from today. ACLI projects that California's Medicaid expenditures will more than quadruple, from $1.8 billion today to $7.9 billion.

States that are expected to be hot relocation spots for retiring boomers are expected to experience even more dramatic increases in Medicaid spending. Nevada, for instance, will see the biggest percentage increase in Medicaid nursing home expenditures of any state - 1,389 percent, compared to the national average of 360 percent. Its elderly population will increase 403 percent - well above the national average of 119 percent.

Utah and Colorado are also expected to experience a significant influx of retiring boomers. Census projections indicate that Utah's elderly population will jump 299 percent, and Colorado's will see a 271 percent increase. As a result, they'll also experience some of the largest growth in Medicaid nursing home expenditures -- 909 percent for Utah, and 781 percent for Colorado.

That national Medicaid tab is expected to hit $134 billion, compared to just $29 billion today. Personal out-of-pocket expenditures for nursing home care are projected to reach $158 billion in 2030, compared to $33 billion today. If current trends continue, total spending on nursing home care could hit $330 billion in 2030 - equal to the entire Social Security budget today.

Because of doubling of the elderly population as boomers retire, no less than 32 states will look like Florida does today - with the elderly making up more than 20 percent of the population.

ACLI's study indicates that widespread purchase of private long-term care insurance would dramatically reduce the financial burdens on state governments and on individuals and their families. On a national level, more than two-thirds of boomers can afford private long-term care policies. (State-by-state figures on percentage of population that can afford private policies is included in the accompanying chart).

In Nevada, for instance, the ACLI estimates that 75 percent of the population under 65 can afford private long-term care insurance. In California, 70 percent of the under-65 population can afford it.

"Long-term care insurance is far more affordable than most people think," said study co-author Barbara Stucki Ph.D., a senior policy analyst for the ACLI. "The fact is, a person who is 45 years old today would have to save and invest $3,500 a year for 40 years to be able to afford nursing home care at age 85. But the same person can meet those same needs by buying a private long-term insurance policy for about $400 a year. That's a far more affordable strategy for the great majority of individuals and families.

"So baby boomers must be encouraged to include long-term care insurance in their retirement planning," Stucki said. "And more and more states, concerned about future Medicaid costs, are providing tax incentives. At least 12 states currently offer tax deductions or credits for long-term care insurance premiums, and more are actively considering following their lead. Legislation has been introduced in Congress as well, as officials at every level of government look for ways to help average Americans to take greater personal responsibility for their own retirements and their own long-term care needs."