News Release

New Study Forecasts Looming Crisis in Long-Term Care; Government, Industry See Solution in Private Insurance

Amelia Island, FL (February 23) - America is about to be hit by a tidal wave of retiring baby boomers -- and the number of elderly Americans who need nursing home care or assistance with daily living will soon skyrocket. The costs of providing that care are expected to quadruple. And if current trends continue, the price tag could be too high for individuals, families and government programs to bear.

That's causing concern not just at the federal level, but in statehouses all across the country. Every state will experience at least a tripling of its Medicaid expenditures for long-term care by 2030 - when the last of the baby boomers retires, and the oldest boomers are on the eve of the 85^th birthdays.

"One of the biggest challenges facing America in the 21^st century will be the aging of the baby boomers," says Janemarie Mulvey, Ph.D., who along with Barbara Stucki, Ph.D. authored the study, "Who Will Pay for the Baby Boomers' Long-Term Care Needs?" The study's findings were presented at the 13^th Private Long-Term Care Insurance Conference in Amelia Island today. The conference follows President Clinton's new $6.2 billion long-term care initiative, which among other things urges Americans to take personal responsibility for their own long-term care needs calls for making private long-term care insurance available to federal employees as a self-funded benefit.

"Time is running out for finding private as well as public sector solutions to the looming long-term care crisis," Mulvey says. "We need to recognize that if we fail to act soon, we will be severely jeopardizing the financial security of tomorrow's retirees and their families."

The federal government's own census figures paint a disturbing picture of what the future holds. By the year 2030, the number of elderly individuals is expected to double to nearly 70 million. More than 20 percent of the population will be over age 65 (compared to 13 percent in 1990). The demographics of no less than 32 states will resemble those of Florida today.

And because life expectancy is expected to continue to improve, individuals 85 and over will be the fastest growing segment of the elderly population. They are the most likely to suffer chronic health problems - and their numbers are expected to increase a staggering 143 percent.

"Who Will Pay for the Baby Boomers' Long-Term Care Needs?" -- conducted by the American Council of Life Insurance - went further, and found that:

By 2030, the number of elderly individuals receiving nursing home care is expected to double, to 5.3 million - while the average annual cost of a nursing home stay will increase from $40,000 today to more than $190,000 (or $97,000 in today's dollars).

The rise in the numbers of nursing home residents, combined with the higher cost per stay, will lead to a quadrupling of nursing home expenditures. By 2030, total expenditures for nursing home care could reach $330 billion - equal to today's entire Social Security budget.

Total nursing home expenditures paid by Medicaid -- which currently pays 41 percent of all nursing home costs -- are expected to increase 360 percent by 2030, from today's $29 billion to $134 billion. Paying that high a tab won't be possible without dramatic tax increases, which are unlikely in this era of balanced budgets and fiscal conservatism.

Individual out-of-pocket expenditures for nursing home care - which now account for 48 percent of all nursing home expenditures - are expected to increase from about $30 billion today to $158 billion in 2030.

About 57 percent of frail elders who are not in institutions rely solely on family and friends for help -- but changes in lifestyle and family structure are likely to reduce the availability of family caregivers in the future. Family sizes are smaller, family members are dispersed over wider geographic areas and increasing numbers of women work outside the home. And a significant number of Americans very likely will have no family to help them. The most recent U.S. Census found that about one in four baby boomers has no children.

With retiring baby boomers about to put an extraordinary burden on already strained entitlement programs, the policy debate is shifting toward greater support for private sector solutions, like private long-term care insurance. The ACLI's study shows that increased purchase of long-term care insurance could reduce Medicaid expenditures by $28 billion per year by 2030 - a savings of more than 20 percent. And it could reduce total individual out-of-pocket expenditures to $95 billion a year - a 40 percent savings. The ACLI study indicates that more than two-thirds of baby boomers can afford private long-term care insurance policies.

All 50 states will feel the strain of retiring baby boomers, Mulvey says, "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."

U.S. Census data shows that over one-third of America's baby boomers live in just five states, which will see huge increases in their Medicaid expenditures - New York, Pennsylvania, California, Ohio and Texas. 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 - and 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.

In an effort to reduce their future Medicaid burden, at least 12 states have established tax deductions or tax credits for long-term care insurance premiums.

At least 18 state governments have enacted legislation to make long-term care insurance available as a benefit for their employees. And a number of bills have been introduced in the 106^th Congress to make private long-term care insurance available to federal employees, retirees and their families as a self-funded benefit, and to make premiums for long-term care insurance premiums an above-the-line tax deduction - the same kind of duction already allowed for contributions to 401(k) plans and IRA's.

Study co-author Stucki says now is the time to seize on the growing interest in long-term care insurance.

"Baby boomers must be encouraged to plan," she says. "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 85. But the same person can meet those same needs by buying a private, long-term care insurance policy for about $400 per year. That's a far more affordable strategy for the great majority of individuals and families."