Long-Term Care Financial Crisis for Baby Boomers

Introduction

The costs associated with long-term care (LTC) represent a rising concern for aging baby boomers and policymakers who are worried about the strained government program (Butler, 2015). As of now, the chief government financing systems such as Medicaid and Medicare are not meeting LTC needs, thereby making LTC elusive for many baby boomers (Robison, Shugrue, Fortinsky, & Gruman, 2014). This paper examines the issue of long-term care financing for baby boomers and proposes strategies for resolving the crisis.

Statement of the Issue

As more baby boomers continue to turn 65 every year, America's ageing population is projected to more than double from 46.2 million in 2014 to 98 million in 2060 (Anderson, 2018). About 70 percent of those who turn 65 years will need some form of LTC in their lives for up to 3 years on average (Alkema, 2013). At the same time, it is estimated that the oldest group of those aged 85 and above will increase by more than 25% in the next decade, and LTC needs are the highest among this cohort (Alkema, 2013). However, long-term care is costly and is expected to increase in costs even more. The costs associated with LTC have surpassed inflation since 2003. For example, the average yearly rate of a private room in a treatment home is valued to be $90,520 nationwide (Calmus, 2013). In other words, the resources needed to provide LTC are substantial. Despite support from state and federal governments’ programs, many Americans still have limited inexpensive alternatives to pay for such kind of care or alleviate future financial risk linked to LTC crisis (Doty, Cohen, Miller, & Shi, 2010).

Underlying Issues of the Crisis

Much of what is known is the fact that the aging of the baby boomers will make LTC financing difficult. Understanding the issues behind LTC is crucial in identifying the most effective strategies for resolving the looming crisis. The problems that have been identified mainly pertain to taxpayer funding, LTC insurance hurdles, and self-financing. For instance, LTC funding comes mostly from taxes, which is the most significant source (Calmus, 2013). The bulk of expenditures are paid through Medicaid, which is funded by state and federal taxpayers (Robison et al., 2014).

Given that there are limited options to finance the increasing cost of LTC, the growing elderly population has become increasingly reliant on Medicaid program (Calmus, 2013). In other words, the program has become the leading financier of LTC rather than a safeguard of last resorts for the needy (Doty et al., 2010). Consequently, it has strained the Medicaid system. The trend could dent the primary purpose of Medicaid, as it impends acute and chronic care health services for the disadvantaged elderly population (Anderson, 2018). Currently, the Medicaid system faces a severe financial crisis because spending has reached unsustainable levels due to overreliance on the program by users to finance LTC (Robison et al., 2014). With more baby boomers retiring and later joining the group of the oldest-old, there is a concern on higher expenditures in the future (Anderson, 2018). There is a chance that the aging baby boomers will not be capable of covering the costs of LTC.

LTC financing for baby boomers also comes from LTC insurance. However, as of today, private insurance plays a minor role in the funding of LTC (Alkema, 2013). Even though it is affordable earlier in life, majority of the potential users of LTC insurance do not think it is a vital requirement. As such, LTC insurance has remained a small niche market product despite being an essential source of LTC funding. For instance, according to Alkema (2013), private LTC coverage has never accounted for more than 10% of the potential market. Furthermore, many insurance companies have stopped covering LTC completely (Alkema, 2013). The low uptake of LTC insurance can be attributed to several factors. For instance, according to Calmus (2013), the reason behind low uptake of LTC insurance ranges from psychological influences, lack of public understanding, financial concerns to product complexity that makes it difficult for people to be eligible for coverage. For example, there is a 70% chance that a baby boomer will require some form of LTC (Doty et al., 2010). However, some are in denial about the likely need for future LTC.

As mentioned above, the lack of knowledge on the impending need for care is also a common barrier to uptake of LTC insurance. A significant number of baby boomers are unaware that there is a high probability they will require LTC at some point (Calmus, 2013). At the same time, there is a widespread misunderstanding that Medicare, a national health insurance program, covers LTC services, an aspect that contributes to low uptake of private insurance (Doty et al., 2010). Indeed, Medicare does not cover most of LTC services. Financial concerns, coupled with a preference for in-house care by a family, also represent another reason why most individuals may decide not to purchase LTC insurance (Calmus, 2013). Some experts have cited high premiums and unpredictable increase in rate as discouraging factors for prospective buyers with fixed retirement income (Calmus, 2013). As such, given that most people prefer to be taken care of at home, they are less likely to purchase insurance. In some cases, the complexity of many products, for instance how such are presented together with their eligibility criteria may discourage certain individuals from purchasing a policy (Calmus, 2013). For example, it may be difficult to comprehend some of the terminology used when presenting the products to prospective customers. At the same time, considering that an applicant might be denied coverage due to family history, some individuals are discouraged from trying since they believe that they will fail underwriting (Calmus, 2013). All these factors, when put together mostly contribute to the low uptake of LTC insurance, hence contributing to the financing crisis for baby boomers.

Finally, it has been ascertained that government-sponsored insurance programs are already strained by the increasing costs of health and the growing number of baby boomers. At the same time, there is a low uptake of private insurance to cover for the remaining costs (Anderson, 2018). That leaves baby boomers with two real options such as self-financing or being dependent on either family or volunteer caregivers. However, the problem is that most baby boomers lack enough savings for retirement to finance LTC services. Long-term care is costly and will cost more in the coming years. Still, many boomers do not have savings set aside for their retirement care needs (Calmus, 2013).

Furthermore, even those who do have long-term care savings might find such insufficient to cover for their needs given the projected increase in LTC cost (Calmus, 2013). Also, as much as social security can fund essential living expenditures, it is not enough to shield baby boomers against huge expenses. Nationally, the average yearly rate of a private room in a treatment facility is projected to be $90,520 (Calmus, 2013). There is no doubt that baby boomers do not have enough money to pay out of pocket.

Strategies for Resolving the Issue

Findings strategies to resolve the issues outlined above is crucial if LTC financing crisis for baby boomers is to be addressed. Based on the analysis, the solution to the problem lies with overhauling Medicaid and Medicare, and stabilizing both private insurance and universal LTC insurance.

Revamping Medicaid and Medicare

The growing expenditure of LTC means that most individuals with huge LTC expenses deplete their retirement funds, forcing them to revert to Medicaid (Butler, 2015). As such, there is a need to restructure or enlarge the program to offer a more operative and suitable public safeguard for retiring baby boomers. For instance, more efforts need to be provided when it comes to closing eligibility loopholes, reducing provider payments, and eliminating fraud (Alkema, 2013). Even though such reforms have not had a significant effect on LTC financing, a consensus in this area is required to reduce the size of the program (Butler, 2015). Another noteworthy strategy involves increasing Medicare’s financial allocation. The aim will be to increase LTC coverage by surcharging federal income taxes. According to Anderson (2018), the plan entails a wide-ranging upsurge in individual tax rates. With such an increase, the notion is to apportion the liability of bankrolling the planned extension of the Medicare program broadly across the populace (Alkema, 2013).

Stabilizing Private Insurance

Based on the above analysis, another area of focus is private coverage. With fewer companies offering LTC cover and premiums increasing, an attempt to cover the elderly against the probable expenditure of LTC is gradually becoming challenging. According to Butler (2015), one strategy might be to swap private coverage with a novel Medicare-like public coverage that would be funded with employment taxes. However, as was seen with the CLASS Act disaster, creating a sound plan is problematic (Butler, 2015). Furthermore, given the dreary continuing financing outlook for Medicare, most experts would be against formulating a new public coverage program (Butler, 2015). Another option that may gain backing is to make LTC coverage more of a hybrid. If such a strategy is adopted, additional government coverage will annex the weighty and uncertain LTC costs that insurance companies face (Butler, 2015).

The premium subventions would help individuals afford coverage (Butler, 2015). Moreover, when compared to creating a hybrid form of coverage, merely focusing on creating public awareness within long-term care and individual coverage choices might influence more individuals to buy private LTC insurance (Anderson, 2018). This kind of rigorous learning could lessen dependence on government initiatives, which may aid in alleviating the LTC funding crisis for baby boomers. One way to teach the public about the advantages of purchasing LTC private coverage is through the heightened promotion of LTC strategies (Anderson, 2018). Marketing can be done through authorized carriers as well as Medicare. Additionally, the government can continue using tax incentives such as tax credits and deductions to inspire Americans to buy LTC private insurance (Calmus, 2013). Federal tax enticements, for instance, can entail permitting people to utilize health savings accounts to pay insurance premiums and a tax deduction for LTC expenses that are more than a certain percentage of income (Anderson, 2018).

Universal Long-term Care Insurance

Another possible way to resolve the LTC financing crisis for baby boomers is to enforce mandatory public LTC insurance (Anderson, 2018). The aim is to reduce the burden on the government-sponsored program. The universal LTC program, in this case, will be different from private coverage. The basis for proposing this strategy is that it has worked for many industrialized countries (Anderson, 2018). As for this case, the proposed plan would ensure that every baby boomer is entitled to receive LTC at home or in assisted living facilities and treatment homes. Additionally, according to Anderson (2018), many experts suggest the need to provide preventative services. The aim is to reduce the avoidable decline in physical and mental functioning (Anderson, 2018). However, it is essential to note that the implementation of the strategy might be a challenge given that full and comprehensive benefits.

Conclusion

As more baby boomers continue to retire in droves, there is no doubt that Americans will experience a significant future need for LTC services. However, as mentioned above, the problem lies with financing LTC. With the government-sponsored programs currently overburdened and the low uptake of private insurance, many aging baby boomers will find LTC elusive. As such, the paper recognizes the need to identify strategies that could help in averting the crisis. In particular, revamping Medicaid and Medicare and stabilizing the uptake of LTC private insurance seems to represent viable strategies that could help in resolving the issues. For instance, there is a need to expand government programs to make such more effective. Additionally, educating the public could increase the uptake of LTC private insurance. Finally, the paper recognizes universal LTC insurance as another alternative to resolving the funding crisis.