Funding Long-Term Care for an Aging Global Population

Deidre McPhillips
U.S.News & World Report

Bobbie Preddy's mother ran out of money years ago. She's 98 years old and if she lives longer than six more months, Preddy might be out of cash, too.

Preddy's mother requires round-the-clock care, due to frequent urinary tract infections and related conditions. Together, Preddy and her mother determined the only way she could get the support and care she needed was at an assisted-living facility. But costs for even one of the cheapest facilities in the market are hundreds of dollars more than Preddy's mother can afford with her pension checks each month.

"I'm going to run out of money and my mother might still be alive," she says. "And I don't see anything, anywhere that can help that."

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Preddy's dilemma is not uncommon. Her mother is one of more than 8 million individuals in the U.S. that require support from long-term care services, according to the Centers for Disease Control and Prevention, the great majority of whom are more than 65 years old. Family Caregiver Alliance, a nonprofit support organization for caregivers, lists at least 10 different options for living arrangements, each with varying degrees of provided care, independence and cost. According to the insurance company Genworth, the average annual cost for a private room in a nursing home in the U.S. is more than $90,000, and a year in an assisted-living facility is more than $40,000 , expenses that are not always covered by public insurance programs.

Globally, the number of older persons is growing faster than any other age group. In 2015, one in eight people was more than 60 years old, according to the United Nations. By 2030, they project an increase to one in six people, or 1.4 billion individuals over the age of 60.

When it comes to aging, experts say the greatest challenge our world currently faces -- more than pensions or birth rates -- is planning for and financing long-term care.

Long-term care is like an "exploding bubble," says Randall Ellis, a professor at Boston University whose research is focused on health economics. "It's the largest uninsured risk for the aging population."

In the U.S., when people face the dilemma that Preddy does with her mother -- once houses have been sold, a lifetime of savings has been depleted and health conditions have reached the point that in-home care is not an option -- others may rely on Medicaid to cover costs.

In 1965, Medicare and Medicaid became the first public health insurance programs in the U.S. when they were signed into law by President Lyndon Johnson. Medicare was intended for individuals over 65 years old and those with end-stage renal disease, or kidney failure. Medicaid was intended to cover low-income individuals. But as of fiscal year 2014, long-term care services accounted for about a third of Medicaid spending, or $152 billion.

Preddy's mother is well beyond 65 years old and, with an annual income of about $17,000, would be considered low-income by many. Her pension is far from enough to pay for her long-term care, but it is enough to disqualify her for both public health insurance programs and leave her family scrounging for funds.

"There's an extreme bias in the allocation of resources away from older people to other groups," says Peter Lloyd-Sherlock, a professor of social policy and development at the University of East Anglia in the U.K. whose research focuses on the social protection of older people in developing countries. Costs associated with long-term care -- financial and otherwise -- are inevitable, he says, and the systems created to distribute those costs exemplify the values of that society.

Taking care of an individual at home will always be less expensive than bringing him or her to a nursing home or assisted-living facility, says Terry Hokenstad, a professor of global health at Case Western University. Policies and programs that support informal caregivers like family members, he said, make it easier to keep older adults at home and out of long-term care facilities longer, therefore reducing their overall costs.

In a number of European countries, pension funds are used to compensate unpaid caregivers. Denmark and the Netherlands automatically cover time spent outside the labor force due to caregiving, while Germany and Norway reward caregivers with additional credits to their own pensions.

"Say an older person has a stroke and goes into the hospital," Hokenstad says. "The first thing we (Americans) think is to get them to a nursing home. The first thing they think in the Nordics is how they can get back into their own home and what sort of improvements are needed to make it happen."

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But Naoki Ikegami, president of the Japan Society of Healthcare Administration and the Japan Health Economics Association, warns against a reliance on informal care for older adults. A long-term care industry has a public responsibility and legal obligation to provide appropriate care, he said, but it's difficult to monitor whether family members are actually caring or not.

Instead, restricting the "medicalization" of long-term care -- maintaining a separation between health care spending and activities and those related to long-term care -- can keep expenses down. "Health care can always be interpreted as a life or death situation," he says. "In health care, we give doctors a blank check to do whatever the patient needs. But with long-term care, we can rely on a more objective way of measuring need."

In 2000, Japan developed a universal insurance program for long-term care in response to public outcry against growing problems of neglect. Funded by tax revenues and higher premiums for those over 40 years old, out-of-pocket costs for long-term care services are limited to a 10 percent co-payment. A revision this year raised that rate to 20 percent for those with above average income.

Ultimately, national and global debates on long-term care come down to whether the responsibility to look after our growing elderly population should be a public or private one. Like Japan and Denmark, most developed countries have favored strong, publicly funded social safety nets.

For Josh Wiener, former director of the Aging, Disability, and Long-Term Care program for the non-profit research organization RTI International, creating a successful system is a matter of finding the political will to make long-term care a policy priority.

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"Long-term care is higher on the political agenda mostly everywhere else than it is in the U.S.," he said. "Germany established a long-term care insurance program at a time when they were dealing with the unification of the East and the West. They recognized a need and they went ahead and did it."

The same happened in Japan, where policy makers saw they had an aging population and agreed to address it . But the U.S., he said, tends to avoid the conversation.

For a while, private insurance plans that allow individuals to protect a greater share of their assets dominated the long-term care coverage discussion in the U.S. But the number of providers for these private plans has decreased dramatically in recent years.

A voluntary public insurance program almost made its way into President Barack Obama's health care reform plans in 2011. But the Community Living Assistance Services and Supports program, or CLASS Act, was quashed for fear of adverse selection, or attracting a disproportionate number of high-cost users, that would drive up premiums and because it couldn't prove to be debt-free for at least 75 years as the law requires.

Bobbie Preddy and her mother share a caring and trusting relationship; they're "simpatico," she says. Preddy doesn't hope for her mother to die, but she does hope that supporting her mother doesn't have to cut too much into her own retirement savings.


Deidre McPhillips is a data reporter at U.S. News. You can find her on Twitter or email her at dmcphillips@usnews.com.

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