If you’re a Millennial or Gen Xer, you may also soon find yourself part of the “Sandwich Generation.” That’s the name demographers have given to the millions of Americans who care for both young children and elderly parents.
Elderly care is not cheap. Americans provide 522 billion dollars worth of unpaid care for elderly family and friends every year.
The growing need for long-term care among seniors is already taking a toll on our economy as working adults take time off to care for loved ones. It also wreaks havoc on the mental health of middle-aged people, who often struggle to balance the competing needs of children, parenting and work.
That’s why we need to restructure our social safety net to get Americans to start saving for long-term care earlier. Encouraging smarter financial planning can ensure that federal entitlement programs remain well-funded for those who need them most.
Long-term care is a general term for all the medical care and support services that older people need when they can no longer care for themselves. Seven out of ten people who reach the age of 65 will need some kind of long-term care in the future. Almost half will receive paid care.
This care comes at a price. Private rooms in a nursing home cost about $300 per day, on average. Assisted living facilities can run for $4,500 a month.
These costs add up. Long-term care spending in the United States topped $475 billion in 2020, up from $366 billion in 2016. Americans pays almost 14% out of that tab out of pocket, which is one reason those who need long-term care are twice as likely to die broke as those who don’t.
These numbers will likely increase as more Baby Boomers retire.
Public payers covered nearly three-quarters of America’s long-term care costs. Medicaid—the shared federal-state health plan for the poor—covers 42 percent of long-term care costs, the largest share of any entitlement program.
Indeed, Medicaid has become such an important source of long-term care coverage that middle-income and even some wealthy Americans rely on the program to see them through their twilight years. Instead of saving for long-term care as they would in retirement, these otherwise affluent Americans are selling or passing on assets in order to qualify for federal poverty benefits toward the end of their lives.
It is precisely this perverse motivation that Stephen A. Moses described in his 2022 Paragon Health Institute paper “Long-term care: The problemMoses, one of the nation’s leading experts on long-term care, ruled that access to Medicaid and other publicly funded safety nets “discourages accountability [long-term care] planning when people are still young, healthy and affluent enough to save, invest or insure against risk’.
Instead of continuing down the same path, Moses urged policymakers to consider free-market solutions to the “problems caused by well-intentioned but ultimately harmful government policies.” In a paper released last month—“Long-Term Care: The Solution”—Moses offers some suggestions on how to do just that.
First, lawmakers must close loopholes that allow middle- and higher-income Americans to spend down or transfer their assets in order to qualify for Medicaid.
After ensuring that only the poorest Americans can use Medicaid for long-term care, Moses is urging lawmakers to make sure the change is “widely publicized” to encourage people to make their own long-term care plans.
He cites a program in Washington that gave workers the option to opt out of the payroll tax to finance long-term care by purchasing their own long-term care insurance before a certain date. As a result, sales of long-term care insurance exploded.
Moses believes we can replicate this trend nationally. Even better, new research says the “financial burden” of long-term care is “much more manageable than we thought”—”Nearly nine in 10 seniors have enough resources, including income and wealth, to cover utility costs living for two years.'”
For this purpose, Moses offers seven suggestions about how people can meet these responsibilities, from tapping the $35 trillion people have saved in tax-advantaged retirement plans to using the $12 trillion people over 62 have accumulated.
The most important appeal is conceptual – it lets people know that providing long-term care is a personal responsibility and is eminently doable, with a little planning.
For years, health policy experts have warned that the long-term care bubble will burst as Baby Boomers reach their 80s. Fortunately, there are some simple steps that lawmakers, retirees and young Americans can take to prepare for long-term care and reduce pressure on the federal budget.