Complex Economics in the Senior Care Continuum

JAN 25

It’s no secret that an unprecedented demographic shift is upon us as 77 million Baby Boomers hit retirement age.  This growing population will have to rely on fewer working age adults that support healthcare entitlement programs such as Medicare and Medicaid.  The resulting financial strain will place an increasing burden on aging adults to find (or be directed toward) creative financing avenues within a setting that optimizes both their care needs and desired lifestyle.

While it’s common for Americans to plan their retirements around a pension or 401k plan, the costs associated with long-term care are often under-estimated or over-looked.

  • 70% of those aged 65+ will require some form of long-term care.
  • Most will require three years of long-term care at some point in their lifetime, with 20% requiring it for more than five years.

The combination of cost and longevity creates a very expensive proposition for seniors as they consider their desired care setting.  According to Univita Health’s 2010 Cost of Care Report:

  • The national average annual cost of a private room in a Medicare-certified skilled nursing facility is $90,155.
  • The average annual cost for a private, single occupancy room in an assisted living facility is $39,536.

Home health costs can vary widely based on the type of care or assistance being provided.

  • Twenty hours per week of companionship (non-clinical) home care will cost an average of $18,000 compared to $55,000 or more for full-time skilled nursing care.  However, it’s important to point out that these expenses do not include other costs related to transforming the home into a safe, secure place to live.
  • As laid out in MetLife’s Report on Aging in Place 2.0, these costs are significant and can include activity and fall detection sensors, health and wellness monitoring devices, personal response systems as well as hand rails, lifts, ramps, and other home modification equipment.
  • Adult day care costs are less varied than home care and generally range from $18,000 to $24,000 annually.  As with home care, these costs are above and beyond the senior’s daily living costs.

Seniors face a challenge in determining how to best finance the varied care settings as each has its own unique funding mix comprised of savings, private and supplemental insurance, and government programs coverage.  Within the public program category, Medicare, despite the common perception, does not cover most forms of long-term care and is limited to post-hospitalization stays in a skilled nursing facility setting or medically necessary home-based care.  Medicaid, on the other hand, is in fact the largest payer of long-term care services.  According to a report by America’s Health Insurance Plans (AHIP), Medicaid long-term care spending growth is expected to outpace total U.S. healthcare spending and account for more than $3.7 trillion between 2008 and 2028.  However, unless the economic status of a senior qualifies them for Medicaid, it’s highly probable that other forms of private and out-of-pocket financing will be required.

Another consideration seniors must weigh is whether their quality of life preferences fit with their ability to pay for such services.  The most common preference is to live in the home for as long as possible before checking into an assisted living facility – both of which are predominately paid for out-of-pocket.  After looking at these options it becomes immediately apparent that a significant amount of personal savings and long-term care insurance will be needed if the senior wishes to avoid a nursing home.

The funding dynamic becomes more complex as the aging adult transitions from one setting to another within the long-term care continuum, creating stress for the senior as well as a broader market need for greater coordination.

Current research by our team on the Seniors’ sector will culminate in publishing a report later this quarter exploring a range of companies who are effectively penetrating the market with creative benefits assessment and financial / quality comparison solutions.  It will also assess new distribution models across the financial services and retail landscapes (see our prior blog post on Health Insurance Exchanges) to better understand the strategies that global and emerging companies are employing to reach this lucrative yet elusive demographic.

Let us know if you’re interested in learning more through a tele-briefing and have a great week!

Seth Kneller
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