If you’re a Millennial or Gen Xer, you may also soon find yourself a part of the “Sandwich Generation.” That’s the name demographers have given to the millions of Americans caring for both young children and aging parents.
Caring for older adults isn’t cheap. Americans provide $522 billion worth of unpaid care for elderly family and friends each year.
The growing need for long-term care among older adults is already sapping our economy, as working adults take time off to care for loved ones. It also saps the mental health of middle-aged people, who often find themselves struggling to balance competing needs from children, parents, and their jobs.
That’s why we need to restructure our social safety net to nudge 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 an umbrella term for all the medical care and support services older people need once they can no longer care for themselves. Seven in ten people who make it to age 65 will need some kind of long-term care in the future. Nearly half will get paid care.
That care comes at a price. Private rooms in a nursing home cost around $300 per day, on average. Assisted living facilities can run $4,500 a month.
Those expenses add up. Spending on long-term care in the United States topped $475 billion in 2020, up from $366 billion in 2016. Americans pay nearly 14% 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.
Those numbers will likely go up as more and more Baby Boomers retire.
Public payers covered nearly three-quarters of America’s long-term care expenses. Medicaid—the joint federal-state health plan for the poor—covers 42% of long-term care costs, the largest share of any entitlement program.
Indeed, Medicaid has become such a major source of long-term care coverage that middle-income and even some wealthy Americans rely on the program to support them in their twilight years. Rather than save for long-term care like they would retirement, these otherwise affluent Americans sell or transfer assets in order to qualify for federal poverty benefits towards the end of their lives.
It is precisely this perverse incentive that Stephen A. Moses outlined in his 2022 Paragon Health Institute paper “Long-Term Care: The Problem.” Moses, one of the nation’s leading experts in long-term care, determined that access to Medicaid and other publicly-funded safety nets “discourages responsible [long-term care] planning when people are still young, healthy, and affluent enough to save, invest, or insure for the risk.”
Rather than continue down the same path, Moses urged policymakers to consider free-market solutions to the “problems caused by well-intentioned but ultimately damaging 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 the 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 urges lawmakers to ensure the change is “publicized widely” in order to encourage people to make their own plans for long-term care.
He cites a program in Washington that gave workers the option to opt out of a payroll tax to fund long-term care by purchasing their own long-term care insurance before a certain date. Long-term care insurance “sales exploded” as a consequence.
Moses believes we can replicate this trend nationwide. Better yet, he cites new research that the “financial burden” of long-term care is “much more manageable than we thought”—”‘Nearly nine in ten older adults have enough resources, including income and wealth, to cover assisted living expenses for two years.'”
To that end, Moses offers seven suggestions for how people can meet those responsibilities, from drawing on the $35 trillion that people have saved in tax-advantaged retirement plans to using the $12 trillion home equity that people over the age of 62 have accumulated.
The most important call is conceptual—it’s letting people know that providing for one’s long-term care is a personal responsibility and that it is eminently achievable, with a bit of planning.
For years, health policy experts have warned that the long-term care bubble will burst as the Baby Boomers reach their 80s. Fortunately, there are a number of straightforward steps lawmakers, retirees, and young Americans can take to prepare for long-term care and ease the strain on the federal budget.
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