For Long-Term Care’s Future, 2 Dates Loom

By Cyril Tuohy InsuranceNewsNet

By Cyril Tuohy

American Council of Life Insurers vice president and chief economist Andrew Melnyk wants people to keep two years — 2030 and 2050 — in mind.

The year 2030 is when the youngest baby boomers turn 65 and the oldest baby boomers turn 85, and the year 2050 is when the youngest baby boomers turn 85.

Like a submarine in slow descent with water pressure building slowly on its hull, so too are the 76 million baby boomers exerting a “slow intensification” on long-term care needs as they retire, Melnyk said.

“It’s almost a slow-motion sort of thing,” Melnyk told InsuranceNewsNet.

Melnyk and associate Harsh Sharma have issued a white paper titled “Who Will Pay For Our Long-Term Care?” Part policy document, part statistical analysis, the report is designed to inject urgency into the long-term care debate and provides a useful guide for financial advisors with a sizable long-term care clientele or who are thinking about growing their long-term care insurance (LTCi) business.

Financial advisors, Melnyk said, should push a little harder to make buyers aware of the risks they face from long-term care, and the importance of some kind of LTCi coverage.

“Insurance is sold, not bought; this is more true here,” he said.

Because LTCi policies contain more “bells and whistles” than standard life insurance contracts, there’s a greater burden on advisors to provide reliable information about long-term care policies, especially with new hybrid policies coming to market.

In budgetary terms, private long-term care insurance could act as a pressure valve and release financial pressure building up on Medicaid and out-of-pocket long-term care expenses.

LTCi accounts for 6.5 percent of long-term care expenditures for the elderly. But it could rise to as much as 26 percent of long-term care expenditures by 2050 if one in four adults between the ages of 25 and 70 buy and maintain a LTCi policy before requiring long-term care, the report found.

The more people buy private LTCi, the lower the pressure on Medicaid and out-of-pocket, long-term care spending, which are headed in only one direction: upward.

Take, for instance, the percentage change in the elderly population of the United States from 2015 to 2050. The 65 and older population will rise by 89.1 percent between now and midcentury, with the 85-year-old population rising by 202.6 percent over that period due to more prosperity and longer life expectancy, the report indicates.

Longevity may be increasing at a faster pace than improvements in the quality of health. This means that all those people 85 years and older will need long-term care for a longer period. That raises long-term-care usage rates and increases the time people spend receiving long-term care as boomers move deeper into retirement and exert more pressure on long-term care needs and Medicaid.

U.S. long-term care expenditures are expected to increase from $239 billion in 2015 to $605 billion in 2050, Melnyk and Sharma determined.

The number of seniors requiring long-term care will increase to 14.7 million, more than 2.5 times higher than in 2010, due mainly to the number of 85-year-olds who will make up the majority of the nursing home population.

Medicaid long-term care expenditures are expected to rise from about $80 billion next year to $198 billion by 2050.

Out-of-pocket, long-term care expenditures, estimated at $48 billion in 2015, are expected to rise to $135 billion by 2050, the report found. Only about 20 percent of long-term care costs are paid out of pocket by individuals.

But is the nation really on the cusp of a “looming crisis” for long-term care? Is the country edging closer to “hull crush depth,” the point at which a submarine implodes because the water pressure around it is too much? Or do the progressively rising bar graphs simply indicate a steady climb in expenditures commensurate to the growth of the nation and its economy?

Melnyk said the other statistic to keep in mind is the number of employed adults per retiree, or the percentage of the population that's paying most of the nation's taxes. In 2010, there were 2.9 employed adults per retiree. By 2050 there will only be two employed adults per retiree, the report said.

“There’s a real shift coming,” Melnyk said.

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].