In 2008, the
oldest of the baby boomers will turn 62, become eligible for Social
Security benefits, and begin to retire en masse. As the
retired population swells, so will the number of seniors living in
nursing homes and other long-term care facilities. Because the
Medicaid program often pays for these long-term care services, the
aging of the baby boomers will weigh heavily on Medicaid's budget
and the federal budget. The Medicaid Commission, which is
considering the issue of long-term care, needs to come up with a
way to promote private long-term care insurance. Staying the course
Demographic Trends Among the
The U.S. Census
Bureau estimated last year that there were nearly 36.4 million
seniors (those over age 65) in the United States, making up 12.4
percent of the population.
As the baby boomers begin to retire, not only will the total number
of elderly swell, but their proportion of the population will also
By 2030, the
number of seniors in the United States will nearly double to 71.5
million while the total population increases by only 23.8
Put differently, the elderly population will grow four times faster
than the overall U.S. population over the next 25 years. Meanwhile,
the working-age population will grow by slightly more than 12
percent during that time period.
Medicaid Expenditures on Long-Term
A recent report
for the U.S. Department of Health and Human Services described
Medicaid's role in long-term care:
program is the largest publicly funded source of long-term care
coverage in the nation. Over the last several years, an increasing
percentage of those who enter long-term care (LTC) facilities, as
well those who receive home care on a long-term basis, have had a
substantial portion of their costs paid for by the Medicaid
Nearly 1.6 million
seniors live in nursing homes, according to the Census Bureau.
Medicaid pays for nearly half of all nursing home care in the
United States, and its share of the cost of long-term care is
In 1968, for example, Medicaid covered only 24 percent of total
nursing home expenditures.
percent of the elderly population lives in nursing homes. Nursing
home care is a $100 billion per year industry, with about 90
percent of its services consumed by the elderly.
The total expenditure on nursing home care per elderly resident is
about $52,000 per year, on average, and Medicaid pays for nearly
$25,000 of that, on average.
projection of Medicaid expenditures in light of these demographic
data illustrates the coming challenge. Increased expenditures on
long-term care will add $44 billion annually to the cost of
Medicaid by 2030.
assumes that the proportion of elderly living in nursing homes
remains at the current level, but this may be an overly optimistic
assumption. The number of seniors who are 85 or older will grow by
4.7 million between 2004 and 2030, and members of this group will
be far more likely to need long-term care than younger seniors.
Thus, this paper's projection of the cost of long-term care
probably understates the problem.
The elderly know
that Medicaid covers nursing home expenses for patients who have
few or no assets, which in many cases can be shifted to relatives
before entering a long-term care facility.
That the federal government has been paying an increasing share of
the bill for long-term care should be no surprise, given this
Long-term care is
one of several entitlement issues that threaten to greatly expand
the federal budget. Private long-term care insurance could
alleviate this problem, but few Americans will purchase long-term
care insurance when the federal government is willing to pick up
the tab. Without a greater role for the private market, Medicaid's
spending on long-term care will skyrocket. The effect on federal
spending, taxes, and other government programs will be severe.
home care has quickly become a de facto middle-class
entitlement. As Medicaid's long-term care expenditures continue to
grow, they will inevitably crowd out funding for the those who need
health care services and are unable afford them. If nothing is
done, growing middle-class entitlements, including Medicaid, could
shred the safety net for the poor.
The Commission and
Commission, chaired by former Tennessee Governor Donald Sundquist,
is developing proposals to ensure the program's long-term
sustainability. Thankfully, long-term care issues are on the list
of issues being considered.
should focus on how to encourage individuals to purchase long-term
care insurance in the private market. Such insurance policies have
been widely available only since the 1980s, and many consumers are
unfamiliar with them.
Part of the solution will be consumer education about how long-term
care contracts work, how to evaluate competing offerings, and how
and when to purchase a policy.
In his 1999 State
of the Union Address, President Bill Clinton warned of the coming
"senior boom" of aging baby boomers. He admonished Congress,
"Long-term care will become a bigger and bigger challenge with the
aging of America-and we must do more to help our families deal with
More than six years later, the long-term care problem has only
grown worse. Congress has a duty to address this problem before it
is too late.
Kirk A. Johnson,
Ph.D., is a Senior Policy Analyst in the Center for
Data Analysis at The Heritage Foundation.