Jim de Bree | Financing Elder Care Becomes an Emerging Priority

In my last column, I wrote about the current crisis that many diabetics face with respect to getting their medical insurance to pay for their insulin. This column discusses an emerging crisis in funding care for the elderly.

My wife and I each have an elderly relative whose retirement funds have been exhausted. Both are women who need to reside in assisted living facilities, but neither has the wherewithal to pay for the cost of living there.

Both of these relatives are in their mid-80s. One has Parkinson’s disease; the other has arterial fibrillation. Both have lost some of their mental capabilities, but neither suffers from full-fledged dementia. Neither is capable of living independently.

Further painting a demographic picture, both of these ladies had three children and divorced around the age of 40. Like many single mothers, neither was able to adequately save for retirement.

These two women are harbingers of what our society will face in 10 to 15 years when Baby Boomers in a similar situation reach this age in large numbers. 

Patients over age 65 are generally covered by Medicare. However, the cost of assisted living is generally excluded from Medicare coverage and is either paid by the patient, or if the patient is poor, is paid by Medicaid (Medi-Cal in California). 

According to a recent report published by the Henry J. Kaiser Family Foundation, Medicaid spending for an elderly patient is four times higher than what is spent on an average adult Medicaid patient. 

Since Medicare pays for most medical expenses for patients over 65, presumably Medicaid expenditures for the elderly consist predominantly of assisted living facility occupancy costs.

Currently about 20% of national Medicaid spending is spent on care for the elderly. Medicaid currently pays for about 35% of nursing home costs nationally. Medi-Cal pays for about 24% of such costs in California.

According to the Center on Budget & Policy Priorities, one in three Americans who are currently age 65 or older will require assisted living or home nursing care before they die. Two thirds of them will require support from Medicaid. 

As Baby Boomers reach nursing homes in greater numbers, it is likely that the percentage of total Medicaid expenditures spent on the elderly will increase, as will the percentage of total nursing home costs that are funded by Medicaid.

If we don’t devise a long-term solution to financing elder care, it is conceivable that some portion of the elderly population will become part of the increasing number of homeless people. 

According to the Kaiser Family Foundation, over the next decade, Medicaid expenditures are expected to consume 9% of the federal budget and will be the federal government’s third largest non-discretionary expenditure. Medicaid is administered at the state level but is largely funded by the federal government. 

For many states, Medicaid is the largest component of the state budget.

Each state receives a different level of funding. The federal government funds between 50% and 77% of each state’s Medicaid expenditures. (In California only 50% is funded by the federal government.)  

Not surprisingly, the federal government is seeking to rein in Medicaid costs. The American Healthcare Act of 2017 (which would have repealed and replaced the Affordable Care Act) would have limited the amount of federal Medicaid funding that could be used by states to pay for nursing home services. 

The Trump Administration’s proposed 2020 budget contains similar measures.

For the past quarter-century, health care costs in the United States have escalated rapidly. The three principal drivers of this increase are pharmaceutical costs, treating obesity-related illness and elder care. Unfortunately, neither political party is effectively addressing these underlying causes of health care inflation.

If we can overcome the special interests that have unwieldy political clout, presumably, we can enact reforms in the pharmaceutical distribution channels and we can significantly reduce fructose consumption. That will address two of the major causes of health care inflation. 

However, there is not much we can do to prevent the Baby Boomers from aging. I suspect that, over the ensuing decades, there will be technological advances that will make elder care more cost-effective, but aging Americans are still going to be expensive to deal with.

We need to develop a comprehensive plan for solving the financial aspects of an aging population. If we don’t address it soon, the costs will continue to escalate faster than our overall economic growth. 

There simply are no easy answers. We will have to overcome partisanship, be open to implementing new ideas and consider “outside of the box” solutions. 

I hope we are up to the challenge, so that future generations won’t be in a worse place than my family’s relatives.

Jim de Bree is a semi-retired CPA who resides in Valencia.

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