Senior Living Articles

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Eyes Turn Toward The High Cost Of Senior Living

November 10, 2020

Editor’s Note: Assisted living costs continue to rise faster than any other sector, especially with rising acuity rates. This article explores the cost conundrum, a forgotten demographic and possible solutions.

While many Americans in 2019 find themselves riding the wave of a surging economy, many of those approaching retirement age are wringing their hands over the cost of living. Senior living, that is.

And if public and private initiatives aren’t successful in addressing it, many fear they could be shut out of the market in very short order.

During the summer of 2018, T. Rowe Price found retirees are more concerned about the rising expenses of retirement living than anything else. Among the 1,000 or so surveyed retirees, 28% cited such expenses as a “major concern.”

And no wonder.

Just a few months later, an October 2018 survey by long-term care insurer Genworth found that assisted living costs were expected to rise about 7% in 2019 – higher than those projected for every other post-acute care sector. Genworth reports that assisted living costs have risen 67% during the past 15 years.

In June 2019, the World Economic Forum released dire news in a study painting an uncertain future for seniors leaving the workforce. Among its major findings: Many American retirees will outlive their savings by more than 10 years – or roughly the average remaining life expectancies following the age 67 retirement age.

While a small percentage of current seniors are fortunate to enter their retirement years in relative comfort free from financial worry, the outlook isn’t so good for the biggest chunk in the middle, which numbers around 14.5 million.

At the risk of overloading the reader with statistics, one more is particularly noteworthy: Slightly more than half (54%) of middle income seniors in 2029 will lack the financial resources to pay for senior housing and care. Those findings came in a landmark study funded by the National Investment Center for Seniors Housing & Care (NIC) and published online by Health Affairs.

Meanwhile, the cost of a nursing home stay continues to rise far more than inflation, and will continue to do so for the unforeseeable future. According to an early 2019 study published in Medical Care Research and Review, out-of-pocket nursing home costs soared by 30% in the latter half of the past decade.

A dearth in retirement savings

Here’s a statistic a lot of forecasters could not have predicted 20 years ago: Nearly 80% of middle-income Boomers have no money set aside specifically for their retirement care needs.

This finding comes from the Center for a Secure Retirement survey. A paltry 4% of those surveyed reported having more than $100,000 in savings set aside. Nearly half of those surveyed said saving for retirement was not a high priority, and more than half wrongly assumed Medicare would cover everything they needed.

The ‘forgotten middle’

Trends like these are now fueling a robust national debate over how these seniors will be able to pay the projected average annual cost of $62,000 for assisted living rent and other out-of-pocket medical costs by 2029.

The figure considers those who would be able to sell their homes and use all of their annual financial resources to pay for senior housing and care, according to a report in McKnight’s Long-Term Care News. The percentage increases to 81% if it includes middle-income older adults who would be able to keep their homes but commit the rest of their annual financial resources to cover costs associated with senior housing and care. As a group, they also will be less likely to have pensions.

In other words, most middle income seniors in 2029 will face the very difficult decision of selling their homes to pay for senior living, or have little to nothing to pay for it.

Exacerbating matters, according to experts, is the fact that despite being better educated as a group, middle income seniors a decade from now will be sicker — afflicted with problems like cognitive impairment (8%) and mobility issues (more than 60%). The cost of memory care for seniors with Alzheimer’s and dementia continues to top the worry list.

Low-income seniors will be able to rely on federal assistance programs like Medicaid. Upper income seniors with virtually unlimited funds will have many choices. But middle income seniors will essentially be a neglected demographic.

Toward a solution

So what is to become of this large group of seniors over the next 10 years?

Many solutions and ideas are being tossed around, both formally and informally.

An NIC analysis in May 2019 projected that a $10,000 cut in annual senior living expenses would make senior living affordable to 2.3 million more seniors; a $15,000 annual expense drop would make it affordable to almost 6 million more seniors.

According to the Tax Policy Center, the current administration is “quietly looking at ways to reinvigorate the flagging private long-term care insurance market.” While expected to be revealed publicly in late 2019, the recommendations aren’t expected to turn a lot of heads.

Among the cost reduction ideas being bantered about, according to the organization, are:

  • A measure that would allow the sale of life or disability policies that convert to long-term care coverage at or near retirement age
  • Expanded tax deduction for the purchase of long-term care policies.
  • New Health Savings Account-like product for long-term care insurance.
  • Penalty-free withdrawals from retirement savings such as Individual Retirement Accounts to purchase LTC insurance.

Still, many experts argue the biggest impact can only come from making senior living housing more affordable (See related story).

According to the NIC study published in Health Affairs and explained by McKnight’s, a number of serious private sector proposals for reducing the cost of senior living housing are now under discussion in public and private circles. They include:

  • Charging less rent and accepting lower investment returns and profit margins.
  • Operating mixed-income communities, where the higher rents paid by some residents can be used to subsidize the rents of those with lower incomes.
  • Offering more basic housing products.
  • Taking advantage of technology to reduce operating costs, increase staff efficiency or enable residents to be more self-sufficient.
  • More formally involving family caregivers, outside volunteers and healthier residents to offset staffing costs.
  • Using à la carte pricing to separate care and services from housing to increase flexibility for some residents.
  • Establishing Medicare Advantage plans, individually or jointly with other operators, to offer on-site medical services.

A series of possible public sector initiatives, include:

  • Creating new incentives to encourage long-term care financial planning.
  • Establishing higher limits for low-income tax credits and other programs to include more middle-income older adults.
  • Expanding subsidies or voucher programs for older adults.
  • Offering tax incentives for developers and operators who serve middle-income seniors.

Middle-income seniors are at risk of slipping into the senior living housing gap: too rich for Medicaid, too poor for private pay. While government and private entities debate community living initiatives and how to reduce costs, the clock is ticking on seniors who are nearing retirement age.

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