THE MARKET FOR
LONG-TERM CARE
LONG-TERM CARE
The growing population of elderly, particularly those over the age of 85, and the concomitant increase in chronic conditions has created a rising demand for long-term care services in the United States. Combined with a health insurance industry which offers little financial protection from the costs of long-term care and a health care reimbursement system that has fueled the demand for long-term care, there remains a significant imbalance between the supply and demand for long-term care insurance and ca re management programs.
A. DEMOGRAPHIC TRANSITION AND DEMAND FOR LONG-TERM CARE
The concept of the "graying of America" is widely accepted today. Currently, there are 31 million people in the United States who are over 65 years old, with over three million of these individuals over 85 years of age. It is this latter group who are most in need of long-term care services due to their higher incidence of chronic conditions. By 2020, the U.S. population over the age of 65 is projected to grow to 55 million while the population over the age of 85 is projected to increase by four times to over 13 million.
As age increases, the need for long-term care also increases. While approximately three percent of persons aged 65-69 will need long-term care, approximately five percent of those aged 70-79 and 17 percent of those aged 80-84 will require long-term care. For those aged 85 and older, more than one-third will require long-term care. In aggregate, 42 percent of all individuals over the age of 65 will enter a nursing home in their lifetime.
Although most elderly persons are healthy, 7.3 million of them currently require long-term care, with 1.5 million of these individuals already in nursing homes. The need for assistance with activities of daily living (ADLs) -- an effective predictor of long-term care utilization -- also increases dramatically with age. For instance, nearly 13 percent of elderly aged 65-74 need assistance with ADLs, compared with 46 percent of elderly over the age of 85. Moreover, 10 percent of those over age 85 had se vere limitations (requiring assistance with five or more ADLs), compared to two percent of those aged 65-74.
The fear and perceptions of aging are as real as the actual need for long-term care services. Numerous studies of people over 50 have shown that the greatest single fear among the elderly is being sent to a nursing home.
Older persons share an intense desire to retain independence, remain in their homes, and above all to avoid ending up as indigent, long-term care residents of a nursing home. This is compounded by the fear of leaving a surviving spouse without adequate financial means of support, and of having to spend nearly all assets in order to qualify for public assistance for nursing home coverage.
The bleak picture of parents and in-laws growing old and becoming impoverished to pay for long-term care places a tremendous burden on younger relatives who are functioning as working employees. To keep elders from losing their independence, their respect and their dignity, younger relatives will provide services to keep their elders in their own homes or in community based residential facilities. Nearly 2 million working adults provide significant levels of unpaid care to elderly relatives who need he lp at home. In fact, over 80 percent of all long-term care patients are individuals simply in need of assistance with everyday activities, rather than medical care.
B. HEALTH CARE REIMBURSEMENT POLICY
The restructuring of the U.S. health care system has added to the imbalance of the supply and demand for long-term care insurance and management programs. Increased competition and the growth of managed acute care companies has created continuous pressure for cost savings. This pressure, along with changes in technology, has created incentives to shorten hospital stays and to substitute hospital stays with less expensive providers of care. The effects of this substitution has been an increase in the d emand for long-term care services and a shift in costs to patients and their families, since costs for these services are often not reimbursable by Medicare or other health care benefit plans.
The absence of organized care management systems to assist patients and families needing chronic and long-term care services leaves patients and their families with a greater emotional and physical burden. Since these individuals often end up having to make complex decisions about the most appropriate type of care and, because of the high costs, many end up providing much of the care themselves.
C. THE COST OF INSURANCE FOR LONG-TERM CARE
In 1993, long-term care costs in the United States exceeded $108 billion. These costs are projected to grow to $225 billion by the year 2000. Currently, the government pays the majority of these costs, equaling $69 billion or 64 percent of the total, with Medicaid accounting for nearly 65 percent of all public dollars. Private sources paid the rest, about $38.5 billion, mostly as out- of-pocket spending by individuals and families.
Private long-term care insurance contributed only $200 million, or 0.2 percent of the total.
The cost of long-term care services is significant. The average annual nursing home cost per patient was $36,000 in 1993. For the average person using home care, annual costs can range from $8,000 to $15,000 community based residential care facilities, typical annual costs can average $18,000 or more. Home care costs for someone in need of constant care can equal or exceed those for a nursing home.
Despite these costs and the probability of needing services, only four percent of Americans have purchased long-term care insurance policies, with an annual growth rate of 32 percent between 1988 and the early 1990s. This is not a lack of purchasing power. The 70 million Americans over 50 years of age account for 40 percent of consumer demand and spend more on health and personal products than any other age group. This group owns 77 percent of all financial assets in America and 70 percent own their o wn homes. One study estimates that by 2005, about 93 percent of all married couples and 60 percent of all single persons aged 65 and older would be able to buy long-term care insurance with less than five percent of their cash income.
In addition to the financial aspects of long-term care, organizing and securing the appropriate level and provider of care is typically a complicated, overwhelming task. Unlike the acute care setting, little assistance is provided for collecting and managing information on the costs, quality, and utilization of long-term care services and providers, or on understanding and assessing the needs of the patients and their families and developing a plan of care. The pressures to develop and implement the ty pe of managed care programs that could help address these consumer needs has been lacking because of the absence of third-party coverage of chronic and long-term care services.
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