A Pending Crisis That’s Not on Our Radar

Irecently travelled to Cincinnati to celebrate my sister’s 90th birthday. I always thought that living to 90 is quite an accomplishment. It truly is, but as people live longer, health and economic issues become extremely challenging. Over the next decade, millions of Baby Boomers will face similar issues. The situation will potentially reach crisis proportions.

My sister lives in an assisted living facility. Living in an ALF is expensive. Until last year, my sister lived with one of her daughters in northern California. When it became apparent that my sister needed more care than her daughter could provide, our family considered other alternatives.

Economic factors have compounded my sister’s health issues. She was a single mother who raised three children on her own. She could not adequately save for retirement. Consequently, when she retired 20 years ago our family subsidized her housing. Unlike many, she had a family with the means to do so.

She is now at the point where her funds will soon run out and her housing costs exceed our family’s capacity to fund them. Once someone at my sister’s age depletes their funds, Medicaid may pay for senior housing. The rules vary by state.

In northern California, we found that decent ALFS in her locality cost about $8,000 per month. If you research the cost of ALFS in California, the average monthly cost ranges between $5,200 and $6,500, depending on services provided.

California created a Medi-cal program called the “assisted living waiver” that pays for a limited number of ALF residents in about 15 counties. However, the number of people seeking waivers exceeds the number of available ALF housing units, so it is difficult to find an ALF that is paid for by a waiver. Furthermore, my sister did not live in one of those counties.

My sister’s oldest daughter lives in Cincinnati, where the monthly ALF housing costs are about $4,000. So we moved my sister into a fairly nice facility that will accept Ohio Medicaid when her funds are depleted.

My sister’s story is emblematic of issues faced by too many aged people. We need to consider her situation in a broader societal context. As the oldest Baby Boomers approach their 80s, we are going to see a sharp increase in the demand for ALF housing. We do not presently have enough ALF units to meet the coming needs of elderly Baby Boomers.

Furthermore, many Baby Boomers have either not adequately saved for retirement or rely on underfunded pension plans that may be unable to pay the promised benefits. Therefore, the financial pressure placed on Medicaid is going to increase commensurately.

According to a report prepared by the Federal Reserve and the University of Michigan Health and Retirement Study, older Baby Boomers tend to have more in retirement savings and participate to a greater extent in defined benefit retirement plans that pay a specified benefit over the retirees’ lifetimes. However, younger Baby Boomers’ retirement benefits are more heavily funded by defined contribution plans, such as 401(k) plans, and IRAS. Many did not make adequate contributions to these plans and/or failed to make wise investment decisions. Consequently, they will not enjoy the same level of retirement income as the older Baby Boomers.

That report found that 52.5% of younger Baby Boomers have $250,000 or less in assets. Nearly two thirds of them have less than $500,000. Thus, it is highly likely that they will deplete their assets before they die.

These retirees will be highly reliant on Social Security and Medicare, which will likely see benefits cut and medical costs rise. So what happens when they need ALF housing? How is that going to be funded?

Some argue that Medicaid is purely a welfare program that needs to be cut. To date, the debate has focused on providing benefits to people of working age. However, in 10 years, the focus will shift to housing the elderly who cannot afford to live in ALFS.

Few people are considering this issue because it is still a few years away. The situation will be exacerbated by excessive amounts of government debt accompanied with Social Security and Medicare shortfalls.

This will undoubtedly require additional government revenue, which will probably translate into unpopular future tax increases.

We should take steps to address this problem now, while we have the greatest chance of dealing proactively with the issues while minimizing the adverse consequences to the elderly. The solution is likely to be complex and controversial.

My sister’s story is emblematic of issues faced by too many aged people. We need to consider her situation in a broader societal context.

As the oldest Baby Boomers approach their 80s, we are going to see a sharp increase in the demand for (assisted living facility housing. We do not presently have enough ALF units to meet the coming needs of elderly Baby Boomers.