Aging Population: A Looming Crisis - Grappling with Rapidly Rising Senior Population

As we wake up each morning, do we feel a little older? Do we see a new gray hair and feel a new ache or pain? We are not alone. America, and the world, is getting older.

Recent data from the 2020 Census reveals that demographic shifts in the United States have been hastening over the past decade. Notably, the population segment aged 65 and older has experienced more rapid growth compared to previous decades.

The proportion of Americans aged 65 and older surged from 12.8% in 2010 to 16.8% in 2020, a notable increase of 4 percentage points. Conversely, the segment of Americans under 25 experienced a larger-than-usual decline, dropping by 2.8 percentage points to comprise 31.5% of the population.

Such demographic shifts are not novel in the U.S. landscape. The 1990s witnessed the last sizable clusters of the Baby Boomer generation exiting the under-25 demographic, resulting in a substantial decrease in the country's young population. Concurrently, the 65 and older age bracket witnessed growth.

Global Aging

Yet, the United States is merely at the dawn of its demographic transformation. Japan, the globe's most strikingly aging society, already reported a staggering 28.5% of its population aged 65 or older in 2020. Italy, Greece, Germany, and Finland trailed closely, each with over 22% of their population within this age group.

Like the United States, Japan, Italy, Greece, Germany, and Finland are all facing a long-term care crisis. The populations of these countries are aging rapidly, and the demand for long-term care is growing. However, the supply of long-term care services is not keeping pace with demand leading to long waiting lists for care and high costs for families.

These demographic fluctuations carry substantial societal ramifications. As the population continues to age, the demand for long-term health care, social services, and appropriate housing will rise. Simultaneously, there will be a call to reshape the workforce to cater to an increasingly aging population.

The aging of America and, indeed, the world presents a multifaceted challenge with no straightforward solutions. Nevertheless, by scrutinizing these trends and understanding the implications of demographic shifts, society can start to strategize for the trials and opportunities that lie ahead. Meanwhile, you should consider aging and long-term care in your retirement planning.

Impact of Demographic Change on Long-Term Care and Increasing Cost

One of the significant issues is how to pay for long-term health care. 

The aging of America and the world is significantly impacting long-term care. As the population ages, there is an increasing demand for services such as assisted living, nursing homes, and home health care. This demand is expected to grow even more in the coming years as the Baby Boomer generation ages and Generation X gets older. 

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The increasing demand for long-term care is putting a strain on the health system. There is a shortage of long-term care providers, and the cost of care is rising. This makes it difficult for many people to afford the care they need.

The total cost of long-term care in the United States is estimated to be $305 billion annually. This cost is expected to grow to $1.08 trillion annually by 2040.

In the most recent data, according to the Kaiser Family Foundation, Medicaid spent $225 billion on long-term care services in 2022. This is an increase of 5.3% from 2021. This includes both institutional care, such as nursing homes, and home- and community-based care, such as personal care and home health aides. Individuals must have little or no income and assets to qualify for Medicaid benefits. 

Private Long-Term Care Insurance does pay for some of the cost. According to the American Association for Long-Term Care Insurance (AALTCI), traditional LTC policies paid out $13.25 billion in total benefits in 2022, an increase of 5.7% from 2021.

AALTCI data indicate that American families paid an estimated $253 billion for long-term health care in 2022. This is an increase of 5.3% from 2021. 

This leaves the majority of long-term care costs paid out of pocket by families. In 2022, families paid out 58% of total long-term care costs. Medicaid paid out 36% of total costs, and Long-Term Care Insurance paid out 6%.

Unpaid Family Caregivers - Consequences for Adult Children and Families

The increasing demand for long-term care is also significantly impacting adult children and families. Many adult children are now responsible for caring for their aging parents. This can be a daunting task, both physically and emotionally. It can also be expensive, as adult children may have to pay for their parents' care out of their own pockets.

Adult children may sometimes have to make difficult decisions about their parents' care. For example, they may have to decide whether to place their parents in a nursing home, pay for in-home care, or provide care at home themselves. These decisions can be complex and emotionally fraught.

According to AARP, the total value of unpaid long-term care caregiving in the United States was $534 billion in 2022. This is an increase of 4.3% from 2021.

The majority of unpaid long-term care is provided by family members. In 2022, family members provided an estimated 92% of all unpaid long-term health care. Friends and neighbors provided the remaining 8%.

Many Hours of Care Required

The average family caregiver provides an estimated 22 hours of care per week. This is the equivalent of a full-time job. Caregivers often provide care for several years, and the cumulative value of their care can be significant.

The value of unpaid long-term care is often overlooked. However, it is a significant economic contribution. In 2022, the value of unpaid long-term care was more than that of the entire U.S. retail trade sector. The value of family caregivers does not include the physical and emotional toll caregiving places on adult children and their families. 

The value of unpaid long-term care is likely to continue to grow in the coming years. This is due to the aging of the population and the increasing demand for long-term care.

Some States Are Taking Action

The Washington Long-Term Care Trust Act (WA Cares Fund), which went into effect on July 1, 2023, is a payroll tax that will provide a small amount of long-term care benefits to Washingtonians who qualify. The plans will pay $36,500 (adjusted annually up to inflation) to spend on covered services. The tax is 0.58% of an employee's wages.

Even adjusted for inflation, the Washington Care Fund will pay a small fraction of the actual cost of long-term health care, and the State of Washington is one of the most expensive states for care in the nation. 

LTC NEWS Cost of Care Calculator for the State of Washington.

The WA Cares Fund will provide a variety of long-term care services, including:

• In-home care
• Adult day care
• Nursing home care
• Respite care
• Assistive technology

The WA Cares Fund is expected to generate about $1 billion in revenue each year. This money will be used to pay for long-term care benefits.

Several other states are considering similar long-term care tax plans. 

The states that are closest to passing such a tax are California, Michigan, Minnesota, and New York. States may allow workers to opt out of the tax if they purchase an LTC insurance policy before the law becomes effective. Because of the limited benefits, a Long-Term Care Insurance policy will still be a good idea; otherwise, most of the costs would come from income and savings. 

Many Are Unaware of Partnership Long-Term Care Insurance

The Long-Term Care Partnership Program, a federally administered initiative, is arguably an under-recognized tool in financial planning. The program provides those who purchase eligible Long-Term Care Insurance with dollar-for-dollar asset protection. 

In practice, this means that if a policyholder depletes their LTC Insurance benefits, they receive an equivalent amount in asset protection. This could help them qualify for Medicaid's long-term care benefit without needing to drain all their assets. The mechanism, termed "asset disregard," allows individuals to safeguard a portion of their estate corresponding to the total benefits paid out by the policy. 

What Is the Partnership Program in Long-Term Care Insurance?

In essence, the program creates a pathway to qualify for Medicaid without necessitating impoverishment. Even a modest policy under this program can deliver significant asset protection.

Preparing for the New Aging Society

The evolving demographics of an aging society are significantly reshaping the landscape of the nation. As the proportion of the population aged 65 and older continues to grow, the implications of these shifts are becoming more tangible, touching on various aspects of daily life and societal structure. For those over 45, this progression underscores the need to strategically prepare for aging, potential health decline, and the prospect of long-term care.

Aging is a natural process, often accompanied by changes in physical health and cognitive abilities. Thus, as part of a comprehensive retirement plan, it's crucial to factor in the potential need for medical and long-term care services. Health insurance, including Medicare, often provides limited coverage for these services. Exploring options such as Long-Term Care Insurance will help ensure you have financial resources to access necessary care without depleting your retirement savings or imposing a burden on your loved ones.

According to Dr. Linda Fried, a respected geriatrician and dean of the Mailman School of Public Health at Columbia University, aging invariably induces transformations in our bodies and minds.

As we age, our bodies naturally slow down. This can lead to changes in our physical health, such as slower reflexes, decreased muscle mass, and a higher risk of falls. However, these changes do not mean that we have to become inactive. There are many things that we can do to stay active and healthy as we age.

In addition to financial planning, it's important to consider aspects such as living arrangements and support networks. As mobility decreases or health issues arise, you might need to modify your home or consider moving to a more accessible living environment. Building a reliable network of family, friends, or community resources can also provide valuable support, whether for daily tasks or in case of a health emergency.

It's also worth noting that retirement planning isn't just about preparing for potential difficulties. It's also an opportunity to plan for an active, fulfilling life in retirement. This could involve exploring hobbies, volunteer work, travel, or part-time employment.

As America's population ages, it's clear that societal changes will follow. For individuals over 45, these changes offer both challenges and opportunities. By proactively preparing for aging and potential health issues as part of retirement planning, you can help ensure a secure, fulfilling future in the later stages of life.