The baby boom generation—born between 1946 and 1964—is bearing down on America’s retirement programs like a pre-climate change glacier. More than 78 million strong, the baby boom seems destined to crush every social program in its path. It cannot be stopped. Only a mixture of government and private solutions, such as private long term care insurance, can avert the coming disaster.
Today, with the baby boomers still in the work force, there are 3.3 wage earners for each person collecting Social Security benefits. That number will shrink as the baby boomers retire and begin collecting Social Security benefits. By 2031, there will be only 2.1 wage earners for each Social Security beneficiary.
With the boomers working and paying taxes, the Social Security trust funds are running a surplus. That will continue until 2016. At that point, with half the boomers collecting Social Security, the taxes flowing into the trust funds will not be as great as the expenditures flowing out. At first, nothing will change. Social Security will use the interest earned during the surplus years to pay benefits. By 2041, however, the excess funds will be depleted. Incoming payroll taxes will cover only 75 percent of the costs.
The crisis in long term care will develop more quickly. The U.S. Census Bureau estimates that 72 million boomers will live past age 65. According to the American Association of Homes and Services for the Aging (AAHSA), a nonprofit group that studies elder care, 69 percent of people living past age 64 require some kind of long term care. If the percentage holds, then 49.6 million boomers will need long term care.
The cost of the care will be enormous. AAHSA reports that a private room in a nursing home costs an average of $74,600 a year. The average stay is 2.4 years. If everything stays the same (and costs are likely to rise, even in today’s dollars), the cost of the boomers’ long term care will total $8.88 trillion over 19 years, or $467 billion a year.
Nearly 60 percent of the boomers believe that Medicare pays for long term care, according to surveys conducted by AAHSA. This is incorrect. Medicare pays for post-hospitalization rehabilitation, but not long term care. Right now, individuals and insurance pay for 51 percent of long term care. The other 49 percent is paid by Medicaid, the government program for the needy.
If those percentages remain unchanged, the boomers will bust Medicaid. To avert the crisis, Congress is limiting Medicaid eligibility. That will not be enough, says U.S. Congressman Phil Gingrey, M.D., of Georgia. He writes, “Congress must accompany Medicaid reform with meaningful incentives for purchasing long term care coverage.”
With long term care insurance, the insured pays a monthly premium, and the insurer agrees to pay for long term care. According to the AAHSA, the average long term care insurance policy pays out 82 cents for every dollar spent in premiums. The average annual long term care premium for individuals under 65 is $1,337. Individuals over 65 pay $2,862. Even without government incentives, it makes sense for boomers to sign-up early for long term care insurance sooner rather than later.
