Middle-income Seniors and the Rising Cost of Long-Term Care

In ten years, most middle-income American seniors will not be able to afford the rising cost of independent or assisted living.

A recent analysis in Health Affairs titled “The Forgotten Middle,” took a look at how middle-income seniors will be caught in the middle financially when it comes to long-term care – too wealthy to qualify for Medicaid or subsidized housing, but unable to afford the rising cost of independent or assisted living.

The researchers defined the middle-income group as Americans from the 41st to the 80th percentile in terms of financial resources, using data from the national Health and Retirement Study. They found that in a decade, 80 percent of middle-income seniors will have less than $60,000 a year in income and assets, not including equity in their homes. By conservative estimates, the cost of assisted living and out-of-pocket medical expenses for seniors will be $62,000.

It is projected that by 2029 there will be 14.4 million middle-income American seniors, which is almost double the current number. Sixty percent will have mobility limitations and twenty percent will need help with the activities of daily living.

Many people consider selling their homes in order to finance the cost of long-term care, but many have less equity than they think. The Long-Term Care Financing Collaborative found that, among 65- to 74-year-olds, the median household had about $100,000 in home equity and the same amount in other assets. Unfortunately, this doesn’t go very far.

Middle-income adults today also have more debt and less savings, are less likely to receive pensions, and have smaller families that could provide unpaid care for them than those who lived previously.

The same week that this research was published, the annual report on Medicare and Social Security solvency was also issued. Social Security’s costs will start exceeding its income next year, and in 16 years, the program is projected to deplete its reserves. Congress will need to step up to ensure that benefits do not decline as a result, but this might make long-term care harder to afford if, for example, they decide to shift additional costs to Medicare beneficiaries.

Many other Western democracies have public programs that cover long-term care. Perhaps the United States could create one as well, although this would be extremely difficult to achieve politically. Policy types suggest making incremental changes instead, such as Medicaid coverage for seniors with slightly higher incomes or modification of regulations so that housing costs are also covered.

The federal government could also consider expanding tax credits given to developers of low-income senior housing to those of housing for middle-income seniors.

Some innovations are already happening for senior housing, including some chains offering Medicare Advantage plans to cover certain support services for residents.

Even with the innovations happening now and the possibility of policy changes in the future, it is a difficult and scary reality for middle-income seniors trying to determine how they will cover the cost of future long-term care.