September 11, 2019 (Courtesy: Bloomberg)
The results of a six-year study by Georgetown University Medical Center revealed just how fast nursing home prices have been increasing all across America. And the future looks just as grim.
Dr. Sean Huang, the study’s lead author, said the brutal dynamic governing long-term care in the U.S.—where many nursing home residents must spend down the bulk of their life savings before qualifying for federal assistance—is intensifying. California, Florida, New York and Texas all saw increases that far outstripped the 11.6% rise in inflation from 2005 to 2010, the period reviewed by Georgetown’s analysis of eight states. Additional data show the upward trend has continued in the years since.
“We’re talking about long stays—people who have disabilities, dementia, Parkinson’s disease,” Huang explained about the growing nursing home population. “Medicare does not cover that. They will pay out of pocket until they use all of their wealth.”
Many Americans have no idea how Medicare works, including those approaching retirement. Eligibility for the program, a sort-of government health insurance policy largely for older Americans, generally begins at age 65, covering some of the costs of routine and emergency medical care. What it doesn’t cover are most aspects of long-term “custodial” care—as in nursing homes, where a large portion of Americans can expect to spend the last years of their lives.
That’s where Medicaid—state-administered coverage for Americans whose assets fall below a certain level—comes in. For those who qualify for nursing home admission, Medicaid generally requires that they exhaust most of their assets before qualifying for coverage. Without expensive long-term care insurance, which most people don’t have, an increasing number of older Americans are falling into this financial trap, Huang said.
And their nest eggs are being depleted more quickly than ever. Huang’s study found nursing home price rises over the period measured generally outpaced increases in overall medical care (20.2%) and consumer prices (11.7%). For example, in California from 2002 to 2011, the median out-of-pocket cost for nursing home care increased 56.7%.
Huang and three co-authors began looking into the matter in 2013. With no central database, they had to collect information from each state as well as from individual nursing homes. Some states only had data through 2010, he said. In the end, they managed to crunch data from an average of 3,900 nursing homes for each of the years measured, representing approximately 27% of free-standing U.S. facilities.
Nursing homes in New York during the period reviewed had the highest average daily price, at $302, while Texas had the lowest average daily price, at $121. Additional information has shown that nursing home costs have continued to increase at a much higher rate than inflation, albeit slightly slower than during the study period.
In 2010 the average price per day for nursing home care in California was $217, up more than 30% (with Florida close behind) from 2005. In a more recent analysis, Huang calculated that from 2010 to 2015, nursing home prices in California rose more slowly, by roughly 19.6%, to $258 per day. However, inflation from 2010 to 2015 increased only 8.7%, he noted, adding that his research doesn’t point to any improvement going forward.
“I don’t see there’s any major changes that suggest the trend will be different,” Huang said.
Indeed, the median daily price for a private room in a California nursing home just last year was $323, while the national median was $275 per day, according to life insurance company Genworth. Looking at the issue from an annual perspective, the median cost in the U.S. for a private room in a nursing home was $100,375. Oklahoma provided the cheapest annual median cost, at $63,510, while Alaska was the most expensive at $330,873, Genworth data showed.
Nursing homes have long been a financial drain on most who need them, constituting one of the greatest risks retirees face when it comes to managing retirement funds, a report from the U.S. Department of Health and Human Services showed. Unfortunately, the annual costs for nursing home care will continue to grow at a rate much faster than inflation, according to Urban Institute Senior Fellow Richard W. Johnson.
“It’s that labor market pressure,” Johnson said. More elderly Americans mean more demand for nursing home care—and more demand for nursing home employees. Wages go up, and the cost is passed along to consumers.
In an industry that requires significant hands-on attention, technology can’t eliminate many jobs, Johnson said. And just when the labor market for nursing homes is already tight, uncertainty over U.S. immigration policies may further reduce the number of available workers, he said. In 2017 immigrants made up 23.5% of formal and nonformal long-term care sector workers, according to Health Affairs.
“The baby-boom generation is so large,” Johnson said. “They’re approaching their 80s, and that means that many more of them are going to need nursing home care or other types of long-term care.”
Another trend that may be driving up costs is tied to Wall Street. Four out of the 10 largest for-profit nursing home chains were purchased by private equity firms from 2003 to 2008, according to a case study analyzing a private equity takeover.
Research on the impact of private equity has yielded mixed conclusions, though one study revealed how a nursing home chain that was taken over by a private equity firm showed a general reinforcement of profit-seeking strategies already in place, while adding some strategies aimed at improving efficiency. Other reports, however, have detailed darker results.
During the Obama administration, the Community Living Assistance Services and Supports Act, intended to provide a long-term care insurance option, was signed into law as part of the Affordable Care Act (ACA). However, it was later rescinded over concerns voluntary enrollment wasn’t viable—premiums would be too high, and the system would eventually collapse, Johnson said. This left the ACA with little to no assistance for long-term care costs.
Some states have started taking matters into their own hands. Washington state passed a bill in April that would implement a 0.58% payroll tax that would give residents up to $36,500 to pay for long-term care services. Payroll tax will begin collecting in 2022, while residents can start withdrawing in 2025. But that’s just one state, and the problem, Huang and Johnson note, is national in scope.
“If there would be a higher reimbursement rate, either by Medicaid or Medicare, nursing home quality would be likely to improve,” Huang said. “But I don’t see that happening in the near future.”