Long-term Care a Looming Crisis, but Colorado Takes an Important Step

If we are to successfully manage the health care needs of our aging population, we need to pursue options that will cost less, protect people's assets and life savings, keep people in their homes for as long as possible and help to reduce the financial and emotional stress on family caregivers.
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Both Colorado and the United States face a crisis over long-term care for our aging population. (Baby boomers, this means you.)

In a few years, an unparalleled demographic shift will begin to place unprecedented demands on both our health care and long-term care systems. When this shift reaches its peak in 2030, 61 million Americans will be between 66 and 84 years old. In that same year, 9 million people will be older than age 84.

As for Colorado, the number of households aged 65+ will increase by 123 percent between 2010 and 2030.

If we are to successfully manage the health care needs of our aging population, we need to pursue options that will cost less, protect people's assets and life savings, keep people in their homes for as long as possible and help to reduce the financial and emotional stress on family caregivers. The longer we wait to develop a strategy, the more costly those options will be and the more difficult they will be to implement.

Fortunately, Colorado is looking ahead. This year, the legislature passed a bill that will help provide additional long-term care options for older Coloradans and save money for the state at the same time. It is one important step, but many more will be required.

This demographic shift, sometimes referred to as the "silver tsunami," has financial implications for the state budget as well as individual Coloradans. Older Coloradans will be leaving the workforce in the next two decades, effectively ending the "demographic dividend" that flowed to state and federal budgets. In the near future, this population will begin to use more health and long-term-care services that will place greater demands on family savings, as well as the budgets of public programs.

The national and state debate over the silver tsunami centers on the fiscal sustainability of "entitlement" programs such as Medicare and Medicaid. The aging population and the rising cost of health services are the main drivers for these concerns.

The increasing demand that this demographic shift will place on Medicare will significantly strain future federal budgets. In response, the Affordable Care Act focused on reducing spending growth. Even with those spending reductions in place, Medicare is projected to become insolvent in 2026, four years before this aging demographic spike reaches its peak in 2030. Even with this trend moving in the right direction, the fix is temporary at best.

While Medicare is a critical federal issue, the problem extends far beyond that one federal program.

To begin with, we don't often talk about the impact of long-term care. At some point in their lives, 70 to 75 percent of people over the age of 65 will need some form of long-term care. In Colorado, that means 870,000 to 930,000 of our fellow citizens over age 65 may require long-term care in just 17 years.

The cost of long-term care is high and will continue to increase. According to the 2012 Genworth Financial Cost of Care Survey, the average hourly rate for private-pay homemaker services in Colorado is $20 per hour. The average annual cost of a private-pay single bedroom in an assisted-living facility is $44,433, or almost $122 a day. Over the last five years, assisted-living costs have increased by 8 percent. For a semi-private room in a skilled-nursing facility in Colorado, the average annual private-pay cost is $75,190, or $206 per day. Those costs have increased by 4 percent over the last five years.

Given those costs, it will not take long for some Colorado citizens to spend down their life savings and assets. Currently, the primary safety-net program for long-term care when personal assets are exhausted is Medicaid. Since a large portion of the senior and baby boom population is not prepared to absorb the high cost of private-pay long-term care, many of them will likely end up on Medicaid if no other alternative is available.

Since Medicaid is both a federal and state program, increased demands on Medicaid will place greater demands on the state's share of the cost. According to the University of Denver study "Financing Colorado's Future," state general fund expenditures for the department that manages Medicaid will triple by 2024-25, from nearly $1.8 billion to about $5.5 billion.

Even though the cost of Medicaid-based long-term-care services is less expensive for the state budget than private-pay services, they are still high. According to the state's "Long Term Benefits Data Book," the annual cost of home- and community-based long-term-care services was $24,839 for each beneficiary in 2010-11. The annual per-capita cost to the state for long-term care in a Class I nursing facility was $57,251.

Clearly, if we are going to minimize the budgetary impact of our aging population, we need to develop less expensive forms of long-term care. We need to keep the elderly in their homes and allow them to maintain their independence for as long as possible. Since funding and the creation of new infrastructure need to stay ahead of increasing demands, the longer that we wait to implement these efforts, the more difficult the problem will be to solve.

In this year's legislative session, Colorado took a positive step to address the affordability and availability of one option for long-term care.

The Bell Policy Center worked with the Denver Regional Council of Governments, AARP, the Area Agencies on Aging (AAA) and other organizations to develop a proposal (Senate Bill 13-127) that will increase the percentage of revenue provided by the state's existing sales and use taxes that can be used to fund the AAAs.

The AAAs provide transportation, homemaker services and Meals on Wheels, to name just a few. The assistance, tailor-made to the needs of the recipient, is very popular with seniors, in part because it allows them to stay in their homes longer and maintain their independence. The program is so popular that there are long waiting lists.

For the state and consumers, AAA services are extremely cost-effective. The average cost for a recipient of AAA services provided through the Denver Regional Council of Governments is about $4,200 per year. In terms of the state budget, AAA services are four times more cost-effective than in-home and community-based services offered through Medicaid and eight times more cost-effective than Medicaid eligible nursing facilities. At that savings rate, delaying 100 to 200 people a year from going on to Medicaid would save the state more than the first-year funding requested in Senate Bill 127.

Senate Bill 127 will increase funding for the AAAs by $2 million each year. This comes on top of a one-time $2 million increase to appropriations included in the governor's budget for 2013-14.

Under the previous law, about $8 million was set aside from state sales and use taxes (which net more than $2 billion annually) to use in the Older Coloradan's Cash Fund. After the passage of SB 127, that amount will be increased to $10 million per year. That additional money will be used to reduce waiting lists for AAA services. As a result, more Colorado seniors can remain in their homes, protect savings that would otherwise be spent on more costly private-pay services, avoid institutionalized care longer and reduce the possibility of having to enroll in Medicaid.

We need to consider many more initiatives like SB 127 in the very near future. The waiting lists for the AAAs represent a canary in the coal mine. It may be one of the first, but it will most certainly not be the last program to become overstrained by this historically unprecedented demographic shift.

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