Recent articles in the journal Health Affairs attempted to attach numbers to a problem that millions of American families are intimately aware of: Many middle-income older adults cannot afford to pay their out-of-pocket costs for health care and senior housing. And the problem is going to get worse once the Baby Boomers begin to hit their late 70s and early 80s, the age at which they will require more substantial medical and personal care.

The article, by Caroline Pearson and five co-authors, focused primarily on affordability of senior housing such as assisted living. They projected that in 2029, when the oldest Boomers will reach their early 80s, one-third of middle-income seniors will not be able to afford supportive housing and medical care. Among those with no home equity, eight in ten will not have the money to pay for facility-based care.

Remember, the authors are not looking at all seniors, but rather than share of middle-income older adults who will not be able to afford care.  Effectively, no low-income seniors can afford significant levels of paid care, thus most will land on Medicaid.

Cost of care

But these estimates still are likely understate the problem for many middle-income seniors. They assume annual rent of $40,000 (or about $3,300-a-month) and $5,000 in annual out-of-pocket health care costs.

Genworth’s annual cost of care study estimates that the average monthly cost of assisted living is about $4,000, or $48,000 annually. Keep in mind that even for those with Medicare, out-of-pocket medical costs can be steep. They include premiums, co-pays, deductibles, and costs generally not covered by Medicare such as hearing aids, eye, and dental care. The Kaiser Family Foundation estimates that a typical beneficiary paid about $5,800 out-of-pocket in 2016. Older beneficiaries likely pay more than that.

In a blog accompanying the Pearson article, Bob Kramer of the National Investment Center for Seniors Housing and Care (NIC) projected that if combined costs reach $50,000, nearly 40 percent of older adults would be priced out. And at $60,000, more than half could not afford the total cost of care. At $85,000—less than the average cost of a nursing home or of a high-end assisted living facility, only 15 percent of older adults could pay out of pocket.

Vast differences

While these articles focused on those living in assisted living facilities, it isn’t the location of care that matters, it is the cost. It is not unusual for people with high care needs living at home to spend $40,000 or more annually on personal assistance. And those with high needs are just as unlikely to afford home-based support as someone living in an assisted living facility.

Pearson and her colleagues defined middle-income as people aged  75-84 with annual annuitized financial resources of between about $25,000 and $74,000. In other words, they calculated how much income their wealth would throw off if it were turned into an annuity.

But there is a vast difference between an older adult with $25,000 in annual income and one with $74,000. Among them: Those with lower lifetime incomes are likely to be sicker and more likely to require a high-level of long-term care need, and need it for a longer time.  For example, my Urban Institute colleague Melissa Favreault projects that about 54 percent of middle-income seniors will need a high level of supports and services while only 51 percent of high-income will. More importantly, about 15 percent of middle-income seniors will need care for five years or more while only 10 percent of high-income people will do so.

If the authors are right, and at least one-third of middle-income older adults will not be able to afford the care they’ll need, what can policymakers and the senior care market do?

Providers could try to reduce costs, and Bob Kramer suggests some ways to do that by lowering the costs of building facilities. But, as he acknowledges, most of the costs of senior care are in labor. And a building labor shortage suggests that pay for care aides will only rise.


The private long-term care insurance industry could try to make policies more affordable. They could reduce their sales costs by making products simpler and more comparable and marketing  online. Or they could reduce the amount of inflation protection they provide. Policymakers could give buyers tax credits to lower their after-tax premiums. But these changes are not likely to substantially bend the cost curve of policies. And with decent coverage costing $4000-$5000 for  buyers in their late 50s (the typical purchase age), none of these solution will make insurance affordable.

Policymakers could encourage low- and middle-income workers to save more, but even if that works, if will be far too late to help event the youngest Baby Boomers or even many Gen Xers.

That leaves a public insurance program of some kind. A few years ago, the Long-Term Care Financing Collaborative proposed a catastrophic program, where government would pick up some costs of long-term care after someone had covered their own needs for the first couple of years. More recently, policy analysts Marc Cohen and Judy Feder suggested the same concept, expect that lower-income people would be responsible for shorter period of care and government coverage would kick in sooner.

Washington State is taking a different route. It is about to enact a public front-end benefit that would pick up the first $36,500 of long-term care costs.

There are many variations on the theme, but Pearson’s paper and Kramer’s blog are just more evidence that millions of Americans simply will not be able to afford the costs of  personal care in old age without some government support.