The Downside of a Miracle
Confronting the Financial Challenges of Aging in America
There’s some truth in that old birthday card line: Getting old isn’t so bad when you consider the alternative. Of course, the truth is that getting old isn’t bad — period. Life as an older American has never been better — and it’s getting better all the time.
Just ask my dad.
He’s 93 now, but you wouldn’t know it from the way he lives, in a Sunset Community in Ohio. He’s physically and intellectually energetic. Sure, he’s not as spry as he used to be and uses a walker, but he’s still as funny and fun-loving as ever.
And the older he becomes, the more tech-savvy he becomes. Though I live on the East Coast, it almost feels like he lives next door, thanks to video chat, and I don’t mind that he isn’t always artful with his camera angles. I’ve learned you can have a pretty darn meaningful conversation with the underside of a chin.
I know how lucky I am that my dad is as healthy as he is. Maybe you know someone like him — whose genes alone are a winning lottery ticket. But have you considered that it’s not all luck?
A look at the broader, longer-term trendlines tells a story about how much better aging in America is today. Of course, we have the ability to make it much better still. And that’s a story that can be told in three chapters. The first two chapters are about advances that made for easier aging and better living. The third chapter is about the unsolved or new problems that arose from the first two, and how we can solve them. If we get it right, we’ll make aging in America even better for everyone, and we just might help reduce the national debt in the process.
Aging in America — A Story in Three Chapters
My dad was born before the Great Depression, in 1924, at a time when retirement barely even existed at a concept. The figure below charts how often terms related to retirement appeared in books published in the United States. Topics related to retirement planning didn’t enter the conversation in a significant way until the 1920s and 1930s.
Source: Google Ngram Viewer¹
And that’s because there really wasn’t such a thing as retirement.
At the turn of the 20thcentury, just before this conversation was getting started in America, diseases like smallpox and diphtheria ran rampant. Pneumonia, influenza, and tuberculosis were the most common causes of death.² The typical American could expect to live only 47 years.³
Golden years weren’t just fewer. They were also unfinanced. Less than one in every ten Americans earned a pension through their work.⁴ For those who did physically demanding jobs as farm hands, miners, and assembly line workers,⁵ the decision to retire was not a choice but a capitulation to years of hard work that had finally taken their toll.
If you hadn’t saved enough to keep a roof over your head, or were too broken to manage your everyday affairs, the only option available was to move back in with adult children.
Today, many Americans can expect to enjoy a long and full retirement after a lifetime of work. That’s largely thanks to the key players in the first two chapters of our story: Social Security and modern medicine. But before we get into those, we should take a moment to credit the conversation that led to them, because it’s a reminder that conversations can lead to progress, and it’s time to have a new conversation about aging in America.
The dramatic event in Chapter 1 was the passage of the Social Security Act in 1935, which made retirement possible for many.
Before Social Security, half of seniors lived in poverty.⁶ Today, that number is less than 10 percent.⁷ However, people get a lot less out of it than they expect.
Do you know anyone who relies on their monthly Social Security check? Today’s retirees receive just $1,411 on average.⁸ It’s scarcely enough to cover necessities like housing and groceries. It’s also 15 percent less than future retires expect to receive, according to a recent survey by the Nationwide Retirement Institute.⁹
Self-reliance is a founding American value, and Social Security didn’t change that. Social Security was always envisioned as part of a secure retirement, one leg of the proverbial “retirement stool” — the other two legs being employee pensions and personal savings.
It’s a reminder of how important it is for people to build their own nest eggs, in order to make the most of their golden years — especially given that Americans are living longer than ever before.
Chapter 2, then introduces us to both the power and pitfalls of modern medicine.
It can be hard to imagine that less than a century ago, the list of cures available to people was not much longer than a few vaccines, antitoxins, and vitamins. Medicine was mostly about managing pain and other symptoms, rather than addressing their causes.¹⁰ That changed around World War II.
Antibiotics like penicillin were among the first in a string of developments and discoveries that, at the time, must have sounded like magic. For us now, it’s a given that worn hip joints can be replaced, cataracts can be lasered away, coronary arteries can be bypassed, and even incurable chronic diseases can be managed. The typical American born today can expect to live more than 78 years¹¹ — and enjoy them more, too.
Still, some problems medicine has yet to solve have actually become more prevalent — not less. A century ago, far fewer people reached the age — 60 years old — when Alzheimer’s symptoms first appear.¹² By today, our increased lifespans have also increased the occurrence of certain conditions like heart attack, stroke, cancer, and dementias like Alzheimer’s. In countering what once killed us, medical innovation has changed what ails us as we age.
Source: UNC Carolina Population Center¹³
That brings us to Chapter 3, which we’re still writing: the convergence of the challenges still remaining after all the progress we made in the first two chapters.
In other words, are we beneficiaries or victims of the miracle of modern medicine?
The answer is both. Yes, we enjoy longer lifespans. But longer lifespans have also bequeathed a larger responsibility to finance a type of care that previous generations didn’t have nearly as much need for: long term care.
It’s different from health care, by the way. Long term care refers to the services and supports that help people with what are defined as “activities of daily living” — like getting dressed, eating, and moving around the house. It’s something many people need when they’re recovering from a stroke, fighting cancer, managing diabetes or dementia, or dealing with an injury or simply just getting older and losing strength, flexibility, and mobility.
As much as we might like to think we won’t need that kind of help someday, chances are we’re wrong. According to the Department of Health and Human Services, “Someone turning age 65 today has almost a 70 percent chance of needing some type of long-term care services and supports.”¹⁴ We should all want to have some kind of mechanism in place to pay for it, and that takes planning on the part of every family, which can be a hard conversation to start.
I get that issues like long term care are hard to talk about — and not just because no one wants to imagine their life being any different than it is when they’re in their prime. It’s also hard to imagine something many years, if not decades, in the future. Yet it’s something we all need to be thinking and talking about now, because our silence so far has quietly created a crisis for individuals and families who have made no plan to pay for or provide long term care, and a national crisis for governments that have made very few provisions to cover or finance long-term care.
The Silent Crisis — The Costs Families Face
Long term care is not free — or even cheap; very few people are prepared to pay for it; and the government isn’t prepared to, either (see: the next section). That has created a financial conundrum for families suddenly struggling to make ends meet when a long term care need arises.
Let’s start with the costs, which can range pretty dramatically depending on the type of care families choose and location. And I should know. I have the honor of leading a division of Genworth that focuses on helping families prepare for and address the financial challenges of aging.
Every year, we survey the entire nation and crunch the numbers for our Cost of Care Survey.¹⁵ On the low end, care in an adult day center averages $1,517 a month, which is still $200 more than the average monthly Social Security benefit. The high end is a whole lot higher: a private room in a nursing home costs $8,121 a month. Most people say they prefer to age in place, in their home; home health aide and homemaker services average $3,994 and $4,099 a month. Again, these are national averages; it can cost less — or even more — depending on where you live.
Even unpaid care isn’t free. Friends, neighbors, or family members bear costs of their own. Many give hours of their week. Many take time off from work. And many pick up thousands of dollars in out-of-pocket expenses.¹⁶ Would you do more to save or prepare to take care of a loved one, if you knew doing nothing could put your own financial future in jeopardy?
For many people, the cost of long term care can wipe out a lifetime of savings in the blink of an eye. Half of Baby Boomers have put away just $100,000 or less for retirement.¹⁷ Indeed, the Nationwide Retirement Institute survey I mentioned earlier indicated that half of all future retirees plan to rely on Social Security as their main source of income.¹⁸
So, what options do people have, if they’re not wealthy enough to cover the costs on their own? Long term care is different from health care, so health insurance isn’t one, and government health programs aren’t really designed with long term care in mind.
The Silent Crisis — The Costs Our Nation Faces
Medicare, designed to cover health care for the elderly, only covers long term care for a brief period after a hospital stay. That leaves Medicaid as the one government program that does go the distance to cover long term care costs. But there are two ways Medicaid is problematic, both from the perspective of families who need it and the taxpayers who fund it.
Medicaid was designed for the destitute. That puts many people who don’t qualify into the horrible position of seeking to qualify for Medicaid by jumping through hoops to prove to the state government that they are “spending down” so much of their retirement income on medical expenses (not long term care expenses) that they actually fall under the state’s Medicaid income threshold. As US News and World Reportpoints out, the process “can be overwhelming and stressful, since Medicaid won’t pay for medical or nursing care until you’ve submitted the medical bills that will make up the spend-down amount.”¹⁹
States and the federal government already spend a huge part of their budgets on Medicaid. Today, Medicaid covers 40 percent of all long term care costs. I expect that to increase dramatically because my generation, Baby Boomers, are turning 65 at a rate of 10,000 per day.²⁰ Imagine if we reach a moment when 7,000 more people start receiving long term care every day. Medicaid can be our backstop only if we raise taxes, issue new debt, or cut funding from other programs. What would you cut first? Schools? Public safety? Road repair?
America needs another option.
Insurance: Easy to Overlook, Hard to Live Without
I’ve worked in the insurance industry my entire career, and the power of insurance has never ceased to amaze me. You can see the benefits of insurance practically everywhere you look. Harnessing our collective power through insurance is what helps us rebuild homes and communities, replace cars, and provide income to people who live with a disability. It has covered everything from Bruce Springsteen’s voice²¹ ($6 million) to Troy Polamalu’s hair²² to Gene Simmons tongue²³ ($1 million each).
The true power of insurance is that manypeople can pay a little bit reduce the huge financial risk of an event someof those people might face. But what makes the idea of long term care insurance especially intriguing is that it’s not for “just in case.” It’s for “in most cases,” because it reimburses people for what they spend on long term care — something nearly 70 percent of us will need at some point in our lives.²⁴
Although the wealthy can afford to, in essence, “self-insure” against the risk of a long term care event, it was wealthy Americans who were first to see the value of purchasing long term care insurance from Genworth and companies like ours. I see three key reasons for this.
For one, insurance is a form of leverage, in which the value you get out of it exceeds the premiums you pay into it. In that sense, it’s another form of asset allocation — along with the bonds, equities, and commodities you expect a return from them over time. Second, insurance offers not only leverage but protection, in that it can prevent a single long term care event from erasing the value of those assets. And third, the original forms of long term care insurance were “Cadillac” plans with all the bells and whistles — and a price tag to match.
Who would agree that having the ability to limit the financial risks and relieve the emotional stress of a possible future long term care event should be limited to a select few? I firmly believe that having some coverage is better than none. Having a simpler plan is better than not having a plan at all. That’s why we at Genworth have been designing and offering more straightforward and more affordable policies for people who need a level of basic protection for the nest egg they’ve spent a lifetime building up.
There’s an urgent need for the private insurance market to get this right. Because so few people have long term care insurance today, it’s able to pick up only 6 percent of the nation’s long term care bill. Meanwhile public programs are already buckling under the weight of bearing more than 70 percent of the rest.²⁵
But there are also opportunities for partnership between the public and private sectors. I believe insurance companies should be eager to partner with policymakers who recognize that this silent crisis challenges society challenges society as much as it challenges every family.
There are many ways this could happen. One option would be for private insurance companies could cover the first few years of a long term care need, while the public programs cover the rare cases of longer needs. No matter what, we need to act. And as we saw with the first two chapters in the story of aging in America, action is preceded by conversation.
So, Let’s talk
Getting older is getting better, and we can make it better still by addressing the financial challenges of aging.
As the largest-ever generation of older Americans hits retirement age, we’re facing a sea change. The economy will work differently when Baby Boomers become a different type of consumer and spender, with more time on their hands and a world of things to do. As they get older, more businesses will not merely accommodate people with canes, walkers, and wheelchairs — they’ll compete for them. A range of new tech products and services we can’t yet imagine will be designed specifically to help people and families do more as they get older.
I admit long term care might not be the most glamorous part of this picture, but can the picture be complete without it?
At Genworth, we’re working now, well in advance, to help people plan to age the way they want to — on the terms they set for themselves and their family. We hope that by giving people a view of what’s fast approaching around the bend, they can do more to prepare to make the turn as smoothly and effortlessly as possible — and avoid the big bumps in the road.
When it comes to long term care, much like retirement, it’s hard to overstate the difference between planning early and waiting until the last minute. For many, long term care insurance will be a part of their plan, but the most important thing for everyone is simply to make a plan — and to start making it today.
When my dad was younger, he had a very valuable thing: the luxury of time, and he used some of that time to make a plan for how he wanted to age. It was a luxury my mother in law didn’t have. When her husband passed away at age 51, she suddenly had to scramble. My wife and I have been fortunate to have been able to help support her over the past 34 years, but it’s likely not what she would have had in mind if she had made her own plan years earlier.
A century ago, a conversation about retirement security led to Social Security. Half a century ago, innovation in medicine led to longer lifespans. Today, it’s time for a new conversation about aging and new innovation to help us age better. It starts with sitting down with someone you trust to face the fears, surmount the stigmas, and say “let’s talk.”
References
2. http://demography.cpc.unc.edu/2014/06/16/mortality-and-cause-of-death-1900-v-2010/
3. https://www.cdc.gov/nchs/data/hus/2010/022.pdf
4. https://www.ssa.gov/policy/docs/ssb/v70n3/v70n3p1.html
5. https://www.bls.gov/opub/mlr/2006/03/art3full.pdf
6. https://www.nasi.org/discuss/2015/08/social-security%E2%80%99s-past-present-future
7. https://www.census.gov/content/dam/Census/library/publications/2014/demo/p23-212.pdf
8. https://www.ssa.gov/policy/docs/quickfacts/stat_snapshot/
9. https://www.usatoday.com/story/money/2018/04/25/social-security-survey/546926002
10. https://books.google.com/books?id=hCZrAAAAMAAJ
11. Average life expectancy among both sexes and all races for Americans born in 2015: 78.8 years. https://www.cdc.gov/nchs/data/hus/hus16.pdf#015
12. https://aspe.hhs.gov/report/national-plan-address-alzheimers-disease-2017-update
13. https://demography.cpc.unc.edu/2014/06/16/mortality-and-cause-of-death-1900-v-2010/
14. https://longtermcare.acl.gov/the-basics/how-much-care-will-you-need.html
15. https://www.genworth.com/about-us/industry-expertise/cost-of-care.html
16. “Our research shows caregivers spend an average of $8,000 of their own money when providing care for their loved ones.” Beyond Dollars 2013. Genworth. October 9, 2013.
17. “Less than $50,000: 37%; Between $50,000 and $100,000: 13%.” https://www.fool.com/retirement/2016/12/17/baby-boomers-average-savings-for-retirement.aspx
18. https://www.usatoday.com/story/money/2018/04/25/social-security-survey/546926002
20. http://www.pewresearch.org/fact-tank/2010/12/29/baby-boomers-retire/
21. http://content.time.com/time/specials/packages/article/0,28804,2015171_2015172_2015154,00.html
22. http://content.time.com/time/specials/packages/article/0,28804,2015171_2015172_2015154,00.html
23. https://www.foxbusiness.com/features/8-of-the-weirdest-insurance-policies
24. http://longtermcare.gov/the-basics/who-needs-care/
25. “Who Pays for Long-Term Services and Supports? A Fact Sheet.” Congressional Research Service.
26. July 2015. Available at: https://fas.org/sgp/crs/misc/R43483.pdf
