The Future of Homecare

After spending hundreds of hours in the homecare space, I’ve learned that it is a broken business model that leaves both agency owners and clients hurting; agencies are increasingly struggling for profitability, while families are struggling to afford care. That said, the case for home care as the mode of delivery is clear for both families, insurance companies and the government.

The homecare health market is over $100 billion, highly fractured, and wildly outdated. By 2024 the home care market is projected to be valued at 225 billion dollars. Today there are 44M people over 65, and by 2050 there will be 89M over 65. This is being driven by the 10,000 boomers who turn 65 every day, and it is estimated 70% of them will need some type of long term care during their lifetimes, which will probably increase since now 1 in 4 of us is predicted to live til 90. Now, half of Baby Boomers have put away just $100,000 or less for retirement. That won’t even pay for one year of long term care.

Homecare is the preferred method of receiving long term care. Families prefer to age in place instead of leaving their home, and it's more affordable for them at $1,000-$3,500/month versus $7,000-$9,000+ at an assisted living facility. The cost of homecare is a much cheaper option for insurance agencies, Medicaid and Medicare providers. Medicaid reimburses $95/day for homecare, and $250/day for an assisted living facility, so its cheaper for them as well.

The homecare market can be bucketed into two segments: homecare agencies, and privately coordinated care.

Homecare Agencies — Under the Hood

Homecare is when Personal Care Aides or Home Health Aides come to the home and help individuals complete household tasks they cannot complete on their own or accompany someone to the doctor, etc. It is the preferred choice because it keeps people in their homes with part-time or 24/7 care. Home health aide and homemaker services average $1,500 and $4,099 a month. Agencies charge a family $25-$35 per hour for caregivers who come to assist with daily living activities like bathing, preparing food, tidying the house, using the toilet. They paid the caregiver minimum wage, so in Albany NY for example, that’s $11.50. Pretty nice margin right? Wrong.

In fact, these agencies walk away with 10–20% margins, which are increasingly getting squeezed with rising minimum wages, an increasingly competitive market, and ongoing changes in reimbursement from insurance companies.

The agency model is broken

There are 40,000 agencies in the USA, and its a highly fragmented market. Lots of mom and pop agencies that have been around for over 20 years, with maybe 15–30 clients, $2M in revenue, and lots of administrative work being done by hand and fax. These agencies are spending 35–45% of their 50% cut on overhead: finance, care coordination, recruiting, marketing. The problem is, they’re not experts in any of those things and aren’t using each dollar spent as efficiently as possible by using best practices, new technology, and specialized people. This is why I don’t think this is the model of homecare for the future. As minimum wage continues to rise, the shortage of caregivers becomes wider, and the cash-strapped next generation of families needs to both pay of trillions in student debt as well as care for their parents, and people live longer, the model will have to change.

Now, I’ve spoken with incredible agency owners who run fantastic, high-quality businesses and are committed to their clients. That said, generally, what I’ve heard from families is that the service experience from homecare agencies leaves much to be desired. Given the low minimum wage of ~$28,000 per year for caregivers, you’re attracting people who often are no-shows, may have a lack of professionalism, and are going to churn from your business the first chance they get. That means grandma is getting a different caregiver every few weeks, which can be unsettling and upsetting. You can’t get anyone online, you have to call, it takes 5–10 business days for them to match you with someone, they send you bills in the mail, and importantly, they are not servicing the whole family, only grandma or grandpa. Meaning, if you want to know if the caregiver came, and what they did that day, the agency will tell you that they checked a box on a checklist on grandma’s fridge: you’re not the client, grandma is. I called dozens of agencies pretending to need care for my grandma, and this is what I observed.

Private Homecare

The other part of the market is done via word of mouth in the same way many of us find a babysitter or housekeeper. The reason why this is the preferred method for families is that they can get the same caregiver for a long period of time. Because you’re not giving an agency 50% of each hourly wage, you can pay an aid more than $11.50 but still less than $25–30, increasing the retention and also saving you costs. The challenge comes in when you want to get reimbursed by Medicare, Medicaid or long term care insurance.

The hassles that come into play with this sort of care are with the overhead that an agency usually does: finding a caregiver, handling 1099 or W2 paperwork, finding a fill-in caregiver if there is an emergency.

The Future of Elderly Care

Despite the broken market, home care is the future of elderly care. It’s by far the preference for grandma and grandpa, who will only go kicking and screaming to a nursing home. It’s also the only thing that might possible be affordable given the fact that boomers retire with on average $100,000 in their bank account.

The question becomes, how do we make aging more affordable for families so they aren’t depleting their nest egg and assets in the last years of their lives for a low bar of care?

Unbundling of Homecare

I believe the homecare market will unbundle as we’ve seen in healthcare. There will be client-facing brands known for quality or specialty. There will be companies that recruit, train and staff caregivers. There will be billing companies that swiftly and efficiently code for reimbursements and handle payroll.

This will enable agencies to focus on what they do best: maintaining a relationship with families and building a brand and specialty. By working with domain experts in recruiting, finance, and marketing, they’ll be leveraging each dollar they spend, ultimately reducing OPEX. With this new profit margin, they have the opportunity to increase wages for caregivers, reducing churn, and attracting higher quality caregivers at the same time. When I speak with Homecare agencies about this idea, they respond with concern that these recruiting and training businesses could go and build their own agency models. I believe you can address this fear contractually, but it may be difficult to convince agencies of this model.

Alternate Homecare Models

So how do we pay caregivers a better wage, increase retention of them, attract higher quality caregivers, and make care more affordable for families? A caregiver marketplace is not a new concept. Home hero, honor, and hometeam all tried to do this and failed / pivoted in one way or another. I’ve been studying some of the models that do exist.

Scaled marketplace model. Lean on We’s model is a hybrid between agencies and a marketplace. They provide high-quality matching services of an agency, but families directly employ the caregiver. Lean on We get people to stay on with the guarantee of emergency fill-ins if the aid doesn’t show up. Software to keep people on the platform. I’m interested in figuring out other ways of starting with matching and then maybe payroll and employment software to keep families on the platform. Other ideas are access to nurses and insurance policy experts via the subscription.

Find different caregivers. Papa is onboarding college age students who want to make extra cash as companions. If you think about a spectrum of low to high volume clients, ranging from 3–20 hours a week to 24/7 care needed, then you start to see that Papa is at the low volume end of the spectrum. These are temporary gigs for students who can’t provide more sophisticated care that requires training.

Recruiting and training. Given my unbundling hypothesis, another way to capture value here is focusing on vocational training: recruiting, training and staffing of caregivers. I’ve heard time and time again the number one painpoint for agencies is finding great caregivers. I will be writing a post on this idea next week.

If you are interested in speaking with me about this, please let me know!

Thank you to Greg, Kathleen, Ryan, Jason, Darya, and others for your curiosity and commitment to serve families in the next century.