Long-Term Care Financing

Based on data from the Long-Term Care Financing Model and the National Long-Term Care Survey, the Congressional Budget Office (CBO) estimates that inflation-adjusted expenditures for long-term care for older adults will grow by 2.6 percent annually between 2000 and 2040. Expenditures are expected to reach 207 billion dollars in 2020 and 346 billion dollars in 2040. Projections beyond the next twenty years, however, should be viewed with caution because of uncertainties about demand, as well as about the scope and costs of services in the future. These estimates, for example, assume an average decline of 1.5 percent per year in the rate of disability. If the prevalence of disability among older adults remains constant, total expenditures in 2040 will be about 40 percent higher than the CBO estimate.

After thirty years of debate about financing, it is almost certain that the United States will maintain its patchwork approach by experimenting with different ways to balance public and private funding. Medicaid will continue to be the primary source of public funding, and the federal and state governments will rely increasingly on the tax code to achieve incremental reform, including tax credits for caregivers and care recipients and tax breaks to encourage the development of a private insurance market. Although tomorrow's elderly population, on average, will be wealthier than today's, there will be much variation within each generation of older adults. It is important to note that, because of the connection between low income and disability, those most likely to need long-term care in the future will also be the least likely to be able to pay for services out-of-pocket. A wealthier and more educated population will probably want more choices, and financing strategies that offer flexibility in how resources are used should appeal to more elderly Americans and their families.