As the first of the baby boomers have reached retirement age, the greatest financial threat to the American middle class is silently waiting for them. Most are unprepared for what actuaries call “longevity risk.” The real life word for it is gambling. Half of retirees will run out of money and outlive their resources. Social Security, pensions, and annuities will not be sufficient to meet the needs of millions of seniors. Half of all Americans who reach 65 today will need substantial assistance in the necessities of daily living, from getting out of bed in the morning to eating and personal hygiene. The gamble is that you will not be among those who need assistance nor run out of money.

Over the next 40 years, the older, high needs population will grow from 6 million to 16 million. Family members currently provide the majority of long term services and supports (LTSS). But social changes such as migration, divorce and smaller family size will collide with chronic medical conditions caused by the genes we inherited from our parents and our unhealthy choices and behaviors. The impact will deplete personal savings and retirement accounts and put the assets of homes and property at risk.

This looming threat to the middle class was brought to light November 17 at a Health Affairs briefing on research conducted by Milliman, Inc., and The Urban Institute through a project funded by The SCAN Foundation, AARP and Leading Age.1 The numbers are staggering—the average out-of-pocket costs for LTSS average $140,000. Women, who as a whole outlive men, will face, on average, costs of $180,000. Millions of seniors who had never received any type of public assistance will eventually rely on Medicaid to pay their LTSS bills. Insurance provides the protection against the risk of financial ruin.

The Health Affairs briefing is almost overwhelming because of the sheer volume of data on premiums, participation and policy options. The researchers have created a powerful new tool that can model policy options on:

  • Financial soundness and sustainability;
  • Affordability;
  • Number of people covered;
  • Efficiency of using program system funds;
  • Comprehensiveness of LTC costs covered and not covered by insurance;
  • Choice; and
  • Understandability of the program.

With the model, policymakers and stakeholders can understand the impact of various changes on Medicaid (the largest source of paid LTSS), out-of-pocket expenditures, private insurance and the cost of new services to cover unmet need. The bottomline good news is that affordable insurance to protect against catastrophic loss is achieveable. There are challenges to be met in convincing Americans that they need to prepare for a threat they do not yet perceive or understand. There are opportunities for insurers to market new products that provide LTSS where the baby boomers will want to be served—in their own homes and in their communities. Interest in coordinating and even integrating private LTSS coverage with medical coverage is likely to increase.

States have an enormous interest in pushing this issue to the next level as they will realize significant savings under Medicaid if more Americans take up coverage. As families compare their out-of-pocket spending and lost wages in the current system, insurance coverage will be viewed more favorably. As the next generation better understands that coverage that provides care for their parents also protects their inheritance, more will realize this is an issue of today, not the distant future.

The demographic changes and needs described in the new report will cause changes for individuals, families, health care providers, and insurers.