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Sule Aygoren Carranza is managing editor of Real Estate Forum.

[IMGCAP(1)]ANNAPOLIS, MD-Waiting to address future housing needs of the aging population may have negative effects on the nation’s economy. According to officials at the National Investment Center for the Seniors Housing and Care Industry, the national economy will face “an enormous challenge” in about two decades.

“With the significant growth in terms of the number of the elderly, with the leading edge of the baby boom generation hitting 62 this year, we felt it was critical to look at the projections for the future in terms of demand, use of long-term care and what the cost of that care will be,” said Robert G. Kramer, president of NIC, during a recent conference call. “We would thereby be able to contribute to the ongoing discussion of not only how we will deliver such care in the future, but also how we will pay for it.

“Despite all the talk of the exploding numbers of older people, demographics today aren’t the greatest driver of the seniors housing industry,” he continued. “Rather, it’s the acceptance and use of the product. The real demographic driver, as we look to that age group that is most heavily utilizing long-term care services, is the 80-plus population. For the baby boomers, that means the real challenge for us as nation is 20 to 30 years in the future. Though that may seem like a long time, in terms of policy changes to our long-term care system and how we deliver those services, and in terms of reaching some type of national consensus as to how we’re going to pay for those services, in both the public and private sectors, 20 years is a very short period of time.”

To help address those concerns, NIC tapped RTI International to compiling and analyzing all major studies and projection modeling to date on the issue. The study, “The NIC Compendium Project: A Guide to Long-Term Care Projection and Simulation Models” is meant to help policymakers and others determine the kinds of public- and private-sector funding that is necessary to pay for the care needs of the US population, particularly the large cohort of Baby Boomers who will reach their 70s and 80s in 20 or 30 years.

“Our hope is to lay a groundwork for scholars, researchers, policymakers, investors, providers of care and consumers, in terms of what’s presently out there, information about future demand and costs of long-term care and the differing ideas in terms of how we might deliver and pay for services in the future,” said Kramer.

[IMGCAP(2)]The Compendium, whose lead author was Joshua M. Wiener, senior fellow and program director for aging, disability and long-term care at RTI International, has some interesting findings. Marc P. Freiman and David Brown co-authored the report.

For one, Wiener noted during the call that the need for long-term care is a normal life experience, citing data that shows that of those turning 65 now, 70% will need some form of long-term care, and 20% will need it for more than five years. It should be noted that long-term care accounts for informal care and paid home care as well as nursing home care and assisted living facility care.

And it isn’t only aging that will necessitate care. The number of older people with disabilities is expected to rise significantly, from 10 million in 2000 to between 15.1 million and 24.6 million in 2040, despite the decline in the overall disability rate.

As such, the demand for long-term care services will probably double, at the minimum, by 2040. The use of paid home care is projected to rise from 2.2 million people in 2000 to between 3.9 million and 6.2 million in 2040, depending mostly on assumptions about disability rates. During the same period, the number of older people using nursing care will increase from 1.2 million to two million to 3.1 million.

At the same time, the price of long-term care services will dictate the level of expenditures. The researchers cited a 1994 study that projected total expenditures for older people to balloon to $134 billion (in 1993 dollars) if prices went up 4.5% per year, and $215 billion in prices rose by 6.5% annually.

Meanwhile, issues with pensions and social security won’t adversely impact older people’s financial status, which is actually expected to improve over time. The proportion of older people who would be “extremely likely” to use Medicaid to pay for much of their long-term care is slated to decline from 45% in 2000 to 29% in 2030. Still, the report found that most older people (at least 80%) won’t have private long-term care insurance in the future due to its high costs.

“Assisted living facilities are built to last a long time, so decisions made now will have a long-lasting impact,” said Weiner.

[IMGCAP(3)]“This issue on how we will fund future long-term care has huge implications for the seniors housing and care industry,” added Anthony J. Mullen, senior fellow for NIC, partner with Royal Star Properties. “My takeaway as an operator and developer in the business, is that all of the affected groups–policymakers, federal and state governments, researchers, funding sources and interested operators and industry groups–have to come together in a formal way to create dome kind of an entity to be able to stay solid and operating for many years to come.” He noted that research done by different parties much be better aligned and more accurate.

The Compendium authors did point out that current projection models have limitations–they don’t address the substitutability of services like home care and assisted living facilities, for nursing home care; data on the impact of price changes on the use of services does not exist; and younger people with disabilities are not accounted for in the studies, even though they make up about 22% of Medicaid nursing home expenditures.

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