	Background

Long-term care includes many types of services needed when a person has  a physical or mental disability. Absent Reform, Spending for Medicaid, Medicare, and Social Security Will Put Unsustainable Pressure on the Federal Budget

Before focusing on the increased burden that long-term care will place on  federal and state budgets, it is important to look at the broader budgetary  context. Federal spending for Medicaid, Medicare, and Social  Security is expected to surge—nearly doubling by 2035—as people live  longer and spend more time in retirement. 2.) 3.) As the baby boom generation retires and the Medicare-eligible population  swells, the imbalance between outlays and revenues will increase  dramatically. Over the longer  term, the increase in the number of elderly will add considerably to the  strain on federal and state budgets as governments struggle to finance  increased Medicaid spending. Baby Boom Generation Will Greatly Expand Demand for Long- Term Care

In coming decades, the sheer number of aging baby boomers will swell the  number of elderly with disabilities and the need for services. The increased number of disabled elderly will exacerbate current  problems in the provision and financing of long-term care services. CBO projected in 1999 that long-term care  spending for the elderly could increase by more than two-and-a-half times  from 2000 to 2040. If private long-term care insurance is expected to play  a larger role in financing future generations’ long-term care needs,  consumers need to be better informed about the costs of long-term care,  the likelihood that they may need these services, and the limits of  coverage through public programs and private health insurance. Without fundamental financing  changes, Medicaid can be expected to remain one of the largest funding  sources for long-term care services for aging baby boomers, with Medicaid  expenditures for long-term care for the elderly reaching as high as   $132 billion by 2050. As noted earlier, this increasing burden will strain  both federal and state governments. Considerations for Reforming Long-Term Care Financing

Given the anticipated increase in demand for long-term care services  resulting from the aging of the baby boom generation, the concerns about  the availability of services, and the expected further stress on federal and  state budgets and individuals’ financial resources, some policymakers and  advocates have called for long-term care financing reforms. Indeed, we  identified options for rethinking the federal, state, and private insurance  roles in financing long-term care as one of the key questions that our  nation needs to face as it addresses 21st century challenges. Some  long-term care services are akin to other health care services, such as  personal assistance with activities of daily living or monitoring or  supervision to cope with the effect of dementia. These  include:    Determining societal responsibilities. Considering the potential role of social insurance in financing. Encouraging personal preparedness. Becoming disabled is a risk. Recognizing the benefits, burdens, and costs of informal caregiving. Assessing the balance of federal and state responsibilities to  ensure adequate and equitable satisfaction of needs. Adopting effective and efficient implementation and  administration of reforms. Developing financially sustainable public commitments.
Why GAO Did This Study

Long-term care relies heavily on financing by public payers, especially Medicaid, and has significant implications for state budgets as well as the federal budget. It includes an array of health, personal care, and supportive services provided to persons with physical or mental disabilities. As the baby boom generation ages, the number of elderly with disabilities will greatly expand the demand for long-term care services and will impose greater burdens on federal and state budgets. GAO was asked to discuss the budgetary and other challenges resulting from the anticipated increase in demand for long-term care services. This testimony addresses (1) the pressure that entitlement spending for Medicare, Medicaid, and Social Security is expected to exert on the federal budget in coming decades; (2) how the aging of the baby boom population will increase the demand for long-term care services; and (3) how these trends will affect the current and future financing of long-term care services, particularly in federal and state budgets. The testimony also highlights several considerations for any possible reforms of long-term care financing. This testimony updates prior GAO work, particularly Long-Term Care: Aging Baby Boom Generation Will Increase Demand and Burden on Federal and State Budgets, GAO-02-544T (Washington, D.C.: March 21, 2002).

What GAO Found

Over the coming decades, entitlement spending for Medicare, Medicaid, and Social Security is expected to absorb larger shares of federal revenue and threatens to crowd out other spending as the baby boom generation enters retirement age. The increasing demand for long-term care services fueled in part by the baby boom generation will also further strain federal and state budgets. Estimates suggest the future number of disabled elderly who cannot perform basic activities of daily living without assistance may as much as double from 2000 through 2040, resulting in a large increase in demand for long-term care services. Spending on long-term care services just for the elderly is estimated to increase by more than two-and-a-half times between 2000 and 2040, and could nearly quadruple in constant dollars between 2000 and 2050 to $379 billion, according to some estimates. Without fundamental financing changes, Medicaid can be expected to remain one of the largest funding sources, straining both federal and state governments. Financing the increasing demand for long-term care services will be a significant 21st century challenge for the nation. A key question for policymakers will be to consider what options exist for rethinking the federal, state, and private roles in financing long-term care. In considering options for reforming long-term care financing, GAO notes that long-term care is not just about health care. It also comprises a variety of services an aged or disabled person requires to maintain quality of life--including housing, transportation, nutrition, and social support to help maintain independent living. Given the challenges in providing and paying for these myriad and growing needs, GAO has identified several considerations for shaping reform proposals that include: determining societal responsibilities; considering the potential role of social insurance in financing; encouraging personal preparedness; recognizing the benefits, burdens, and costs of informal caregiving; assessing the balance of state and federal responsibilities to ensure adequate and equitable satisfaction of needs; adopting effective and efficient implementation and administration of reforms; and developing financially sustainable public commitments.