On Feb. 4th, 2011, Federal Reserve Chairman Ben Bernanke gave a dire warning in a speech before a gathering of top financial policy reporters at the National Press Club in Washington, D.C.
“The two most important driving forces for the federal budget are the aging of the U.S. population and rapidly rising health care costs,” Bernanke says.
There you have it, folks, from the top.
The costs of caring for the rapidly growing population of seniors in America will be an unsustainable burden for the budget and a constant impediment to economic recovery. The big three entitlement programs, Social Security, Medicare and Medicaid, are all in the red and creating havoc for government budgets at the federal and state levels, just as 10,000 baby boomers a day turn 65. This has become the No. 1 concern of the Federal Reserve about the immediate and long-term future of the American economy.
Medicaid in particular has become a serious problem for the states. It is the primary payor for long-term care services and will shell out approximately $200 billion to cover those costs for seniors in 2011. Unlike Social Security and Medicare, seniors do not automatically qualify for Medicaid at age 65 and instead must qualify based on income and assets at indigent levels. Many seniors follow a “spend-down” path to get rid of money and assets so that they can qualify.
Since the economic crisis began three years ago, Medicaid rolls have increased while the available dollars to cover services have decreased. The current situation and future projections are so serious that both the Fed Chairman and the Secretary of Health and Human Services, the body that runs Medicaid and Medicare, issued unprecedented, high-profile warnings on back-to-back days in early 2011.
State lawmakers understand the situation, and efforts throughout the country are underway to find alternative, private-market solutions to help pay for LTC services. Ten years ago it looked like long-term care insurance was going to be a major part of the solution. Unfortunately, growth in sales for the last decade has actually declined and serious market disruptions further hampered the product.