It’s hard to open (or log on to) a publication these days without finding more evidence of the aging of our population. According to an analysis of the most recent U.S. Census by Brookings Institution scholar William Frey, the population over 45 years of age grew 18 times as fast between 2000 and 2010 as did the population under 45. And the pace of aging will only accelerate. During the past decade, the number of Americans 65 and older rose by 15 percent. But the number between 55 and 64 rose by 50 percent, and all of them will have reached retirement age by the time the results of the 2020 census are released. (Whether they will have the wherewithal to retire is another matter.)

Taking a longer view, the Congressional Budget Office projects that the population age 65 and older will increase by almost 90 percent between now and 2035, compared to an increase of just 11 percent in the number of those between the ages of 20 and 64. Taking a still longer view, the number of Americans over 65 will rise from a base of 35 million in 2000 to nearly 87 million in 2050. The Census Bureau, taking into account increased longevity, anticipates the most rapid growth among the very oldest Americans: During the first half of this century, those over 85 will quintuple, from four million (1.5 percent of the population) to nearly 21 million, fully 5 percent of the total. Even with advances in drugs, therapy and surgery, being 85 is no picnic. According to Howard Gleckman, 17 percent of those 85 and older can’t walk without assistance; 40 percent can’t leave their homes unaided; a quarter need help with cooking, housework and money management; and a tenth can’t get dressed by themselves or move from bed to chair. These developments portend huge consequences. Over time, more and more Americans will reach the point at which they can no longer live independently. Twenty million Boomers will need this kind of assistance by mid-century. And many may linger in helpless debility for years before the end of their lives, making the total care hours we will need to provide hard to calculate but doubtless a very large number.

We’ve squandered the time we had to prepare ourselves for these challenges. The decade just ended was the last in which the ratio between elderly and working-age Americans was roughly stable, at about 21 percent. Starting now, the balance starts to shift dramatically and will reach 36 percent by 2035. The cost of caring for the dependent elderly will rise inexorably. It already stands at $240 billion annually just for paid services, and it will reach more than $400 billion by the end of this decade. At the same time, relatively fewer Americans, both paid workers and family caregivers, will be available to give them the help they need, and acute pressures from current commitments will constrain our ability to fund that care.

These are current problems, not just future worries. Gleckman, a long-time reporter for Business Week and a well-known policy analyst, and Jane Gross, a New York Times reporter for nearly three decades, illustrate with their wrenching personal stories that working-age adults are struggling to cope with their parents’ care while also attending to the demands of children and employers. More than eight in ten dependent elderly get assistance at home, not in nursing homes, and most of the care is provided by family members. They are often unprepared for this difficult work, which can exact a huge physical, psychic and financial toll. Still, their contribution is essential. Five years ago, AARP calculated the value of uncompensated care provided by friends and family to be more than $350 billion annually. It’s certainly more today. Gross’s memoir of her aged mother’s final years is interspersed with much hard-won practical advice, and concludes with a useful compendium of organizations and other resources for family caregivers. But with higher rates of divorce, childlessness and smaller, scattered families, social isolation may leave increasing numbers of elders without informal caregivers. Gross’s struggle to work with her temperamentally opposite brother, and to reconcile with an aloof, emotionally difficult mother, illustrates how family dynamics can complicate the caregiving years. But she acknowledges that, as neither sibling had children, they had an advantage in time and disposable income that members of the so-called “Sandwich Generation” do not.

When the time of need arrives, many elderly Americans and their children are unpleasantly surprised to discover that, with the exception of short-term stays for rehabilitation, Medicare does not cover long-term care, and rising concerns about its financial sustainability preclude any move to do so. By contrast, Medicaid already finances about half of all long-term care expenditures, and the expansion of Medicaid coverage for low-income Americans mandated by the Obama Administration’s health reform legislation will intensify financial pressures these provisions. As for the new long-term care insurance program (the CLASS Act) created under the Obama legislation, policy experts and the Secretary of Health and Human Services have concluded that it is unworkable as drafted. And even if it can be fixed, its benefit of $50 per day would cover only a small fraction of total costs.

As needs and costs soar and the ratio of working-age adults to dependent elderly falls, what are we going to do? In a paper entitled “Long-Term Care Financing: Policy Options for the Future”, Georgetown University’s Long-Term Care Financing Project offers a comprehensive list of possibilities ranging from purely public to purely private programs and from comprehensive to limited and catastrophic coverage. Toward the end of his book, Gleckman traces the paths taken by other advanced nations (Germany, Japan, France and Britain) and explores their implications for the United States. While he doesn’t commit himself to a specific solution, he does argue that Medicaid should get out of the long-term care business and that all individuals should participate in a long-term care insurance plan, either public (the social insurance model) or through the private sector, with appropriate public regulations and subsidies.

My own approach takes as its point of departure the disparity of long-term care outcomes different individuals will experience. According to the Georgetown Project, 31 percent of Americans who reach age 65 will need no long-term care for the remainder of their lives, and an additional 17 percent will need a year or less. By contrast, 20 percent will experience two to five years of care, and an additional 20 percent will depend on it for more than five years. In most cases, however, it’s hard to predict the category in which an individual will end up. Long-term care, then, is a classic insurable event.

For various reasons, the private market for long-term care insurance has been slow to develop. Many people mistakenly believe that Medicare or their medigap supplemental insurance policies will cover long stays in nursing homes, which can cost the resident anywhere from $6,000–10,000 per month. Medicaid is acceptable no-cost default insurance for low- and moderate-income elderly without substantial assets who do not care all that much about the program’s requirement that individuals “spend down” (that is, exhaust) their life’s savings before qualifying for long-term care benefits. By the time most middle-income adults begin to consider purchasing long-term care insurance, they have reached an age at which annual premiums are very high, pricing many of them out of the market. (The average purchaser is 67 years old!) Adverse selection may also be pushing premiums up, and insurers have experienced difficulty estimating future price increases for services and maintaining long-term actuarial balance.

Nonetheless, there are many reasons why our long-term care policy should shift dramatically toward private insurance as the principal funding source. Increased reliance on private insurance would reduce fiscal pressures on the public purse, especially at the state level. It would mitigate harsh tradeoffs states now face between health care and education programs and would blunt powerful pressure on states to shift Medicaid funds away from health care for poor children and toward nursing home operators. While the impact on overall health care costs is difficult to estimate, shifting to private insurance would certainly lower the baseline costs of health care entitlement programs and would be a step toward addressing our largest long-term fiscal challenge. And it would reflect a morally as well as fiscally sustainable balance between individual and social responsibility.

My specific proposal builds on but substantially modifies two existing policies. In 2000, Congress passed the Long-Term Care Security Act, which required the Federal government to offer long-term care insurance to its employees and their families. The Office of Personnel Management conducted a competitive bidding process and contracted with large carriers selling long-term care insurance in the private market to offer an array of insurance products. The contract ensured not only a wide range of choices but also the reliability of information about each option and enough standardization to permit easy comparison among options. Annual premiums averaged 46 percent lower for single people and 19 percent lower for married couples than for comparable policies in the private market. More than 200,000 eligible individuals have elected to purchase long-term care since the program’s inception in 2002.

The second policy, the Long-Term Care Partnership Program, was sponsored by the Robert Wood Johnson Foundation in the early 1990s. The basic idea is that individuals would be able to combine private insurance with Medicare by buying private coverage for a certain number of years (or for a certain level of expenditures), after which Medicaid would take over. Private insurance would reduce Medicaid outlays, while the presence of the Medicaid backstop would reduce the cost of premiums. Four states (California, Connecticut, Indiana and New York) implemented Partnership programs before Congress, fearing that high-income individuals would use the program to abuse the Medicaid system, acted in 1993 to prevent new states from participating. Still, nearly 150,000 individual policies are in force.

My proposal would work as follows:

• Effective at age forty, every adult would be required to purchase a long-term care insurance policy with certain specified features: a five-year term, a benefit of at least $150 per day, automatic inflation adjustment and a low deductible.
• Individuals in households with incomes between 150 and 300 percent of the poverty-level base would receive income-adjusted premium subsidies. Those below 150 percent would be enrolled for free.
• The Federal government would create a competitive bidding process along the lines of, but broader than, the current system for Federal employees, with the aim of creating a large menu of carefully vetted, readily comparable choices.
• After the expiration of the five-year benefit period, Medicaid would assume full financial responsibility for remaining costs. Individuals in this category would not be required to spend down their remaining assets to qualify for coverage.

The five-year requirement is intended to track the distinction between normal expectations and unusual or catastrophic events. The average nursing home stay is 2.4 years—higher for women, lower for men. As we’ve seen, relatively few stays last longer than five years. The choice of age forty to mandate the purchase of insurance rests on a judgment about when it is reasonable to expect adults to begin providing for events that may occur in later life. It also reflects a key fact about the long-term care market: While premium costs for forty-year-olds are not significantly higher than for young adults in their twenties and thirties, they accelerate more rapidly thereafter. Premiums for sixty year olds are more than twice as high, and for seventy year olds more than three times as high. Insurers in the current Federal program offer the policy to forty-year-olds on which my proposal is based for an annual premium of $950. With mandatory individual participation and more competition among insurers, premiums under my proposal should be significantly lower. As is now the case, regulations would permit premium increases in only a narrow range of circumstances that companies would be required to document and subject to stringent review.

Under this plan, Medicare expenditures would be reduced somewhat as private insurance financed a portion of the hundred-day rehabilitation period that Medicare now covers. The impact on Medicaid would be far larger in fiscal terms and much more significant structurally. The program’s revised role in long-term care would be to: (1) create, through a competitive process, the options among which individuals could choose and provide information to assist individuals in making that choice; (2) use regulations to ensure appropriate standards and safeguards; (3) provide premium subsidies for low- and moderate-income individuals; and (4) serve as insurer of last resort after the expiration of the five-year private benefit period.

The obstacles confronting my proposal are daunting, as indeed they are for any other comprehensive approach to the looming challenge of long-term care. Our current fiscal challenges make it hard to think about taking on new responsibilities. Americans don’t like being told what to do; they especially dislike being told that they will have to pay for the privilege. And no one wants to think about ending up frail and dependent. Average people are more willing to confront the certainty of death by drafting their wills than they are to contemplate the possibility of physical or mental incapacitation by discussing long-term care insurance.

While we can evade the subject, we can’t avoid it. Demography is destiny. We know that an already large problem will become massive in coming decades. And we also know that when the crunch comes, we’re not going to allow dependent fellow-citizens to suffer unattended or in conditions of squalor. In this area, as in so many others, we are challenged to think and act to promote our long-term self-interest, a stern test for a political system mired in polarization and afflicted with myopia. I’d like to believe that we can do better in the next decade than we have in the one just ended. Perhaps, as more baby boomers experience the challenges of caring for their elderly parents or read personal testimonies like those of Gross and Gleckman, we’ll muster the political will to face the new old age.