Nursing Home Entry Rates Rise, Weigh on Wealth Levels

As more American senior citizens are entering nursing homes they face the likelihood that their household wealth will be quickly depleted, according to new research by EBRI.

The EBRI research notes that nursing home stays among older Americans have increased steadily during the past decade: Nursing home stays increased from 6 percent of those age 65 and older in 2000 to 8.5 percent in 2010.

Seniors face a number of retirement planning uncertainties like longevity risk, inflation risk, and investment risk, but perhaps none as critical to their retirement security as health risk. EBRI’s research also shows dramatic differences in wealth levels between those who enter a nursing home and those who do not, based on data from the Health and Retirement Study (HRS).

For instance, after respondents’ first entries into a nursing home, total household wealth fell steadily over a six-year period. By comparison, household wealth increased steadily over the survey periods for those who never entered a nursing home. The EBRI report notes that the average cost for a semi-private nursing home room in the United States is $207 a day (or $75,555 a year) and between 10–20 percent of those who enter a nursing home will stay there for more than five years.

“Given the potentially catastrophic expenditure shock associated with nursing home stays, it is very important to examine how those who entered nursing homes in the past or those who are still living in those facilities manage their portfolios following a nursing home entry,” said Sudipto Banerjee, EBRI research associate and author of the report. “Almost all types of assets decline fast and steadily for those who enter nursing homes. In contrast, similarly aged people who never enter nursing homes experience a steady increase in their assets.”

The full report is published in the June 2012 EBRI Issue Brief, “Effects of Nursing Home Stays on Household Portfolios,” online here. The press release is online here.

1 in 5 Older Americans Cutting Back on Health Care to Save Money

More than 20 percent of Americans age 50 or over report saving on health costs by switching to cheaper generic drugs, getting free samples, stopping pills or reducing dosages, and nearly as many skip or postpone doctor appointments for the same reason, according a new report by EBRI.

The data suggest that spending by those near or in retirement declines to match income, even when it means giving up real needs.

“We know that consumption tends to fall with age, but it’s difficult to measure whether falling consumption is voluntary,” said Sudipto Banerjee of EBRI, author of the study. “However, we found evidence that a significant segment of the older population may be making spending adjustments to their health care in order to save money.”

The study is based on data from the 2009 Internet Survey of the Health and Retirement Study (HRS). The full report is published in the January 2012 EBRI Notes, “Spending Adjustments Made By Older Americans to Save Money,” online at here.

EBRI Update: Savings Needed for Health Care in Retirement

The December 2010 EBRI Issue Brief updates original EBRI research on the savings needed for Medicare-eligible persons to pay for health care expenses in retirement.

Even though the new health reform law will reduce some health costs in retirement for many people, retirees will still need a significant amount of savings to cover their out-of-pocket health expenses when they retire, according to the new EBRI analysis. Women, in particular, will need more savings than men because they tend to live longer.

For instance, EBRI finds that men retiring in this year (2010) at age 65 will need anywhere from $65,000–$109,000 in savings to cover health insurance premiums and out-of-pocket expenses in retirement if they want a 50–50 chance of being able to have enough money; to improve the odds to 90 percent, they’ll need between $124,000–$211,000.

Women retiring this year at 65 will need even more: between $88,000–$146,000 in savings if they are comfortable with a 50 percent chance of having enough money, and $143,000–$242,000 if they want a 90 percent chance.

These estimates are for Medicare beneficiaries age 65 and older: Anyone retiring early, before age 65, would need even more.

The press release is online here.  The full report is online here.

Some media coverage of the report:

* Today Show/MSNBC
* U.S. News
* Reuters
* The Hill
* Los Angeles Times
* Plan Sponsor

The Early Retiree Reinsurance Program: $5 Billion Will Last About Two Years

An advance release of EBRI’s July 2010 Notes is online here, and finds that a $5 billion temporary reinsurance program designed to help employers maintain health benefits for early retirees likely will be exhausted within two years—well before the 2014 termination date for the program.

Key points of the analsysis:

PPACA’S EARLY RETIREE REINSURANCE PROGRAM: The Patient Protection and Affordable Care Act (PPACA) of 2010 created a temporary reinsurance program for sponsors of employment-based health plans that provide retiree health benefits to retirees who are over age 55 and not yet eligible for the Medicare program. The program provides an 80 percent subsidy for retiree claims of between $15,000 and $90,000. Congress appropriated $5 billion for the program, which is effective June 1, 2010, and the subsidy will be available through the earlier of Jan. 1, 2014, or the date when the funds are exhausted.

EMPLOYER INCENTIVE: One goal of the program is to provide an incentive for employers to maintain retiree health benefits and assist retirees with their costs for health coverage. Under the early retiree reinsurance program, plan sponsors must be able to show that the subsidies were not used to reduce their level of support for the plan. Subsidies can be used to reduce retiree costs, and sponsors must also show that the subsidies were used to generate savings or had the potential to generate savings.

EXHAUSTION LIKELY WITHIN TWO YEARS: An important question is whether the $5 billion will be exhausted before 2014. This article finds that if the subsidy were drawn down for all early retirees and their dependents, $2.5 billion of the $5 billion available would be exhausted in the first year of the program. The $5 billion would last no more than two years and would not be available in 2012 or 2013.

Wall Street Journal Special Supplement: Employee Benefits

The April 6, 2010, Wall Street Journal published a special section on employee benefits, with extensive content provided by EBRI. Dallas Salisbury, EBRI CEO, wrote two of the articles in the five-page section, on “Why the Employment-Based Retirement System Matters,” and “Comfortable Retirement Within Reach,” both highlighting recent EBRI research. Paul Fronstin, director of EBRI’s Health Research and Education Program, is extensively quoted in the lead article.

This is the third year EBRI has provided content to the employee benefits supplement of the Journal. Our participation in this section is unpaid and by request. The full section is reprinted here, by permission of the Wall Street Journal.