Happy Hump Day! A favorite movie series of mine is Back to the Future, particularly parts 1 and 2. Made in the 80s, both are fun to watch in terms of their references to points in time, especially in part 2 where the “future” is 2015! Having lived through 2015, my memories don’t quite compare in terms of how life really was versus the movie portrayal, though flying hoverboards would really have been cool.
My peek into the future today is nowhere near as fun as the movies. My slice today is courtesy of the senior living community developer and manager (and a few other service lines) LCS. LCS provides a host of management and other services to 140 senior living communities, serving 40,000 older adults. Recently, LCS release a whitepaper about the population shift in the U.S., courtesy of Baby Boom maturation, and LCS’ view of how this cohort will shift senior housing/living demand. The whitepaper is here: Future_of_Senior_Living_White_Paper_2023_FINAL_1
I’ve followed this demographic shift quite closely in terms of economic changes (socially) and healthcare and long-term care demand shifts. The aging population shift or moreover, increase has profound implications for the U.S. in terms of entitlement programs (more using, fewer funding) and healthcare, post-acute care demand. From 2023 to 2030 the
population under the age of 65 is only projected to only grow by 1.4%, while the population over the age of 65 is projected to grow at 18.8%, and the 75+ population group is projected to grow by 30.6%. By 2030, one hundred percent of the Baby Boom cohort will be 65 or older.
The implications with this shift, in terms of healthcare and economics, are profound.
- Medicare is the second largest program in the federal budget: 2022 Medicare expenditures, net of offsetting receipts, totaled $747 billion — representing 12 percent of total federal spending. See my post from September on Medicare solvency – https://rhislop3.com/2023/09/18/issue-medicare-solvency/
- Social Security is the largest (non-interest cost) component of the federal budget. In 2023, Social Security will account for 21% of the federal budget or $1.4 trillion. Other than interest on the federal debt ($34 trillion) is presently a larger budgetary item, principally due as of late, to rising deficit spending and rising interest rates/interest cost via rate.
- In 1940, there were 42 workers per retiree. Today the ratio is 3-to-1; by 2050 it will be 2-to-1. The burden on each individual worker will increase substantially (without reform) and the U.S. will no longer be able to keep up payments to retirees at current payroll tax levels.
Translating an aging society into senior housing demand is a bit of an esoteric science. Senior housing demand is very price elastic meaning, how much demand is present at any given point in time is predicated on the price of the housing options. The higher the price points, typically the highest being Life Plan communities, the more elastic the demand. Economically, Boomers are thought to be less well-off financially than their parents’ cohort, the WW II generation (aka “the greatest generation”).
The LCS report does try to forecast some demand, based on penetration rates for senior housing today, via NIC (National Investment Center data). Using a 11.3% penetration rate, approximately 679,000 additional units will be needed by 2030 and 1,380,000 by 2040 when the 75+ population increase begins to stabilize. If penetration were to increase to 12.0% approximately 822,000 additional units would be needed by 2030 and 1,567,000 by 2040. If penetration would decrease to 10.6%, 536,000 units would be needed by 2030 and 1,194,000 by 2040. Again, the imprecision in any of these numbers is driven by the price and to a lesser extent, the location.
What is easier to predict is the demand for healthcare services, particularly post-acute care such as SNF and Home Health. Home Health is the fastest growing sector by spend, within healthcare and there is no indication of a lessening of demand or spend. If job growth is a factor of continued demand (and it is), the Bureau of Labor and Statistics is forecasting a growth rate for CNAs/Home Health Aides of 22% between 2022 and 2032. According to McKinsey and Co., up to $265 billion worth of care services for Medicare fee-for-service and Medicare Advantage beneficiaries could shift to the home by 2025.
Today, slightly more than half of the Medicare population is enrolled in a Medicare Advantage plan. By 2030, the federal government is targeting that all Medicare beneficiaries will in some form or fashion, be covered within a value-based care model. Though I think this is unlikely, a continued shift is moving toward this target. As value-based care increases, along with Medicare Advantage enrollments, additional movement will be made to care for chronically ill and infirmed seniors in community-based settings, either at home or within a supportive living setting (Assisted Living).
My 2030 peek or look through my crystal ball sees the following. Happy Hump Day and feel free to check out some additional topic-relevant posts from the links below.
- Lifestyle housing will continue to expand far faster than traditional senior housing models – 2 or 3 to 1 in scale.
- Moderate and market rate housing will be the highest product demand items in the senior housing industry.
- Life Plan communities will continue to experience solid demand, provided these same communities stay current in terms of upgrades, unit modernization, benefit choices and health services options.
- Growth for agencies that offer home services including home health (medical) and home care (non-medical) will be 100% driven by staffing/personnel trends. As of now, I see labor markets not improving significantly as demand continues to outpace supply. One dilemma of an aging population, one that is graying faster than birthrates, is a reduction in workforce.
Friday Feature: The Economic Impact in Aging Countries
The Impact of Baby Boomers on Senior Living/Senior Healthcare
Friday Feature: What Baby Boomers Want