Who'll pay to care when we get old, then even older?

None of us are getting any younger, and nor is our population, but readers may not be aware of how much older our population is becoming.

By 2030 the baby boom generation, those born between 1945 and 1965, will all be aged over 65 with the oldest baby-boomers beginning to swell the ranks of the 85+group.

By mid-century the numbers over 65 years are expected to nearly double (from 790,000 in 2020 to around 1.4 million). The baby-boomers will all be over 85 where the numbers roughly treble (from 88,000 in 2020 to around 300,000).

It’s not just the sheer numbers of the baby-boom cohort, but the improved life expectancy at older ages. Sadly, not all the extra years of life gained over the past 25 years have been lived in good health. Who is going to care for our ageing selves, in the sickness or disability that so often accompanies our longer-lived lives?

As many of our grandparents have told us already, growing old is not for the faint-hearted. Long-term conditions such as diabetes, obesity, cardiovascular disease, chronic obstructive pulmonary disease, cancer, asthma and other respiratory conditions, arthritis and musculoskeletal diseases, stroke, chronic pain, dementia, and mental illness are all too common.

Chances are if you have one of these conditions, you probably have another. Multimorbidity (two or more of these conditions) affects one in four older adults in New Zealand.

In New Zealand as often in other parts of the world, females live longer than males on average, but they spend more of their life in poor health and in residential care. In the 2019/2020 year, 59 percent of those assessed for homecare, and 65 percent of those assessed for Aged Residential Care (ARC) were female.

Society is not prepared for the realities of the 21st century ageing population and their projected high costs of care and health. The doctors and nurses, caregivers and palliative care services require massive workforce planning. But even if the real resources needed are actually available, how will the costs be shared?

Ideally, planning for retirement starts early. But how can you plan when you don’t know how long will you live, in what state of health, or the costs of long-term care if needed?

At March 31 2020, of a population of around 790,000 aged 65-plus at that time, about 4.4 per cent were in Aged Residential Care. That might sound a modest statistic, but it disguises the reality that half the older aged population is likely to use residential care at some point.

The average age of a person living in residential care is 85 years with a significant variation in the entry age, and length of stay ranges from a few days to over 10 years. Median length of stay in a rest home for someone receiving government funding is 1.7 years so it follows that 50 per cent use residential care for longer.

The current policy settings include a means-tested subsidy for basic old age care, but many older people are excluded from assistance by this test. Middle-income families may be severely impacted as the assets of their older-aged relatives are rapidly consumed by their later-life care costs.

Residential care costs paid by the older person range from about $73,000 for a very basic care package to $116,000 a year if extras like ensuites are included. For long-term hospital level care in a rest home the actual costs will be higher again but the contribution from the resident is capped. If you’re 65 or older and don’t have enough income to meet the costs, your assets will be needed. Assets must be reduced to a low level before you qualify for the government subsidy.

How much the government will help varies, depending on whether you have a partner or dependent child who lives with you, and if you own a home and a car. If you are single or a married couple, both in care, you may have to sell those assets. Other assets included in the means-test are savings, shares, investment properties, boats, caravans and campervans and some types of life insurance policies.

Personal belongings such as jewellery, clothes, household items (furniture, kitchenware) and any funds held in a recognised funeral plan are not counted.

It’s complicated, but worth taking time to get your head around, and while you have the cognitive capacity to do so. Most of us can’t predict our healthcare needs, we have no idea of the size of that risk nor of how to budget for it in retirement.

Suppose at 65 you have a lump sum of $200,000. While there is some data that tells you how long you might live on average, there is a huge spread of the age at death around that average. There’s a good chance you’ll outlive that lump sum.

Moreover, you don't know if you will need long-term care, nor whether such care will be for only a few weeks or more than 10 years. Nor do you know the level of that care (rest-home or hospital) you will need or the costs of extras like dental care, hearing aids and specialist care or a superior room.

With a looming tsunami of older baby boomers needing care, it is time we talked about not only how to ensure we have enough trained caregivers, but whether we can share the costs of care more fairly.

Middle-income people surely need some degree of insurance for the uncertainties they face: a better sharing of the costs between those who need care and those who don’t. It won’t happen without some kind of public policy to help protect them against the risks they face. This demands not only innovative forward-thinking around financial planning, but social planning too, to ensure we have enough people to care for us.