The lifetime risks and costs of nursing home use among the elderly

In this paper, we estimate the risk of an individual of entering a nursing home throughout the aging process. We then estimate the expected lifetime costs of nursing home use both for an individual and for society as a whole. The model is based on double-decrement life-table analysis. Data are taken from a 1977 survey of 4,400 Medicare beneficiaries. At age 65, the upper bound for the lifetime risk of entering a nursing home is 43.1%. The risk of entering a nursing home increases with age until around age 80. At about age 85, the risk begins to decline significantly. At almost all ages, the lifetime risk of entry for females is twice that of males. The expected lifetime costs of nursing home care across all ages are between $10,500 and $13,600. These costs are distributed very unequally. Only 13% of the elderly account for 90% of all nursing home expenditures. Given current life expectancy, the expected annual cost per person over age 65 is between $532 and $760. In the year 2000, the expected annual average costs of nursing home care per elderly person will range from $450 to $650. The decline in the average annual cost per person reflects shifts in the age structure and increased life expectancy. These figures need not represent an unmanageable burden on society's resources. Figures presented here help establish the feasibility and desirability of long-term care risk-sharing arrangements among the elderly, like long-term care insurance, life care communities, and other models.