National spending on care in nursing homes and continuing care retirement communities is projected to increase by at least 5% annually this year and next, before falling back slightly for the rest of the 2020s, a new federal report finds.
The trend may increase financial pressure on nursing homes even more as payers, including the government, look for ways to tighten the purse strings.
The Centers for Medicare & Medicaid Services’ Office of the Actuary updated its projections of healthcare spending across provider types last week. The latest projections begin after the most recent year for which spending data is finalized (2020) and go through 2030.
For nursing homes, the agency predicts a 5% increase in spending on nursing home and CCRC care for 2023, slightly under the current 6.04% inflation rate, and a 5.2% spending increase in 2024.
By 2030, annual spending in that category is expected to climb to $273 billion, up from $174.2 billion in pre-COVID 2019.
But those increase pale in comparison to a huge jump expected for home care. In that category, national spending is projected to more than double, from $113 million in 2019 to $226.4 million in 2030.
The report notably predicts both government spending and consumer spending will increase as costs rise, which Forbes columnist Howard Gleckman said will lead to “tough decisions” all around.
“The costs of long-term supports and services as well as post-acute care such as physical therapy are expected to rise more steeply than in most recent years,” he noted this week. “Costs of these services will also grow at a faster rate than healthcare overall. There are two reasons: Prices for specific services will rise. And the number of people receiving care will grow, reflecting increasing numbers of older adults and younger people with disabilities.”
Home health costs are expected to climb by at least 7% per year for the rest of the decade. Like nursing homes, home care providers see their services in demand but are often unable to hire the help they need without paying much higher rates than just two years ago.
Gleckman says the relatively lower cost forecast for nursing homes is predicated on several key factors.
“On one hand, the study assumes an increase in nursing facility use, which plummeted in the pandemic,” he wrote, acknowledging the return of the 3-day stay rule could dampen that effect somewhat.
The rise in costs are also tempered by increased Medicare Advantage penetration, with managed care organizations typically paying one-quarter to one-third less than traditional Medicare. With penetration soon expected to tip the 50% mark, that should continue to drive down overall government spending on nursing home care.
In addition to the pressure on CMS to rein in spending as Medicare insolvency approaches, Gleckman predicts the rising costs will make the troubled long-term insurance market even dicier.
“Not only will premiums rise but consumers will face tough choices when it comes to how much inflation protection to buy,” he wrote.
