Why is Elder Care Cost So High?

elder care cost

Another year has gone by, and with it, the cost of health care has made its usual exponential rise. This is particularly true in the elder care cost market; where demand for senior care is beginning to seriously outpace supply, putting enormous strain on the system and driving costs higher for those who can least afford it.

Aside from supply and demand, there are several other reasons the cost of elder care is so high in the United States, some of the largest cost drivers include:

The market for elder care is opaque.
The facilities that provide elder care services are profit-driven, even though many of them are legally not-for-profit.
The insurance that pays for elder care has high administrative costs compared to other countries.

Opaque Markets
Elder care costs in the US are not anywhere near standardized. For example, one facility might charge 40% less or 300% more than the facility across the street for a given service. But you do not have the freedom to shop freely (like most other industries) because your services are restricted to what is within your provider network and based on what Medicare or your supplemental insurance company is willing to pay for.

This means that, from the perspective of the consumer, there is not much of a free market. Rather, elder care is essentially a monolithic entity: there is no discernable difference between two providers except perhaps in cleanliness and positive attitude. In addition, there is little competition between providers and little incentive to drive down prices.

Profit Motive
While many medical-care facilities in the country are “non-profit”, this term is not as meaningful as you might think. It means that the entity that provides the care (e.g. “St. Peter’s Hospital”) cannot retain profit at the end of the year; it has to spend everything it makes. But spending everything it makes is not at all difficult for a hospital, or any other kind of elder care provider.

In fact, the most prosperous hospitals in the country are deemed successful not because they significantly improve the quality of care, but because they buy new buildings and in some cases entire new campuses every few years in order to be able to spend all of the money they make. And that ‘success’ leads them to successfully argue that their directors should receive pay increases each year, just like any for-profit business would.

The original intent of the non-profit status was to enable an organization to exist and serve a useful purpose without getting distracted by the profit motive. Instead, in the modern elder care industry, the only thing ‘non-profit’ means is that the medical care facility in question is forced to re-invest their earnings, which is not all that different from companies in virtually any other for-profit industry.

Insurance Quandary
American health insurance (and especially long-term care insurance) is currently facing many challenges. On the one hand, the opacity of the health care market makes it difficult for them to correctly estimate costs.

At the same time, if a particular kind of insurance gets ‘known’ for being generous to a specific category of people (for example, if one brand of long-term care insurance has better coverage for cancer treatment than its competitors at the same price) people with that disease will flock to it. Since pre-existing conditions must be covered, this type of consumer activity could quickly drive down profits for insurers. The end result is that it becomes beneficial for the insurance company to make their contracts complex and generally unintelligible to the average person.

Alternatives to Traditional Elder Care
Elder care costs are not expected to drop anytime soon. This leaves consumers looking for viable alternatives. For seniors that have a family member nearby that is able and willing to be their caregiver, this is the most affordable option.

Being a family caregiver has its drawbacks, however. For one thing, it can be highly stressful having to balance caregiving with work and raising a family. Another common issue is the strain caring for an aging loved one can have on your relationship with them.

One option many families are turning to is in-home senior care. In home-elder care allows families the flexibility to hire caregivers for anywhere from an hour a week up to 24/7 care. The plans can still be costly depending on how many hours per week of care is required, but they are significantly less than a medical facility, and they allow aging loved ones to spend their golden years in the comfort of their own homes.

As we start 2016, there is not a lot we can do about the rising cost of elder care. We can, however, explore creative ways to keep the costs under control. Whether through a family caregiver, in-home senior care, a combination of the two or another option, the important thing is to develop the elder care plan that best fits your needs and budget.

Share this Story


About Peter Mangiola

Peter Mangiola is a senior care advocate with several decades of experience in the industry. Peter helps senior citizens by leveraging his vast knowledge of the healthcare industry and his expertise in identifying effective, affordable healthcare solutions. Peter has been a consultant, educator and regular speaker for many groups and organizations over the years covering a wide variety of topics; including Geriatric Care Management, Dementia, Alzheimer’s and Senior Care Health Service & Advocacy

Leave a Reply

Your email address will not be published. Required fields are marked *