{"subscriber":false,"subscribedOffers":{}} Shining A Light On “The Forgotten Middle” | Health Affairs
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Health Affairs Forefront

Shining A Light On “The Forgotten Middle”

Doi: 10.1377/forefront.20190423.170644

Editor’s note: This post is being published in conjunction with the Health Affairs briefing “Health and Housing Needs for US Seniors in the “Middle Market” and the release of Health Affairs articles by Caroline Pearson and coauthors, Christopher Herbert and Jennifer Molinsky, and John Rowe and the Research Network on an Aging Society, as well as a second Health Affairs Blog post by Anne Tumlinson.

In the era of value-based care, it is important to recognize that health care is only a small part of what contributes, ultimately, to good health. For seniors, social determinants of health such as housing, food, social connections, and transportation play a critical role not only in producing better health outcomes, but in reducing total health care spending. Within this context, many health and housing providers understand the importance of partnering with those outside their traditional silos to improve health outcomes. Increasingly, particularly for frail seniors, health care begins not in the ED, or doctor’s office, but at home.

Since its inception in 1991, the nonprofit National Investment Center for Seniors Housing & Care (NIC) has shined a light on the seniors housing sector, in large part by making seniors housing and skilled nursing businesses more transparent to investors. Through the funding of the critical research released today, NIC seeks to draw attention to a large group of seniors whose needs investors and government alike have largely failed to address. This group includes teachers, health care workers, government workers, first responders, and trade union members, among others.

We view this cohort as “the forgotten middle,” seniors with too much wealth to qualify for government assistance, but not enough to afford the private-pay housing and care that many of them will need. The impact this will have on our economy, the health care system, and the health of our seniors will be profound if not addressed. Through their work, Caroline Pearson and coauthors aim not to provide ultimate answers but to start the conversation about how to address the needs of this group.

As an investor-facing organization, NIC is uniquely well-positioned to inform sources of capital not only of the challenges that this market presents, but of the opportunities as well. The entrepreneurial appetite for delivering new products and services to such a large, underserved population should be significant. Providing the private sector with policy and regulatory support can lower public costs, speed innovation, and boost private investment in solutions that serve the public good.

Thus far, subsidies, such as tax credits and bonds, and entitlement programs such as Medicaid have seen some success in addressing housing and long-term care access for low income seniors. However, as Pearson and her coauthors indicate, there is a large and growing middle-income cohort with substantial needs that has attracted scant public or private sector attention. The magnitude of the challenge is such that neither the public sector nor private enterprise is likely to be able to address the needs of the forgotten middle alone. Instead, federal and state policy makers, regulators, and private sector investors and providers must step out of their silos and initiate a dialogue designed to lead to the synergistic action this problem demands.

Baby boomers, who went to college in unprecedented numbers, have generally higher incomes and financial resources as a cohort. Both in number and by percentage, the smallest growth area for aging Americans will be in the low-income group which will grow by 9.9 percent by 2029. By contrast, the middle income group will grow at more than eight times that rate and nearly double in size to 14.4 million.

A recent LeadingAge-NORC survey contradicted the common wisdom that boomers want to stay in their own homes as they age, regardless of health. Fourteen percent of the first cohort of boomers, born 1946-1955, indicated a willingness to move should the need for assistance due to health issues arise. That population triples to 42 percent if help is required due to cognitive impairment or dementia. Currently only 10.9 percent of the 75-plus year-old population resides in seniors housing communities, according to recent NIC MAP® data. This is both a challenge and an opportunity.

Key Assumptions

When considering a study like the research by Pearson and coauthors, it is important to conduct a sensitivity analysis on key assumptions. For example, it is possible and even likely that seniors will be less able to afford care and housing services than the study projects if current pricing models remain unchanged. (Exhibit 1)

As the authors note, the assumption that seniors will spend $5,000 out of pocket for medical expenses each year marks the low end of expectations for such expenses for frail seniors with multiple chronic conditions and functional limitations. Cost estimates for seniors housing represent national average asking rates from NIC data. These rates include limited levels of support services and can go up significantly as care service needs arise. Frail elders, who are growing older and requiring more support services will likely pay higher rates. The costs of labor, which make up the largest portion (more than 60 percent) of seniors’ housing and care costs, could rise significantly if labor availability remains low. With rising demand, the costs of seniors housing and care may rise much faster than the study anticipates.

Exhibit 1. Sensitivity Analysis: Costs And Affordability

Source: Pearson CP, Loganathan S, Datta AR, analysis based on the model developed for “The Forgotten Middle: Many Middle-Income Seniors Will Have Insufficient Resources for Housing and Health Care.”

As the sensitivity analysis above indicates, if we assume the average out of pocket spend for medical expenses rises to $10,000 a year, with annual rent of $55,000, the percentage of middle-income seniors who cannot afford seniors housing rises from 54% to 63%. If the costs of rent rise from $55,000 to $75,000 a year, the percentage who cannot afford housing and care rises from 54% to 80%. Assuming both higher out of pocket medical costs and higher rent for a total annual spend of $85,000, the percentage rises all the way to 85%.

In addition, the Health and Retirement Survey (HRS) data used for this study is projected only to 2029, when the oldest baby boomer will be 83 years old. The greatest demand for seniors housing and care, however, comes from those in their mid-eighties. Therefore, the findings of this study are only a harbinger of future decades, as it reflects only the beginning of the period of greatest utilization for the baby boomer generation.

What is presented in this study is likely the best-case scenario of middle-income affordability under today’s pricing models. However, the sensitivity analysis demonstrates a significant opportunity to expand middle income access by developing new pricing models that lower rent costs. Reducing annual rent from $55,000 to $40,000 dramatically lowers the percentage of middle-income seniors who cannot afford housing and care from 54% to 29%.

Opportunities, Both Public And Private

NIC will present the Pearson study’s findings to the investment community this May in New York. It is our hope that the resulting discussions will begin to generate ideas from an investor, developer, and owner/operator perspective. Public/private partnerships, in particular, may open possibilities currently complicated by ill-fitting regulations and outdated local zoning laws. Addressing these areas alone may open this market to investment and innovation for the forgotten middle.

As reflected in the study, some ideas have already been raised. For example, private-pay seniors’ housing communities could more formally involve family care givers, volunteers, and healthier residents, as in other countries. The current labor shortage is already driving the industry to be innovative in this area, but these solutions are often made impracticable by rules designed decades ago for a system never intended to meet today’s challenges. With assistance from policy makers, regulators, and local authorities, many communities might be able to fill the need for caregivers, and thereby provide more reasonably priced assistance with functional limitations.

Technology is already driving innovation. The implementation of an ever-expanding panoply of high-tech solutions such as artificial intelligence, voice technology, smart phone apps, smart sensors, and telehealth can help improve quality of life, and care, while reducing costs. These solutions can be built into new, more efficient designs, or integrated into existing communities. Again, the regulatory and governmental environment will inevitably play a role in how quickly and efficiently such innovations can be put to use.

There are opportunities to reduce construction costs, thereby increasing the appeal of innovative new projects to investors. High-end structures, which make up many of today’s private-pay seniors housing properties, can be built with fewer expensive features. For example, a developer recently commented that they could simply remove a closet and replace it with an armoire. The change would save $1,200 per unit in construction costs. Given an understanding of the opportunity, investors, architects, and developers may begin to design solutions from the ground up, based on the need for affordability, driving down costs and therefore rates.

There is an opportunity to create financial instruments for construction and operating costs designed for the middle market seniors housing space, potentially with support from regulators. A working loan that extends from construction through occupancy, for example, could help lower the cost of seniors housing aimed at the middle class.

One of the largest sources of capital for the middle market is pension funds, which manage the retirement savings of many in the middle class. Fund managers may see an opportunity to meet the housing and care needs of their members, and to achieve the consistent, non-volatile returns that their business requires, by developing instruments designed to finance middle market seniors housing and care. Regulatory processes that anticipate the need for this type of innovation will ensure its timely deployment in the market.

Zoning and density requirements should reflect the reality that, increasingly, seniors don’t want to be isolated in totally age-segregated settings. Many of them will desire to live within urban communities, connected to society, including access to work, restaurants, church and other organizations. Policy can break down the barriers which developers and their investors currently face when attempting to plan and build these new community models. For example, in many places, zoning codes make it difficult to build the type of mixed-use, multi-generational communities that enable seniors to integrate with, rather than live separated from, their community.

These ideas are just a representation of the type of thinking that will be required to expand access to the middle market.


It is unlikely that programs developed by the private sector with private capital will fully meet the needs of this heterogeneous middle-income group. Undoubtedly, some will need government assistance, such as Medicaid and/or housing support. It seems unlikely, though, that there will be an entitlement program that pays the full cost of long-term care for this, the largest group, by income, of the largest generation of seniors in American history.

Today’s middle class must spend down to meet the poverty test to receive government help. This diverts funds that should be spent not only for medical needs but for non-medical needs as well, many of which are social determinants of health and might delay or prevent future institutionalization. If middle-income seniors are forced to meet their needs in this way -- given the sheer size of this cohort and the projected extent of their needs -- the impact on existing entitlement programs, such as Medicaid and Medicare, will be overwhelming. If we want to ensure that government support programs for housing and care for low-income seniors continue to be there to meet their needs, it is essential that private and public sectors come together to develop solutions to meet the housing and care needs of middle-income seniors.

Ultimately, society in general and policymakers in particular must look at the barriers to aging well in society. We’ve gained 30 years of life expectancy over the last century in the U.S. The way we think about retirement and elders needs to change. Society cannot afford to view the aged as no longer productive members of our communities. Rather, we must find ways to unleash the enormous human potential that exists well beyond traditional retirement age.

NIC will continue to shine a light on this issue, promote discussion, and help industry leaders work toward solutions. Society as a whole will need to find ways to address this challenge, as it will impact every American.

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