Christopher Kerns: From Advisory Board, we're bringing you a radio advisory. My name is Christopher Kerns. You can call me Christopher. I'm currently filling in for Ray Woods, who is pitching a new Law and Order reboot in New York. Christopher Kerns: It's become cliche at this point to hear some pundit or another talk about how the COVID 19 pandemic has changed everything. And it's easy to say because it feels intuitively true, and it doesn't really require a whole lot to back it up most of the time, at least when it's being bandied about at a cocktail party. But what I want to talk about today is going to become a running theme in this podcast, which is how the pandemic and long-term trends have collided to create fundamentally new challenges in the healthcare world. We're going to start by talking about aging. Christopher Kerns: Now, 11 years ago, I oversaw the publication of an Advisory Board study called Running on Medicare Margins. And although we didn't know it at the time, it would become one of the foundational pieces of Advisory Board research for the next decade. In 2011, when the baby boomers were turning 65, we posited that four forces, decelerating price growth, increasing cost growth and deteriorations in payer mix and case mix will drive the future of healthcare fortunes for the next generation. And we have been largely vindicated in nearly every prediction to a remarkably accurate degree. Christopher Kerns: I recently turned 45 and my parents are now hitting their mid to late seventies, so this is a topic near and dear to my heart these days. My mother in fact is one of the first baby boomers born in 1946. And I recall telling her on her 65th birthday, "Congrats Mom, you're now part of the problem." A bit tongue in cheek. But last year in 2021, the oldest of the baby boomers turned 75. And as I quickly realized, the care needs of that population began to a fundamentally change in ways that are potentially more intense and far more expensive. In addition, of course, to the emotional challenges around aging. Christopher Kerns: So we've begun a new research initiative looking at the future of aging, how demographics and politics and pandemics have reshaped how we think about senior care and what it's going to cost in both financial and personal terms. Spearheading that research is Yulan Egan, my long time colleague and frequent contributor to the podcast and my webcast, Stay Up to Date. Yulan, welcome yet again. Yulan Egan: Thanks for having me back. Glad to be here. Christopher Kerns: Let's do some level setting Yulan. Let's talk about the demographics. In the 11 years, since the baby boomer started turning 65, what fundamentally has changed, demographically at least? Yulan Egan: So some of the changes we've seen, mirror shifts that we're seeing across the population as a whole. So this generation of older adults for example, is much more racially and ethnically diverse than the previous one. But if we think about demographic shifts that are unique to the Medicare population, one of the interesting things that's happened in the past decade is that the over 65 population has actually become younger on average, as the baby boomers have aged in. So it's that 65 to 75 aged cohort that's been growing. So although the US population as a whole is getting older, the average age of a Medicare beneficiary has actually gone down in the past 11 years. And then finally life expectancy has also mostly continued to increase, as it has been for the past several decades at this point. And although the gender gap in life expectancy has narrowed slightly, women still outlive men. So the older population has skewed more heavily female in recent years. Christopher Kerns: Let's unpack some of the implications of that because your last point brings up something important, which is how the types of healthcare needs have changed over time. You mentioned how the Medicare population has become younger, but that's about to change, right? The oldest of the baby boomers just turned 75 last year and the needs of 75 year olds today, they just aren't what the needs are even a generation ago. Yulan Egan: Yeah. And there's some good news and bad news here, I think in terms of health status of this population. On the positive side, we've seen improvement in some indicators, most notably smoking and tobacco use. So that's at least part of the reason that we've seen life expectancy increase. On the other hand, many other chronic conditions are on the rise, particularly obesity and addiction. And the fact that we're living longer also means a higher prevalence of longer term degenerative disorders, so think things like Alzheimer's and certain types of cancer. So a little bit of a paradox here as older people live longer and live better for longer, their healthcare needs actually become more intense and far more expensive over time. Christopher Kerns: And I think that's an important point that isn't often highlighted, which is how expensive care gets even when you are living better for longer, just because the care needs of a population over the age of 75 are just quite intense and they can continue on for 20, 25, 30 years even. Yulan Egan: Yeah. And I think the improvements that we've seen in tobacco use are actually a great illustration of that because as we've seen those use rates decline, people are living longer, which means that they also incur much more expensive healthcare costs over time. I think we would all agree that that's a trade off that is worth making, but it has real implications for the healthcare system. Christopher Kerns: Let's talk about the financial situation. Ever since I was a kid growing up in the 1980s, I heard that when the boomers hit Medicare age, they were going to break not only Social Security, but also Medicare. And yet here we are in 2022, Medicare is not yet insolvent, though, as we know, it's getting close, Social Security continues to be funded, but few people talk about scaling back benefits, even if eligibility age for Social Security keeps increasing. So my real question is, so what? Is the increased cost of boomer care really a problem? They're also the richest generation in history and they're poised to transfer an unprecedented level of wealth to the Xers and millennials. Yulan Egan: This is I think another area where I'd point to a little bit of a paradox, because although it is true that as a generation and as a population segment, the boomers are the richest generation in history, the individual baby boomer's also carrying more debt into retirement than previous generations. So they tend to have less savings. And as we all know, are also a lot less likely to have access to pensions relative to previous generations. And because they're living longer with more chronic conditions, they're also likely to face more ongoing healthcare costs in their Medicare years, a growing proportion of which they pay for out of pocket. Yulan Egan: We've talked a lot in recent years about the shift that we've seen in the employer market toward high deductible health plans, but the fact is that Medicare can also come with some substantial out of pocket costs as well. Something that more and more older adults are learning every day. Longer life expectancy and the increasing prevalence of those longer term degenerative disorders also means that we've got more older adults that need long term care, something that Medicare doesn't really cover. Christopher Kerns: But Medicaid does. Yulan Egan: Yes. So we're seeing an increasing burden on Medicaid, which is the primary payer for those services. And there's a perverse incentive actually, for older adults to spend down their assets or give away their wealth in order to qualify for Medicaid and get access to that level of care. Christopher Kerns: And I think it's also important to remember that the increasing financial obligations that baby boomers have for healthcare is also driving a lot of the increase that we're seeing in Medicare Advantage, which has fewer out of pocket expenses in many cases. Yulan Egan: Yes, definitely true. And I think we are fast approaching the point where more older adults might be covered by Medicare Advantage than by traditional Medicare. Christopher Kerns: So how have the costs of senior care changed? We've talked a lot in this podcast about how the pandemic has really taken a sledgehammer to the clinical workforce. The good news is that wages have risen rapidly. The bad news is that wages have risen rapidly. How is that manifesting in senior care? Yulan Egan: Yeah. So this is obviously a larger problem that we're seeing across the industry, not enough new workers to keep up with demand and therefore skyrocketing labor costs. What this means for the older population specifically is that there's more and more reliance on unpaid caregivers, so family members like spouses and children who take on the burden of care. And let's remember that the boomer population had relatively fewer children on average, which means that the caregiver population is smaller to begin with. Yulan Egan: I think we've talked about this in the past, but there's a real dilemma with the so-called sandwich generation, those who have children at home that they're caring for while also simultaneously caring for their aging parents. I also want to emphasize that although workforce shortages have impacted the entire healthcare industry, they've hit certain parts of the senior care industry particularly hard. So nursing homes are dealing with even more dire shortages than hospitals and other types of provider organizations. Christopher Kerns: One of the most obvious effects of the pandemic has been the hit taken to nursing home prestige. As we argued in this space before, I think a lot of the heat they've taken is unfair, especially given current conditions, but the fact remains that if people didn't want to have to spend their remaining years in a nursing facility before, the idea of doing so under the threat of global pandemic can only have hardened those attitudes. Aging in place is the goal of nearly every older American I know, but I want to ask you, what's the outlook for that? Is it realistic? Yulan Egan: Obviously there's been a lot of innovation and development dollars in this space. The pandemic has definitely spurred increased investment in home-based care. I actually think though that the services that are most likely to take off, at least in the short term, things like hospital at home, are not necessarily going to be huge enablers of the larger goal of aging in place. They're much more acute and episodic in nature. When it comes to longer term care services, there's still a lot of barriers that we have to overcome as an industry to make aging in place a reality. There's the lack of caregivers, as we were just talking about. Technology, I think will absolutely have to be a part of the solution, but it's hard to imagine that alone will be sufficient. So short answer, I think we're making progress, but there's still a long road ahead for that to become a reality. Christopher Kerns: I'm really looking forward to my robot Android nurse, who will take care of me in my old age. I think it's going to be a good thing. And I, for one welcome our robot overlords. Christopher Kerns: Okay. How has the pandemic directly changed the care needs of this population? Not to be actuarially grim, but we know that the pandemic has disproportionately affected the senior population with far greater mortality. How does that change the demographics and care needs going forward? Yulan Egan: Yeah, the numbers here are pretty stark when you take a look at them. So one in 100 older adults has died from the virus. For people younger than 65 that ratio is closer to one in 1400. So a pretty stark discrepancy there. And I kind of alluded to this earlier on, but this is part of the reason that life expectancy actually dipped amid the pandemic. So although the longer term trend for the past few decades has been an increase in life expectancy, there was a little bit of a blip there across the past couple years, for only the second time since World War II, with the other time being in 2018 and 2019 due to the opioid epidemic. So definitely a very real impact in terms of mortality rate within the older adult population. Yulan Egan: And on top of that, the pandemic has also exacerbated levels of social isolation and loneliness for the population as a whole, but I think for older adults in particular. So I think we're going to see a very different set of care needs that result from some of the changes and shifts that we've seen across the past few years. Christopher Kerns: So who's paying for senior care? For a lot of obvious political reasons, Congress has historically been loath to mess around with Medicare, unless it's of course, to expand benefits as in the creation of Part D or to provide seniors with different choices as with Medicare Advantage. So given those dynamics, how is Medicare likely to evolve over the next decade? Yulan Egan: The first thing we have to acknowledge is the reality that while Medicare is not insolvent just yet, we do have sort of the looming threat of insolvency hanging over us. So for the past few years, the government has projected that Medicare will become insolvent in 2026. So we're just a few years away from that date. And the closer we get, the fewer options Congress is going to have for how to react. We're going to be talking about potentially painful solutions for the healthcare industry, like reimbursement cuts for either payers or providers. Christopher Kerns: I think it's important to remember that 2026 date could be moved up because of the impact of utilization as providers recover from the pandemic. So it's possible that could be earlier than 2026 or possibly a little bit later. Yulan Egan: Yeah, I think in the early stages of the pandemic, there was actually some conversation about that date being moved up as early as 2024. So we could be looking at insolvency within the next couple of years. Christopher Kerns: And the solution is going to have to be bipartisan in nature because this is necessarily unpopular. Having to make changes around Medicare financing is never something that Congress wants to do, but chances are it's going to be forced to do at some point. And it's likely to have pretty drastic implications for how Medicare is funded and ergo, how senior care is funded going forward. Yulan Egan: Yeah. I think one thing that we're watching particularly closely is what happens with regards to Medicare Advantage. Historically, I think there's been strong bipartisan support for Medicare Advantage and a lot of hesitation to cut MA, given its popularity among many, many seniors. But as it's become more popular, as more seniors have signed up for Medicare Advantage, that means that it increasingly will have to be part of any legislative solution. And we've seen some increasing scrutiny over aspects of MA, like coding and risk adjustment in recent years. Christopher Kerns: So who's going to end up making decisions about the direction of the industry on this problem? And should we be hopeful or really worried or both? Yulan Egan: I think my level of concern or optimism probably varies a little bit, depending on which sub-segment of the older population we're talking about. So in terms of good news, I think there's been a ton of investment and innovation around the so-called young old in recent years, those who are between the ages of 65 and 75, really that vanguard of the baby boomer population. Between new models of primary care and the investments that we're seeing to help people age in place, there's plenty of reason to be optimistic there because many of those models not only do about better job of catering to patient preference, but are actually lower costs than our historical approaches. So the challenge there I think is figuring out what's truly working and how to scale those models in a way that's realistic for the industry, given our current financial incentives and workforce constraints. Where I get a little more worried is on the other side of the spectrum, we've seen far less investment in what demographers call the old old population, so those who are over the age of 85. Christopher Kerns: I'm sure the people who are over the age of 85 really love that characterization. Yulan Egan: That's why I was sure to emphasize that I did not come up with that term. It is actually an official term. But services like senior living, like end of life care and hospice care just haven't attracted the same levels of innovation that the young old segments have. And that's going to be a problem because now that we're a decade plus into the baby boomers aging into Medicare, we're approaching another demographic inflection point. The Medicare population is going to gradually get older and older across the next few decades and the share of the Medicare population over the age of 85 is only going to grow from here on out. So I actually suspect the next 10 years are going to be a much bigger challenge for the industry than the last 10 or 11 have been. Yulan Egan: The small piece of good news there is that we do have time. So that shift is going to happen gradually over the course of the next few decades. But the time to start thinking about potential solutions is now, and that's a big part of the reason that this is one of our major research focus areas for this year. Christopher Kerns: I like the way that you refer to this as a big inflection point, because the first decade of the baby boomers moving on to the Medicare roles was very different from the one we're about to enter, because that was the period in which most seniors will use things like knee replacements and hip replacements, a lot of utilization that is guaranteed to make quality of life better. But as we're entering this phase of the baby boomers in Medicare, we're getting into chronic disease, chronic illness, a lot of end of life issues that are going to become pretty significant issues, not only for the financing and Medicare, not only for the financing and Medicaid, but frankly for the ways in which we interact in society and the ways in which we actually think about our senior population. It's often been said before that the baby boomers have changed every institution they have moved through over the course of their lives. And I think this is no different. Christopher Kerns: The future of aging is a major research focus for Advisory Board in 2022 and Yulan is leading that work every step of the way. Yulan, I'm so glad that you were able to join us for today's conversation. Yulan Egan: Thanks again, for having me. Christopher Kerns: And on a bittersweet note, this is actually the last podcast that I will be hosting for Radio Advisory because I am leaving Advisory Board as of March of 2022. And I have to say it's with a lot of mixed emotions, but I am so glad that I got to do my last podcast here with you, Yulan. We've worked together for a very long time, and it's going to be very hard to not work with you anymore. Yulan Egan: Likewise, you will be missed around here, not only on the podcast, but in everything that you have done for Advisory Board, for our research model. So I will miss you dearly, as I'm sure our listeners will as well. Christopher Kerns: And I'm not all that worried because I'm sure our paths will cross again soon. Yulan Egan: Absolutely.