A time bomb lying within the Federal budget in the decades ahead is the cost of long term care (or LTC) for the frail elderly.  Greater longevity and the aging of the Baby-Boomers are the demographic factors driving this change.  The Census of 2000 counted 4.3 million Americans age 85 and over.  By 2030, that number should grow to 7.7 million.  Two decades later, in 2050, it should almost double again to an estimated 14.5 million Americans.  The Federal government expects that the number of nursing home residents, which reached 1.65 million in 1999, to climb to 2.5 million by 2020 and to 4.5 million by 2060.  The number of functionally disabled persons age 65 or over living in community-based care should reach 15.2 million in that latter year; again, about three times today's number.[1]

Individual costs should also soar.  In recent years, the LTC industry has recorded cost increases averaging between 6 and 8 percent, over three times the overall inflation rate.  By the year 2030, the American Council of Life Insurers predicts LTC costs to rise four-fold: adult day care, from $50 per day in 1999 to $220 per day (or $56,100 per year); home health aide visits, from $61 per daily visit to $260 per visit (or $68,000 per year); assisted living facilities, from $25,000 per year to $109,300; and nursing home care, from an average of $44,000 per year to $190,000 per year in 2030.[2] 

When these rising human numbers and costs are factored together, the results are numbing.  Nursing home costs alone, which totaled $72.8 billion in 1999, would soar to $571.8 billion by 2030: a staggering seven-fold increase.  Much of this burden would fall, inevitably, on government Medicaid and Medicare entitlements (the taxpayer).

Was this situation inevitable?  Even factoring in gains in longevity, the answer is certainly "no."  For the whole of human history, until the middle decades of the 20^th century, the care of the frail elderly came from their family or their neighbors: what social welfare analysts now call "informal care."  The common American assumption, inherited from Colonial times, reinforced by the Founding era, and continuing through the 1920's, was that each true family represented a continuum, with a past, a present, and a future: a living bond between the generations of a family.  Writing 55 years ago, the renegade economist Ralph Borsodi ably summarized the ideal vision of this vital family and the obligations that it conveyed:

This [family] continuum is a corporate entity; with a corporate name, corporate values, corporate history and traditions, corporate customs and habits, corporate reputation and good will; with a corporate estate, real and personal; composed not only of its present membership, but a membership in the past, and a membership in the future, of which the members in being and in occupation --the living family group--are representatives, entitled to the usufrucht [or the use] of the family's corporate heritage, but obligated, as trustees for their posterity, to the conservation of that heritage.[3]

Again, this true family was at least three-generational and assumed care for its frail elderly as a matter of duty and as an expression of its continuity.  Indeed, adults in their productive years still understood in some manner the need they had to marry and successfully rear children themselves so as to provide for their own security.  The intentionally childless broke the great chain of heritage and also put themselves at risk.

But is not all this part of the myth of the three-generational family?  Did not industrialization and urbanization scatter families and end significant family-centered care?

At least from the perspective of 1929, nearly a hundred years into the industrial revolution, the answers were no.  In all states, law and custom continued to reinforce the obligation of adult children to provide for their elderly parents when the latter could no longer provide for themselves.  Simply put, there was no "crisis" in long-term care.  It is true that the normally unpleasant "poorhouses" and "poor farms," usually run at the municipal and county levels, found a growing proportion of their residents to be in the "never married" and/or "childless" categories.  But few people actually lived in these places: perhaps 50,000 during the 1920's, about .67 of 1 percent of those age 65 and over.  This was hardly a social crisis.[4]  As historian W. Andrew Achenbaum concludes in his definitive work, Old Age in the New Land, absent the Great Depression, the family-centered approach to elder care would probably have continued into the future.  The pressure for change was simply not strong enough, circa 1929, to suppress the inherited American values of family integrity and personal responsibility.  Achenbaum argues that most workers would have remained in the labor force as long as possible, secured their own retirements through savings and private annuities, and relied on their children, other family members, and their communities for back-up security.[5]

But the Great Depression did come, with record levels of unemployment, widespread bank failures and the loss of savings, the bankruptcy of numerous insurance firms carrying private annuities, and so on.  Even so, patterns of elder care remained largely unchanged.  As the Committee on Economic Security, charged by President Franklin Roosevelt with crafting a new system, admitted in 1935: "children, friends and relatives have borne and still carry the major costs of supporting the aged."[6]  Yet, true to its charge, the Committee went on to recommend creation of a new system of publicly financed social insurance for old age and disability.

It is important to note that in crafting this new order, the Committee embraced certain assumptions about the American future:

First, the Committee members assumed that the American birthrate would steadily decline.  In a widely cited essay, also referenced in the Committee's report, the noted demographer P.K. Whelpton predicted in 1930 that U.S. fertility, which had recently fallen near to the zero-growth level, would tumble still further, with "no stopping….place…indicated on the surface."  This pointed to a rapid alteration in the age structure of the United States that made imperative an "overhaul" of American social institutions to care for the sharply growing proportion of elderly.[7]

Second, The Committee on Economic Security held that the American family was inevitably weakening.  The volume Recent Social Trends in the United States, commissioned by President Herbert Hoover, appeared in early 1933.  Its impact was large.  Behind a scientific veneer, though, lurked a technocratic and socialist ideology.  Relative to the family, University of Chicago sociologist William F. Ogburn argued from his "functionalist" angle that American families were in irreversible decay.  "Working wives" and the turn to professionals were signs of this change.  Already, American homes had shed virtually every function that they had once held.  All of social evolution pushed toward "the individualization of the members of the family" and the expansion of "society's" role, meaning government's role.  In line with this, Ogburn saw no future prospects for significant levels of family care for the elderly.[8]  This function, too, must pass to government-paid experts.

Third, the architects of the Social Security system assumed that economic stagnation would be permanent and the number of future jobs limited.  This made it all the more urgent to create social security pensions for the relatively old, in order to lure them into retirement and give their jobs to younger workers.[9]

Tellingly, none of these assumptions proved to be true.  For example, the very next year--1936--saw the U.S. birthrate start to climb again; by 1947, the "Baby Boom" was in full swing and it would last until 1963.  Nor did family care of the elderly disappear.  As late as 1982, 78 percent of functionally impaired elderly persons living in a community relied exclusively on the unpaid, informal care of family members, friends, and neighbors.[10]  Finally, relative to the number of jobs, there were 135.2 million Americans in the civilian work force in 2000, up 350 percent since 1935.  The real increase in Gross Domestic Product during this time was of a magnitude of 2000 percent. 

All the same, the three assumptions I noted--declining fertility, weakening and functionless families, and economic stagnation--worked their way into the very operation of Social Security.  Over the decades, they gained a life and influence of their own, and began producing the very effects that they had assumed.

To focus on how this happened, I want to turn to an unusual source: Karl Marx.  One of the doctrines in Marx's scheme was his belief that the internal contradictions of capitalism would inevitably bring the system down.  As he wrote in his book, Capital: "Capitalist production begets, with the inexorability of a law of nature, its own negation." As citizens of 2002, we know that Marx made grave miscalculations and that it would be the Marxist regimes of the Soviet Union and Eastern Europe that would beat capitalist societies to history's graveyard.  Nonetheless, Marx's concept of a system's "internal contradictions" remains a useful intellectual tool.  Specifically, I believe it can help us understand the deep flaws to be found in America's policy regarding care for the elderly. 

Indeed, I assert that there are five "internal contradictions" to elder care in America:  (1) the institutional contradiction; (2) the altruism contradiction; (3) the family contradiction; (4) the demographic contradiction; and (5) the efficiency contradiction.  These aspects of the system have not only hurt the very persons who are supposed to be helped; they endanger the good order of society.

First, there is the "institutional" contradiction.  The architects of the new Social Security system were firm on one point: there would be no support for aged persons living in the homes, farms, and almshouses run by counties and municipalities.  A 1925 Department of Labor report had found that "dilapidation, inadequacy, and even indecency" characterized these institutions, compounded by the "[i]gnorance, unfitness, and complete lack of comprehension" of their managing personnel.[11]  Title I of The Social Security Act of 1935 created a federal program of grants-in-aid to the states for old age assistance (or OAA).  Designed as a non-contributory, means-tested pension program, OAA would support the impoverished elderly until the new, contributory Social Security system could be fully implemented.  Relative to the future, the plan contained one key clause: OAA benefits could not be paid to any "inmate of a public institution."  The effect of this, as intended, was to drive most municipal homes, county farms, and almshouses out of business.  But there was an unintended effect, as well.  Just as the frail elderly without family support were being turned out of the despised public homes, they suddenly had a little OAA cash in their pockets.  With few choices as to where to go, they began turning out of necessity to the privately-run "rest homes" and "convalescent homes" that existed on the margins of the health care world in the 1930's.  Most of these were also poorly staffed, dilapidated, and unsafe.  The exploitation and abuse of residents in them was common.  Nonetheless, since they were clearly not "public institutions," these proprietary homes found a new Federally-inspired revenue stream, and new life.

In short, the "nursing home industry" was born as "an inadvertent,"[12] unanticipated byproduct of poorly-thought-out public policy.  Over time, the OAA grants were replaced by other Federal programs, eventually Medicaid and Medicare.  The industry grew in size and political clout.  A 1954 amendment to the Hill-Barton Act did try to "medicalize" the nursing home business, providing Federal grants to public and non-profit entities to construct nursing homes.  All the same, proprietary homes run for profit remained dominant in the field.  In 1999, they still numbered 12,000, or two-thirds of all nursing homes.  Although ownership was private, three-quarters of nursing home revenue still came from Federal and state sources, making the nursing home business as much a "government industry" as, say, Lockheed or Grumman Aircraft.[13]  In short, the Social Security Act of 1935 aimed at freeing the frail elderly from institutionalization in locally-run homes and farms, but ended up reinstitutionalizing them in a vastly larger and more politically potent industry, one that proved to be  beyond the scope of effective local regulation.[14]

The Second innate problem found in old age care in America is the "altruism contradiction."  Advocates for the modern welfare state argue that their system rests on the principles of altruism and reason.  Unlike informal care, they say, the state alternative is fair, compassionate, and rational. 

In practice, though, the welfare system ends up tangled in a web of stupidity and irrationality.  Long-term-care, for example, is available under Medicare for only limited reasons and for a limited number of days.  Medicaid provides most government-paid LTC, but only if the recipient is first impoverished.  The actual results range from the destruction of small- to middle-sized family patrimonies--a government-inspired end of "the family's corporate heritage" described by Borsodi--to "planned impoverishment," where wealthier persons with good lawyers formally divest themselves of assets in order to stand "impoverished" at the Medicaid door.

More broadly, the "rational" welfare state succeeds only as its citizens behave in irrational fashion.  While making limitless promises, called entitlements, the system can succeed only as citizens restrain their claims and continue to behave as though the public programs did not exist: for example, with most of the frail elderly still drawing their care from informal, unpaid sources.  However, the system itself penalizes these very persons --givers and receivers alike--for their altruistic behavior.  In effect, public authorities reward families who turn their elderly members over to public care and penalize, through taxation, those families providing informal care.  As the Danish analyst Bent Andersen has explained:

The rationally founded welfare state has a built-in contradiction: if it is to fulfill its intended function, its citizens must refrain from exploiting to the fullest its services and provisions--that is, they must behave irrationally, motivated by informal social controls, which, however, tend to disappear as the welfare system grows.[15]

And so, a system crafted in the name of reason and altruism ends up penalizing altruism and relying on irrationality to survive.

My third, and related, indictment can be called the "family contradiction."  The public long-term care system assumes weakened, scattered, and unwilling families and offers its compassionate arms as a substitute.  In fact, as already noted, two-thirds of disabled elderly persons living in community currently receive all of their assistance from informal sources, primarily family members.[16]  Even among persons who enter a nursing home, the existence of a daughter triples the possibility of a "live exit," revealing nursing-home jargon for a return home by the patient; the existence of a living spouse raises the possibility of "live exit" an extraordinary 26 times.[17]  This informal care, according to independent analysts, is "more flexible, usually more caring, and more reciprocal."[18]  Moreover, arguments that broad social changes such as the entry of women into the labor market doom informal care keep running into very different realities.  According to one careful recent report:

Many women work and provide informal care at the same time.  In addition, it is often overlooked that about one third of all informal caregivers are themselves elderly, and often retired.  Finally, mortality trends suggest that more elderly women in the future will have their husbands with them longer….[M]ale spouses have been shown to be as equally committed to caring for their wives as female spouses are committed to their husbands.[19]

In short, the much advertised "dwindling supply" of future informal family caregivers need not occur.

However, in a perverse way, this "dwindling supply" is created by government policy itself.  In a careful study of Medicaid home-care benefits, for example, Susan Ettner of Harvard Medical School found new government aid driving out informal family care.  Specifically: "…the Medicaid subsidies induced a substantial replacement of voluntary care by family and friends by formal paid care for services that are non-medical in nature."[20]  With burning clarity, we see here how a Medicaid project justified by inaccurate assumptions actually creates the problem it claims to solve: diminished family-centered care.  The net result is less loving and less personal care for the frail elderly; the deterioration of local community; and higher public expenditures.

The fourth internal problem can be called "the demographic contradiction" of social insurance.  Simply put, publicly-provided old age, health, and LTC social insurance rewards the childless and penalizes those who raise children.  And since "pay-as-you-go" social insurance is, in essence, a pyramid scheme, requiring new babies who will grow up to be new workers who can be taxed to pay for the system in the future, we can also see how social insurance tends to undermine its own foundations.

Consider the situation of rational, income-maximizing 22-year-olds in the year 2002.  As they look to the future, they see their foolish older siblings and acquaintances who married and produced children.  These irrational people are now investing most of their income in their children, driving old mini-vans, living in heavily-mortgaged homes, eating tuna casserole, and calling a day-at-the-beach "our vacation."  They also can see that if they remain childless, they will have substantial amounts of extra future income that can be spent on fine automobiles, elegant apartments, gourmet meals, and lavish vacations in Greece, Cancun, and Tahiti.  And when old-age comes, the social insurance system treats both choices exactly the same: the frivolous childless and the responsible childrich receive the same pension, and the same access to long-term-care under Medicare and Medicaid rules.  The system conveys a message: "Children are expensive, time-consuming, and noisy.  Let your older siblings or your neighbors spend the money to raise children who can then be taxed to support you in your old age."  Those who listen become "free riders" on the system; but there is only reward, and no penalty, for this.  Once again, the American social insurance scheme actually tends to produce the problem that it assumed at its beginning: low fertility.

Now, I am not the first person to notice this problem.  Indeed, in his 1941 Godkin Lectures at Harvard University, the Swedish economist Gunnar Myrdal warned that America's new social security system had dangerously inverted the value of children: they were now a burden rather than an asset, a perverted result that would undermine the nation's very existence in the long run.[21]  During the 1980's, Charles Hohm of The University of California-San Diego checked this "social security-fertility hypothesis" in a detailed study of nineteen developed and sixty-two underdeveloped nations.  He found that "[a]fter controlling for relevant developmental effects, the level and scope of a country's Social Security program is causally and inversely related to fertility levels."  Translated:  higher benefits meant fewer children.  Even the reverse hypothesis proved to be true: "Reduced fertility levels result in subsequent increases in Social Security expenditures," as the system devours itself.[22]  This explains developments in Europe, where depopulation, old age pensions, and tax burden now advance in tandem.

More recently, economists Isaac Ehrlich and Francis T. Lui have shown that a pay-as-you-go old age security system "discourages families' incentives for self-reliance," drives fertility ever downward, reduces savings, and damages "investment in human capital," meaning children.  These effects, according to Ehrlich and Lui, portend both social disintegration and "financial collapse."[23]

The Social Security system's fifth internal dilemma is the "efficiency contradiction."  Even a cursory study of the nursing home industry reveals a tale of corruption, fraud, and abuse.  The Family Research Council's  President Kenneth Connor took the lead in exposing and fighting these problems in Florida during the 1990's.  The curiosity, though, is how the fraud and abuse constantly reappear.  Back in the 1960's, Mary Adelaide Mendelson's book, Tender Loving Greed, exposed the kickbacks that nursing home operators received from pharmacies and funeral homes, the frequent charges to government for non-delivered products and care, the maximum reimbursements claimed for patients needing minimum care, the lack of blankets, the starvation diets, the idle rehabilitation equipment, the cheap bread, the stolen meat, the fake water sprinklers, the filthy clothes, the deliberate withholding of soap and toilet paper, the outrageous "extra charges," the staff intimidation of some patients with others "drugged into oblivion," the fake diagnoses, the "gang visits" by physicians.[24]  Regulatory reforms followed.  A decade later, Bruce Vladeck's Unloving Care: The Nursing Home Tragedy chronicled a similar list of behaviors still endemic to the system.  Regulatory reforms followed.  In 1998, Time magazine reported on another epidemic of beatings, malnutrition, dehydration, and neglect to be found in Medicaid funded nursing care centers.[25]  One of the nation's largest nursing home chains, Beverly Enterprises, pled guilty that same year to massive Medicaid fraud and received a fine of $175 million.  The company's crimes included phony nurse sign-in sheets and fabricated medical-treatment records.[26]  The Inspector General of the U.S. Department of Health and Human Services also warned in 1998 of a new kind of fraud devised by nursing homes and hospices, this time based on kickbacks for Medicare and Medicaid referrals for end-of-life care.[27]  In recent years, California--to choose just one state--has seen a string of arrests and convictions for nursing home elder abuse, for the knowing hiring of "certified care givers" who had prior criminal convictions for assault, grand theft, and drug trafficking, and for the now familiar phony Medicaid claims.[28]

Why do we find this recurring tale of fraud and abuse in elder care?  Some will cite the easy government money (indeed, back in the 1970's, word on Wall Street had it that "it is impossible to lose money" in the nursing home business).  Others will point to inadequate regulation.  I suggest that the real problem runs much deeper: namely, in the total failure of the "industrial model" when applied to the care of the very young and the very old.

The industrial revolution rested on a very few principles: specialization; the division of labor; standardized products.  The system has worked miraculously well when the products are light bulbs and automobiles.  But some Americans pushed the idea too far, into the care and nurture of human beings.  Starting in the mid-19^th Century, reformers took family-centered schooling and reorganized it on an industrial model: the massive public school system was born, itself operating as a kind of education factory.  In the 20^th Century, we saw a similar effort to industrialize the care of infants and toddlers (we call it "day care") and elder care.  The hope for the latter was that organizing the old in standardized beds and rooms to receive standardized care from specialists would generate gains of efficiency, and so of wealth.  But it does not work.  Human beings are not light bulbs or Dodge Caravans.  Each person is unique and requires personal attention and care: the very opposite of what the industrial principle delivers.  The recurring cases of fraud, neglect, and abuse in structured elder care, I suggest, derive from this misplaced quest for efficiency and profit through services or actions that cannot--by their very nature--be successfully industrialized.  Put another way, the quest for "efficiency" and "profit" in the nursing home will inevitably produce neglect and abuse, because the quest itself in this locale is dehumanizing. (A similar tale could be told about the industrialized group care of infants and toddlers, but that story must be saved for another day.)

What then is to be done?  Can we reform a structure that rewards institutionalization, penalizes altruism, discourages the multi-generational family, punishes child bearing, and auto-generates its own versions of abuse, fraud, and neglect?  Rephrased positively, can we restore the familial bonds of the generations?

There are small steps or reforms that might be considered.

1. Some suggest that Medicare and Medicaid be altered to provide  vouchers to persons (or their families) who might otherwise qualify for nursing home care.  This voucher would expand family choices in the purchase of in-home assistance, adult daycare, respite care, foster care, and small group homes.[29]  With limited exceptions, though, the use of vouchers still involves primarily the purchase of services from outside vendors.  While the nursing home might be avoided, this would do little to reconnect the members of a family.

2. A second option is to give special tax incentives to persons providing informal care to the elderly.  Several states have experimented with this idea.  Idaho has given a $1,000 tax deduction or a $100 credit to taxpayers who provided care to persons over age 65.  Arizona has offered taxpayers a $600 exemption if they have paid 25 percent or more of an elderly person's institutional or home health costs or at least $800 toward their general medical costs.  In the first program, 80 percent of the caregivers turned out to be children of the elderly persons being helped.  Three-quarters of the taxpayers in both states found the incentives to be of value as a support to continued family responsibility and care.[30]  Federal tax deductions built on these principles and of similar or greater magnitude could have the same effect.

3. A third reform option would be to modify the law governing Child/Elder Care Reimbursement Accounts (CECRA), available to employees at companies and organizations with "cafeteria benefit" plans.  At present, this use of pre-tax dollars for elder-care can only occur if the person is mentally and/or physically incapable of self-care and claimed as a dependent on the income tax.  Changes could include loosening or discarding these restrictions and raising the cap on the pre-tax dollars available.  Such measures would probably encourage more family-centered care.

4. A variation would be to grant a special tax break to a family with a elderly relative residing in its home.  The Republican Party's 1999 tax plan proposed giving an extra personal exemption to households containing a relative over age 65, even if not a dependent for taxation purposes.[31]  In 2000, Democratic Presidential candidate Al Gore proposed creating a Federal tax credit of up to $3,000 for Americans providing long-term-care to elderly relatives or friends.[32]  In 2001, the New York State Senate considered a tax credit of 20 percent for expenses incurred through the care of an elderly relative living with the taxpayer, up to $3,000.[33]

5. A more sweeping idea is for Medicare and Medicaid simply to hire a family member as the caregiver for someone qualifying for public support, an idea already tried in France.[34]  Susan Ettner proposes a variation on this, allowing insurers (including presumably Medicare and Medicaid) "to offer to pay informal caregivers (at a lower rate) to provide services for which the insurer would otherwise have to pay the home health agency."[35]

These are all worthy ideas.  Combined into a package, they would predictably have a measurable positive effect. 

And yet, at another level, they are still like band-aids over cancerous sores, slowing some of the bleeding but not tackling the disease.  Even with these reforms, the overarching system of social insurance would remain firmly in place.  Its innate incentives against altruism, family-care, and child bearing and in favor of institutionalization, abuse, and fraud would be only marginally contained.

What, then, about a "privatized" social insurance system?  There are good arguments for the privatization of Social Security, some of which I have made myself.[36]  In full candor, though, it is hard to see how any of the proposed privatization plans would, at this point, "restore the familial bonds of the generations."  Indeed, most plans would probably inject a greater degree of individualism into the scheme.  Still tied to earnings from outside work, privatized plans would do relatively little to encourage family-centered elder care, and could actually discourage it. 

Authentic "intergenerational" reform requires that we enter the very heart of the system, and rebuild incentives that truly favor both childbearing and family-centered elder care.  To do this, we first need to recognize that FICA "contributions" for OASDI and Medicare are, in fact, taxes, not insurance premiums.  Most people now understand this and even some honest Federal documents now label these extractions as taxes.  Still, the implications of this reality are rarely drawn out.  Next, we need to understand that the FICA tax is a full 15.3 percent on the labor of employed persons (that is, it includes both 'employers' and 'employees' portions).  Third, we must remember that this regressive tax starts with the first hour of work.  It is the very lifeblood of the Social Security system, and its negative effects fall most fully on young adults struggling to start families.

After these acknowledgements, an alternate and more sweeping series of reforms becomes fairly clear:

• First, taxpayers should be granted a credit of 20 percent against their total FICA tax for each child born or adopted, a credit to be continued until the child reaches age 13.  This would mean that a family with five children, ages 12 and under, would pay no FICA tax in that year (but would still receive all due employment credit).

• Second, taxpayers should also be granted a 25 percent credit against their total FICA tax for each elderly parent or grandparent residing in the taxpayers' home.

• Third, for each child born, a mother should receive three years (or 12 quarters) of employment credits (calculated at the median full-time income) toward her future Social Security pension.

• Fourth, a person should also receive one year's employment credit toward Social Security, at the same median income level, if he or she  served as the primary caregiver for an elderly relative residing in his or her home.

• And fifth, base FICA "contribution" rates could be raised to accommodate these reforms at a revenue-neutral level.

• Or the OASDI tax could be applied to all income and no longer capped off at incomes above $87,000 (in 2003).

Under this scheme, parenthood and family eldercare would be encouraged rather than burdened and penalized.  This reform would recognize that new children, rather than cash, are the real "contributions" that a social insurance system needs.  It would take into account the cost-savings or value of inter-generational care as a favored substitute for institutional care.  It would give motherhood a recognition as real work that is its due.  And the intentionally childless would finally pay their fair share for social insurance.

Above all, we would--I believe--be rebuilding a fresh vision of the multigenerational family for a new American century.

Endnotes: