05/01/2014 - The True Cost of Doing Nothing

By Richard Cho, USICH Policy Director

In his FY 2015 Budget, President Obama has requested an increase of $301 million in HUD’s Homeless Assistance Grants.  If funded, HUD would deploy these resources through a special competition to create 37,000 new units of permanent supportive housing. Combined with the tens of thousands of permanent supportive housing units projected to come online through the deployment of existing resources, this allocation will enable us to end chronic homelessness in 2016.  

At a time of budgetary and fiscal challenges, $301 million sounds like a lot of money. In my view, it’s a small price to pay to achieve an end to chronic homelessness and save the lives of roughly 100,000 people living on the streets and in shelters with significant health and behavioral health challenges. It’s especially small when compared to the cost of doing nothing, not only in terms of human lives, but also in real taxpayer dollars.

We’ve known for more than a decade that permanent supportive housing reduces the use of crisis services by people experiencing chronic homelessness—services like emergency rooms, hospitals, jails, prisons, psychiatric centers, detox programs—resulting in significant public cost offsets. In fact, recent studies show that permanent supportive housing not only pays for itself but actually results in net public savings. One of the most recent studies from New York City found that after fully offsetting its own costs, the public saves over $10,000 for every tenant that was housed in permanent supportive housing. This is not just a New York City phenomenon.  Similar results have been found in Boston, Denver, Seattle, Chicago, San Francisco, Los Angeles, in states with smaller cities like Connecticut, and rural contexts like Maine.  

Dennis P. Culhane, Stephen Metraux, and Trevor Hadley (2002). “Public Service Reductions Associated with Placement of Homeless Persons with Severe 
Mental Illness in Supportive Housing,” Housing Policy Debate, 13(1): 107-163.


Given this evidence, we should be thinking less about how much money it would cost to end chronic homeless and think more about how much it would cost not to. 

In 2002, researchers at the University of Pennsylvania determined that individuals with psychiatric disabilities experiencing homelessness in New York City cost taxpayers about $40,000 per person through the use of various public services.  The study released this year found that people who were eligible for permanent supportive housing, but who did not receive it, cost about $51,000 per person per year in public costs. The latest available national Point-in-Time count found that on a given night in January 2013, 92,593 people experienced chronic homelessness. Using these figures, and taking into account that 92,593 represents only a point-in-time estimate, we can conservatively estimate that the national public cost of chronic homelessness is between $3.7 and $4.7 billion per year.  From the New York City figures and given greater access to Medicaid under the Affordable Care Act, we can assume that at least a third of these costs will be in Medicaid costs. In other words, that’s the amount that we as taxpayers currently spend to allow chronic homelessness to persist. That is how much we spend to let people with significant health challenges and disabilities continue to cycle in and out of services and institutions that only worsen their conditions and in too many cases lead to their premature death. 

States at least have begun to understand the impact of chronic homelessness on Medicaid spending. Many states are including permanent supportive housing as a critical part of their strategy for curbing Medicaid costs, particularly for the subset of high-need, high-cost beneficiaries who drive up the majority of costs. States are looking at ways to ensure that Medicaid spending is going towards case management, care coordination, and health and behavioral health services in permanent supportive housing rather than on repeated emergency room visits and hospitalizations. Yet even as they are making progress in financing the “support” in supportive housing through Medicaid, their efforts will be limited by the lack of resources for the housing side of the equation. For states, the cost of doing nothing will be seen in terms of higher state Medicaid costs, even despite their best efforts. 

The true cost of doing nothing goes beyond government spending. The true cost of chronic homelessness encompasses human lives, and it comes down to our very identity as a nation and society. Can we as a nation, faced with overwhelming evidence, afford the shame of doing nothing? Can we live with the knowledge that we could have solved a national tragedy and saved more than a 100,000 lives, but simply chose not to? Taken together, the costs of doing nothing are simply too high.  

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