In the wake of the White House decision to abandon the CLASS Act, policy analysts are struggling to find some workable solution to the growing problem of how to finance long-term care costs. So how about using Social Security?
One versionof this idea was proposed years ago by Yung-Ping Chen, now professor emeritus of gerontology at the University of Massachusetts. He’d let Social Security recipients trade off a small portion of their cash benefit in return for basic long-term care insurance. They could, for instance, give up 5 percent of their monthly check in exchange for enough insurance to pay for, say, a year of nursing home care or two years of home care, Chen figures. Thanks to Bob Powell at MarketWatch for reminding me of his plan.
Chen’s idea would mimic, in some ways, a trend that is already taking place in the private insurance market, where products that combine long-term care insurance with annuities or even term life insurance are all the rage. These “combo” products are similar in some respects to what Chen would do. For example, with a combined annuity/long-term care product, you give up some of the monthly income the annuity usually throws off in exchange for insurance coverage should you need personal care. With the life insurance version, you’d lose a chunk of your death benefit if you tapped the long-term care policy.
There is also another way to use Social Security to fund long-term care needs. Congress might adjust benefits so retirees get a smaller payout at first but bigger checks after, say, age 80 or 85. This would not be long-term care insurance per se, but would boost people’s income at the time they’d be most likely to need costly personal care. Again, some annuities work this way today.
Chen’s idea is only a concept. He has not run actuarial estimates, and there are many unanswered questions: Among them, how big would the long-term benefit be, what percentage of basic Social Security would be traded off, and what would the actual benefit structure look like? How would the plan fit with supplemental private insurance or other savings? And, perhaps most important, would this Social Security swap be voluntary or mandatory?
And Chen candidly acknowledges potential criticisms of his idea. Some will say Social Security benefits are already too low for many retirees and asking them to accept still-smaller regular benefits is unreasonable. Others will claim his design would unfairly reduce benefits for higher-income people. And still others will say that neither the poor (who would still be eligible for Medicaid) or the rich (who could self-insure) would ever participate in a voluntary system, resulting in the same limited risk pool that is so troublesome for private long-term care insurance and helped doom CLASS.
Still, when Congress finally makes badly needed changes to Social Security, it ought to at least consider whether long-term care deserves to be in the mix. These ideas might seem far-fetched and would surely be extremely controversial, but after the CLASS debacle, a bit of out-of-the-box thinking might not be so bad.