Yesterday, the CEO of the nation’s largest long-term care insurance company, Genworth, acknowledged the US needs a new model of LTC insurance that includes some government role. Tom McInerney estimated that between half and two-thirds of Americans simply cannot afford to buy insurance in the traditional private market. A 50-something can expect to pay an average of $2,500-$3,000-a-year for a typical policy ($150-a-day for three years, with inflation protection).
And that’s not the only problem. It is impossible to buy private insurance to protect against truly catastrophic long-term care risk of more than 10 years and difficult to buy coverage for more than five years. And perhaps as many as one-quarter of those who would like to buy can’t: They cannot pass the medical underwriting necessary to qualify for insurance.
Some are buying more affordable but very limited policies that cover perhaps $50-a-day for six months or a year, and others are purchasing combo products that merge life insurance and long-term care coverage in various ways. But, for the most part, traditional long-term care insurance is struggling. Few consumers want to buy it and few companies want to sell it.
Currently, only about 12 percent of older Americans have long-term care insurance, and the industry is selling fewer than 200,000 policies a year. The long-term care needs of most people are being met largely because of hands-on help from family members and friends. Those who require paid care typically pay out-of-pocket. Many will drain their resources and eventually rely on Medicaid for services and supports (while the rules vary by state, individuals are usually not eligible for Medicaid benefits until they are down to their last $2,000 in financial assets).
McInerney spoke yesterday on a panel sponsored by the Hamilton Project at the Brookings Institution. Tom, Brookings scholar Alice Rivlin, and I were asked to comment on a new financing proposal developed by UCLA economist Wes Yin.
Yin’s plan would enhance private long-term care insurance through two main mechanisms. The first would provide income-related government subsidies to help people buy private insurance. The second would establish government reinsurance (through a model known as shared risk-corridors) to protect private carriers against unexpected financial and system-wide risks.
In addition, Yin would make other changes to the insurance market, including standardizing policies, allowing penalty-free withdrawals from retirement plans for the purchase of insurance, and encouraging employers to offer private LTC coverage to their workers.
All these changes are likely to reduce premiums. And that, in turn, might increase sales of private insurance. But participation in the program would remain voluntary, and I’m not sure how many more people would buy without additional incentives.
For instance, the progressive subsidy (which would go directly to insurers but be reflected in lower premiums) would be targeted to low- and moderate-income people. Moving them to insurance could reduce Medicaid costs. But getting premiums low enough to convince them to buy would require very large government subsidies.
By contrast, permitting penalty-free withdrawals from retirement plans would help higher-income consumers (those most likely to have sufficient balances for such purchases to make sense). This initiative would cost the government relatively little, but may reward some people who’d buy anyway. Plus, the reduction in Medicaid costs would be small since few high-income, high-wealth seniors ever end up on the program.
Yin’s proposal is one of many aimed at improving the nation’s deeply flawed system for financing long-term care. Like nearly all others, it contemplates a larger– or at least different– role for government beyond Medicaid. And Genworth’s McInerney, a powerful industry voice, is welcoming that role—at least in theory.
It won’t be easy to define where government fits in a way that satisfies insurance companies, consumers, taxpayers, and providers. But there is a growing consensus that private insurance alone cannot protect us against the risk of needing long-term care, especially for many years. And that’s an important step forward.