Federal and state policymakers increasingly are interested in creating a public social insurance program for long-term care in the US. Even some Democratic presidential hopefuls have raised the issue, though still only in general terms. That growing interest is great news, and long past due. But what should such a model look like?
Designers face a handful of critical high-level choices. Do they invent a public long-term care (LTC) insurance program that looks like existing stand-alone private insurance? If so, do they cover first-dollar costs, catastrophic risk, or everything? Or, alternatively, do they integrate long-term services and supports (LTSS) with medical care? And whatever they do, how do they pay for it?
First, a bit of context: The US and England are the only two developed countries in the world without a social insurance program for long-term supports and services. The US relies instead on Medicaid. But it is available only to those who are impoverished and have very high care needs. In effect, Medicaid is insurance that has a deductible of all your financial assets except for $2,000.
We can do better. But how? Here are just some of the choices, with their pros and cons.
Public long-term care insurance
Public LTC insurance comes in three basic flavors—it could cover front-end risk, catastrophic risk, or both. If we had unlimited resources (and unlimited public acceptance of tax increases), a fully comprehensive public insurance program would be ideal. But it would be much too costly. My Urban Institute colleague Melissa Favreault has estimated that fully funding one version would require a payroll increase of 1.35 percent. For a middle-income worker, that would be a tax increase of about $800-a-year. Much less than a typical LTC insurance policy, but probably more in taxes than most Americans would be willing to pay.
By contrast, covering either a portion of the first year of need or a share of lifetime need after the first few years would cost only about half as much and might be more politically acceptable. But which is the better choice?
Front-end or catastrophic?
Washington State recently chose front-end coverage, providing residents with $36,500 in public insurance. Since this design meshes well with Medicare’s post-acute care, it would be relatively easy to transition from Medicare’s nursing home care after a hospitalization to long-term care. It also covers more people—about half of those 65 and older would likely receive at least some benefits. For government, as with private insurers, front-end costs are more predictable than open-ended catastrophic expenses.
But front-end has downsides. It may discourage people from planning for their own needs. It will not work well with private LTC insurance. While it covers the first dollar costs, it won’t provide much help for those who need long-term care for many years (such as many people with dementia). Because it covers everyone with a severe functional impairment, regardless of income or wealth, the program could provide benefits to Bill Gates—perhaps not the best use of taxpayer dollars.
By contrast, a back-end, catastrophic model focuses on those with the greatest need. US House Commerce Committee Chair Frank Pallone (D-NJ) has proposed such a bill, structured roughly on a plan recommended by the Long-Term Care Financing Collaborative and refined by Judy Feder of Georgetown University and Marc Cohen of the University of Massachusetts in Boston
This model generally requires people to cover the first few years of need through savings, home equity, or insurance. But after that, it would provide a lifetime benefit. And for those with very long care needs (say five years or more), there are few other options. Few can be expected to save enough to pay the $250,000 or more their care will cost. And private LTC insurers rarely cover more than 3-5 years of need. Government is most valuable when it can fill a gap left by the private market.
Bu the catastrophic model isn’t perfect either. It would cover fewer people than the front-end model, though Pallone’s bill includes a feature developed Judy and Marc that would accelerate catastrophic coverage for those with lower incomes.
Still, instead of providing benefits for half of older adults as the front-end model would, a program where coverage kicks in after a two year waiting period may cover only about 25 percent. Income testing the waiting period could bump that up to about one-third. Still, lawmakers often prefer to maximize the number of people a public program covers.
Integrated Medicare health and LTSS benefit:
Policymaker could choose an entirely different route: Instead of creating a public LTC insurance, they could more aggressively integrate medical treatment with social supports and services in a single comprehensive benefit. Medicare already does this in some very limited ways. And the CHRONIC Act, passed by Congress in 2018, has the potential to expand that model for Medicare Advantage plans. House Ways & Means Committee Chair Richard Neal (D-MA) is considering a similar plan for Medicare Supplement (Medigap) insurance.
The challenge with this model is that we don’t yet know enough about what LTSS benefits do the best job at both improving people’s quality of life and reducing their health care costs. Thus, even when the government allows plans to offer social supports and services, they often are reluctant to do so.
An integrated model also raises other issues: Should these benefits be optional or required? Should government pay plans extra to offer them? And how much flexibility should plans have to design benefits?
Thinking about how to design a public long-term care program requires answering lots of questions. The very good news is: Policymakers are starting to ask them.
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