Two years ago, the Trump Administration quietly began a review of the nation’s long-term care (LTC) insurance system, focused primarily on ways to enhance private coverage. This week, just as quietly, an administration task force released its report. Unfortunately, for the most part, the group was unwilling to commit to any meaningful changes to a badly broken system.
It made only a few modest suggestions, and none will significantly enhance the ability of consumers to pay for the growing costs of the services and supports required by frail older adults and younger people with disabilities. The group’s extreme caution was especially dissonant given the catastrophe that the covid-19 pandemic has visited on older adults, especially those living in long-term care facilities.
The task force, which intended to release its recommendations last year, was made up of senior officials from the departments of Treasury, Health and Human Services, and Labor; and the Office of Management & Budget (OMB). The group’s starting point was a set of proposals by the National Association of Insurance Commissioners (NAIC)—itself a very cautious consensus document.
While some urged the administration to think more broadly, it was unwilling to do so. (Full disclosure: I was among those urging a more ambitious agenda when I presented to the group more than a year ago).
But the Trump Administration was not even willing to go as far as the NAIC in many areas. And it was reluctant to endorse reforms that might significantly increase the number of Americans with some form of long-term care insurance.
Among the ideas it was unwilling to endorse: An opt-out model for employer-based LTC insurance. Like the design many employers use to encourage workers to participate in 401(k)-like retirement plans, employees would be automatically enrolled in long-term care insurance unless they explicitly opt-out. The group also rejected proposals to allow consumers to purchase coverage within their 401(k) or 403(b) retirement plans, changes to the way states approve premium increases, or any form of public long-term care insurance.
Shrinking inflation protection
It did make a handful of suggestions. It said the federal government should do a better job educating consumers about long-term care and the need to finance it. And it suggested that Congress grant the Treasury the authority lower the level of required inflation protection included in private LTC policies. Currently, policies must offer to increase benefits by 5 percent annually to qualify for special tax benefits (though consumers can choose less inflation protection). This, it said, could lower premiums.
It also identified another initiative: Allowing private insurers to offer so-called incidental benefits to policyholders before they become eligible for full benefits. The idea is that carriers could help support the costs of home modifications, caregiver training, or information services early in a policyholder’s long-term care need. By doing so, it could keep people healthier and safer, and lower costs in the long- run.
But the task force could not quite bring itself to endorse the plan. Instead, it said the idea should be further assessed and suggested Congress “could consider” changes to allow such a benefit.
Otherwise the group offered only general support for state efforts to make policies more attractive to consumers.
In what I’m sure was a major disappointment to the insurance industry, the administration refused to endorse major new tax subsidies for buyers of long-term care insurance. These included a new income tax deduction for premiums, allowing taxpayers to buy LTC insurance through a tax-advantaged Flexible Savings Account, creating a Health Savings Account-type program for LTC insurance, or including such coverage in employer-based benefits packages (called cafeteria plans).
It did say workers should be allowed to withdraw funds, penalty-free, from their 401(k)s to buy LTC insurance. They’d still owe regular income tax on the withdrawal.
Walking away from the tax breaks was a good choice. They’d mostly benefit high-income households, who need the subsidies the least. And evidence from state-based subsidies suggest they would do little more than subsidize taxpayers who were going to purchase insurance anyway.
No real solutions
Trump’s task force worked hard at this project for two years. And I believe it truly wanted to bolster the collapsing private insurance market. It carefully reviewed many options for enhancing private coverage and rejected nearly all of them as either unworkable or ineffective. In some cases, it made the political decision to leave reform to the states.
In the end, the task force’s biggest contribution may have been its conclusion that no public policy changes will fix private LTC insurance in isolation. And that is more evidence pointing in the direction of a public social insurance benefit, the solution adopted by every major developed country in the world, except for the US and England. Combined with such a public program, private insurance might have a future too.