Besides helping protect millions of Americans from the costs of long-term services and supports, well-designed long-term care financing reform also could sharply lower Medicaid costs. Even better: One version of reform, public insurance, could give care recipients and their families significantly more flexibility in designing their own care.

Over the long run, a public catastrophic long-term care insurance program could lower Medicaid long-term care costs by between one-quarter and one-third, according to two studies. Replacing Medicaid long-term services and supports with a fully-funded public insurance program would substantially lower federal budget deficits and the national debt.

Another version of long-term care financing reform, shifting Medicaid home and community-based services to Medicare, also could result in substantial Medicaid savings. Representative Debbie Dingell (D-MI) and Senator Andy Kim (D-NJ) recently proposed such a shift.

A similar proposal from several Brookings Institution experts also would shift much home and community-based care, known as HCBS, from Medicaid to Medicare. They project about $50 billion in annual Medicaid savings from such a change.

Cost Savings

At a time when Medicaid is under enormous financial and political pressure, moving a substantial share of long-term care costs out of the program ought to be attractive to both Democrats and Republicans. They may have very different reasons for their support but there is an opportunity to win bipartisan backing for the change.

Moving long-term care from Medicaid to public insurance or Medicare also would expand benefits to millions of middle-income people who are ineligible for Medicaid.  Critically, any new public program needs to be fully self-funded though some form of tax, premium, or mandatory contribution.

In 2023, Medicaid spent about $230 billion on long-term care for more than 9 million beneficiaries, including about $146 billion on HCBS,  according to the federal Centers for Medicare and Medicaid Services.  However, Medicaid LTSS spending is likely to decline due to deep program cuts passed by Congress in 2025 and the Trump Administration’s war on what it claims is widespread fraud in the program.

Medicaid has been the chassis for government long-term care financing since the program was created in 1965. However, LTSS has changed dramatically over the past 60 years. Far more people are eligible for benefits. And Medicaid home-based care, unheard of in 1965, is supplanting nursing home care in most states.

However, at the same time it is becoming more politically unstable, with Republicans targeting the program for deep cuts

Public Insurance

Medicaid would see a significant reduction costs if LTSS is shifted to a catastrophic public insurance program. One version is the WISH Act, introduced by Rep. Tom Suozzi (D-NY). (Full disclosure: I serve as an unpaid member of a group advising Souzzi on how to finance his plan).

In his design, which is still being refined, working age people would pay into a government fund and be eligible for benefits in old age. They’d be responsible for their own care for some period of time, perhaps 1-5 years, depending on their income. They could cover that initial period through, say, savings, home equity, or private long-term care insurance.

After that, the government would pay for a share of their care, perhaps $100-a-day, for the rest of their lives. Under the current WISH design, coverage would be available only for eligible older adults, not younger people with disabilities.

Importantly, public insurance would pay before Medicaid. For those with low incomes and assets, Medicaid still would be available. But it would only pick up costs not covered by the public insurance program.

A recent analysis of WISH by the actuarial firms Actuarial Research Corporation, GCG Consultants, and Oliver Wyman concluded that a WISH-like insurance program would reduce the number of Medicaid LTSS beneficiaries by about 4%. That may not seem like a lot, but over time it would lower Medicaid long-term care costs by about one-quarter.

An earlier study by my former Urban Institute colleagues Rich Johnson and Melissa Favreault concluded that a similar public catastrophic insurance program would lower Medicaid LTSS costs by more than one-third.

A public catastrophic program would reduce Medicaid spending by much more than a front-end public insurance program such as Washington State’s WA Cares program.

How Reform Could Lower Medicaid Spending

To understand how Medicaid would save, keep in mind how the structure of public insurance meshes with the demographics of care recipients.

On average, older adults need long-term care for about three years. Most will require assistance for a year or two. But more than one-third will need care for three years or more and roughly 20% will need assistance for at least five years.

Most of those who receive Medicaid LTSS had low-incomes for much of their lives and may already have been on Medicaid for at least part of that time. For them, a long-term care need will rapidly trigger Medicaid LTSS benefits.

But many middle- or even high-income people will spend down their assets on medical expenses or long-term care needs in old age. Often they burn through their financial assets due to very long spells of personal care. Think about people living with dementia, heart failure, or diseases such as Parkinson’s.

This is where Medicaid savings can be significant. For them, public catastrophic insurance combined with some personal savings would cover all their care needs. They’d die before ever becoming Medicaid eligible. For others, public insurance would delay Medicaid eligibility.

Thus, much of that Medicaid savings likely would come from middle-income people who otherwise would spend down their assets and end up program beneficiaries.

The caveat is this savings would occur over many years. Very little would be reflected in the Congressional Budget Office’s 10-year fiscal projections that often drive legislation on Capitol Hill. When the WISH actuaries estimated the tax increases needed to fund WISH, they did not include any Medicaid savings.

Better Care  

Shifting LTSS from Medicaid to insurance is about more than federal cost savings. Keeping frail older adults off Medicaid also could improve the quality of their care.

While the Trump Administration alleges widespread Medicaid fraud, the bigger problem is Medicaid beneficiaries are hamstrung by reams of regulations aimed at preventing fraud. As a result, it often is difficult for Medicaid families to fund appropriate care. For example, depending on state rules, Medicaid may not pay for home modifications to prevent falls, or the correct wheelchair or walker, or for a neighbor to look in on a frail care recipient.

Public insurance, especially if it includes a cash benefit, would provide far more flexibility. While rolling LTSS into Medicare would have many advantages over Medicaid, it also would come with reams of regulations that could limit the availability of care.

A fully-funded insurance program would save Medicaid billions of dollars and improve the quality of life for many receiving long-term care. Politicians should take note.