Think Tank

How Will We Pay For Long-Term Care?

More than 12 million Americans currently need long-term care — a number expected to double over the next three decades. Some need help eating or bathing at home, others require around-the-clock care in a facility. The cost: $350 billion annually.

The current system for financing long-term care is a hodge-podge of self-pay, private insurance and government programs that experts and policymakers generally agree is unsustainable.

The number of insurers offering long-term care insurance is declining, and few families can afford it. At the same time, providing publicly-funded care to everyone who qualifies would place an enormous strain on state and federal budgets.

New ways to pay for long-term care are being debated by legislators, researchers, advocates and insurers in California and around the nation. Last month, a group called the Long-Term Care Financing Collaborative issued a report proposing a universal, catastrophic insurance program and more support for family caregivers.

The California legislature is grappling with the issue, too.

We asked some stakeholders and experts to weigh in on the issue, including: Howard Gleckman, senior fellow at the Urban Institute; Hugh Slayden, a consultant to the California State Senate Committee on Insurance; Joanne Handy, CEO of LeadingAge California, an association of nonprofit aging organizations; and Donald Redfoot, a consultant and former strategic policy advisor for AARP Public Policy Institute.

Condensed versions of their comments are below.


The Case For Universal Long-Term Care Insurance

Americans are living longer than they ever had in history. And the system of supports and services has not quite caught up with this dramatic change in life expectancy.

The other thing that has happened is that demographics have changed a lot. The baby boomers have fewer children than previous generations. So there are fewer people to care for them.

People are also more and more interested and more and more insistent on getting care at home. It can be less expensive than to be in a nursing facility or an assisted living facility, but it is also not a very efficient way to deliver services.

On the payer side, we have several longstanding problems that are only getting worse. One of them is that Americans are notoriously poor savers, so we don’t have the financial resources to pay for this care in our old age. The second is that the major government payer for this is Medicaid. Medicaid is under enormous financial pressure.

Then there is private long-term care insurance. It has been a product that few people have wanted to buy, and fewer and fewer insurance companies want to sell.

A group of us got together about three years ago to form what we called the long-term care financing collaborative. We recruited people from across the ideological spectrum — people who represented consumer groups, providers, the insurance industry.

The centerpiece of this proposal, and probably the most controversial piece was a universal public catastrophic insurance program.

About one in six or one in seven people could need a high-level of supports and services for five years or more. The care could cost a quarter million dollars or more. You can’t expect Americans to save that amount. We also concluded a voluntary program just wouldn’t work. You could not get the premiums low enough that healthy people would be willing to participate.

If there is no private market solution, if people can’t be expected to save, and if a voluntary program isn’t going to work, it had to be some sort of universal program.

That could be funded in many different ways. The Urban Institute modeled a payroll tax. You could also do it with an income tax increase. You could do it with premiums.

We also recognized that there was going to be a large segment of the population that simply was never going to be able to afford to do this on their own, and they were going to have to use the safety net. Medicaid is the safety net that’s out there. We needed to have a lot more flexibility in those programs, particularly flexibility in terms of shifting the balance from institutional care to home and community-based care. Every individual ought to get care in the setting that is most appropriate for them. The states should have the flexibility they need to provide that care.

Nothing is going anywhere anytime soon. 2016 is a washed year in terms of policy, but in 2017 there is going to be a new president and there is going to be a new Congress. There is a lot of talk about entitlement reform. What do you do with Medicaid; what do you do with Medicare? The argument we are making is that in that context, you ought to think about long term supports and services.

The baby boom generation is running out of time. Baby boomers have all hit their 60s and in another 15-20 years, when they hit their 80s, their need for care is going to be enormous.

The money has got to come from some place and we just thought an insurance system is the best way to do it. If we are going to do it in time for the baby boomers, we better get started. In fact, we should have gotten started years ago.


Insurance Market Needs To Be Revamped

My share of this has to do with the private funding. And right now it is not looking too good. Last year the Department of Insurance informed me there were 12 insurers who offer long term care. I think it wasn’t too long ago there were 16.

It is just difficult to guess what the needs are going to be 20 or 30 years down the line. First off, you have people whom [insurers] didn’t expect were going to get benefits, because they were going to pay on the policy for a while and then let it lapse. Secondly, [insurers] didn’t expect people to live as long. The insurers are trying to catch up. Most people expected that their rates were not going to increase. The expectations of the consumer were kind of jolted when they started getting these 30, 40 sometimes 80 percent premium increases.

And of course you have insurers that are leaving the market. So the traditional long term insurance market is looking less and less like any real type of solution to the overall long-term care financing problem.

Now, life insurers are becoming more and more involved in offering alternatives like accelerated death benefits. Those are benefits that you can access before you die. These policies have the potential to attract more consumers in terms of preparing for long-term care costs.

In the legislature, we are still in the very, very early stages. We have reached out to stakeholders and we are compiling proposals. There are two approaches. What can we do with traditional long-term care insurance and what can we do with combo products?

Ultimately, this is for the quality of life for the people who live here. If a consumer doesn’t prepare, their backstop is the Medi-Cal program. That requires the person to be impoverished. You have to spend down the money, give it away, do something and you have to do it under these strict and sometimes confusing rules. We would all like to see everybody avoid that if they could.

The more people we can help avoid the Medi-Cal program, the better the Medi-Cal program can serve those people who absolutely need it.


Reforming Long-Term Care Insurance

Seventy percent of people who turn 65 will have a need for some kind of long-term services and supports. We are talking about a vast number — in fact, the majority of middle income Americans, who are facing a pretty significant risk of needing expensive and perhaps long-term services and supports.

Beside the demographics driving increased demand, we have the caregiving crisis. Given the change in the family structure, the caregiving resources that have been there are going to be insufficient to meet the need.

The default is to spend all of your money and qualify for Medicaid. From a public policy perspective, Medicaid is not going to be sustainable for people for whom it is really meant – for impoverished people – if it becomes the default long-term care policy for this country.

LeadingAge at a national level has something called the Pathways Project. The project was an attempt to outline and develop some public consensus around seven different pathways to finance long-term services and supports.

The pathways ran the gamut from a completely private insurance plan, long-term insurance for everyone, to a completely public comprehensive plan. In California we held a series of discussions with key stakeholders to try to come up with some consensus about which of those had merit for Californians.

The consensus was that the ones that had the most merit were reforms in the private insurance market. If we could come up with some new product designs, we could get them approved in California.

Here is an example: the life insurance conversion policy. People buy life insurance when they are young and they want to have income protection. What about a policy on people’s retirement, when they don’t have as much need for income security for their young children, that could be converted to a long term care policy?

It has to be a combination of reform of the private long-term care insurance market and then a back-end catastrophic, mandatory insurance program. There would be incentives for people to buy different kinds of long-term care policies. When you first needed [services], you would be getting a benefit of say maybe $50 to $100 a day. But once you hit a certain level of expenditures, say you needed it for five years … that is when a public catastrophic plan would kick in. It is those people who default into the Medicaid program.

Though we won’t be faced with the height of this crisis for another 10 or 15 years, now is the time when we have to start planning.

Don Redfoot

Reforming Long-Term Care Insurance

The issue is one of those sleeper issues. It hasn’t received as much attention as it should, given the enormity of it.

Long-term care by its very nature is a diverse thing. It is housing, it is health care, it is personal care services. It is everything that enables a person to keep going and living a life with a disability. It isn’t just an elderly issue. Almost half of those with disabilities needing long-term care services are under 65.

Families provide the bulk of long-term care services, usually on an unpaid basis. Supporting them is absolutely critical to consider as part of the long-term care picture.

Many have described long-term care as an insurable risk. Not everybody needs the care … and yet it can be catastrophic. It can wipe out a person’s life savings easily.

In such circumstances, it is best to pool the risk through insurance. And yet despite the fact that we talk about it as being insurable, the fact of the matter is that less than 10 percent of the population ever buys long-term care insurance on the private market.

Despite the increasing need, and the increasing risk, and the increasing number of older people we are projecting, we are seeing a declining willingness to purchase private insurance. Having no insurance means that either people have to rely on family, which they do in large numbers … or their own savings, which are typically woefully inadequate.

If they completely impoverish themselves, they go on Medicaid. That too is putting stress on state budgets right now. What we are seeing is all points in that system – the caregivers, private insurance market, Medicaid– are under duress. The projections are that the demand will only grow.

I think there is a growing consensus that [Medicaid] needs serious revisions, so it promotes people living in their own homes rather than its own bias in favor of nursing home services.

Then I think that a lot of what needs to happen at the consumer level is enabling people both to understand the risks that they face and coming up with viable ways to prepare for them.

We need more retirement savings, to be sure, but how do we have viable insurance? My personal feeling is there has to be a very large role for a public insurance program. If we want to make substantial change, we really need to move our policy from a welfare-based approach, which Medicaid really is, to an insurance approach, where we plan more rationally and insure for that future that we know is coming.