Can Lawmakers Build A Sustainable Long-Term Care Insurance Program?

long-term“The problem with long-term care is that it suffers from a lack of interest,” Howard Gleckman, a resident fellow at the Urban Institute and author of “Caring For Our Parents,” told me in an interview. “When I talk to members of Congress about this issue, they just don’t care. It’s not on their radar screen. And their attitude too often is, ‘I’ve got enough trouble here with health reform, I don’t want to deal with this too.'” But “people who have multiple chronic disease, or severe disabilities, or living in frail old age, don’t make a distinction between what’s their medical care and what’s their long term care. You just need care,” he stresses.

Senate Majority Leader Harry Reid (D-NV) is rumored to have included the Community Living Assistance Services and Supports Act, or CLASS Act – a voluntary long-term care insurance program which covers medical and non-medical services like dressing, bathing, and using the bathroom — in the merged Senate bill, despite criticism from economists that the program would eventually pay out more in claims that it would collect in premiums and become an unfunded liability.

Long-term care proponents contend that the current system of financing long-term care is also unsustainable. Americans spend more than $200 billion a year on long term care services in nursing homes, at home, or in assisted living facilities. “Medicaid is now the largest single provider of long-term care costs — it spent more than $100 billion last year, over one-third of its budget” and “paid more than 40 percent of the nation’s total long-term care bill.” Families and senior citizens (and Medicare to a lesser extent) pick up the rest of the tab, often spending down to “$2,000 in financial assets” to qualify for Medicaid coverage. By mid-century, the Congressional Budget Office predicts that the nation will have to spend 16% of anticipated federal revenues on Medicaid to fund care for the baby-boom generation.

“So the question is how do we fix this system? How do we create a system that can both relieve the burden on families and relieve this burden on government?,” Gleckman asks. The CLASS ACT is just one solution. It establishes “a national insurance program to be financed by voluntary payroll deductions to provide benefits to adults who become severely functionally impaired.” All working adults will be automatically enrolled in the program, unless they choose to opt out.

Gleckman sympathizes with critics who say that CLASS may become unsustainable over the long term and argues that policy makers must design a plan that attracts enough young participants and offers a fair benefits package to its enrollees. The plan must be both affordable and comprehensive:

A simple way to do it [ensure that the program is not paying out in claims more than it is taking in] is to make it mandatory. That’s what the Germans have done, and the French and the Japanese and almost every other industrialized nation around the world has done…. If you have a mandatory program, you accomplish two things. The first is you of course eliminate the adverse selection problem, because everyone is in the program, and the other thing is, you are able to push down rates to level where they are pretty easily affordable for most of the population.

Gleckman says that a mandatory long-term insurance program could push down premiums to $45 a month on average, even lower ($12-$20/month) for younger Americans. “But again, the problem is the politics. Can you really do a mandate in the current political environment? The sponsors of the CLASS act made a decision that they couldn’t, so consequently they’re struggling to create a program that has a benefit that is descent enough that people would be interested in, but doesn’t have premiums so high that it will chase people away.”

Working within these political realities, lawmakers can amend the existing CLASS legislation to ensure that the program is sustainable over the long term:

– Vary premiums by age: Currently, enrollee would pay the same premium for life. This increases the cost of the average premiums and pushes young people out of the program. By increasing the premium slightly every year, “you make it possible to sell to young people at a very very low rate.”

– Greater flexibility to HHS flexibility in design: Since it’s unclear who will participate in the program and whether high premiums will detract younger Americans from enrolling, giving the HHS secretary greater flexibility in varying premiums and benefits would ensure that the program is fiscally sound over time.

– Buy the insurance with pre-tax dollars: To encourage participation, premiums could be purchased with pre-tax dollars.

– Requirement that only working adults can purchase coverage: While nonworking spouses also need coverage, limiting enrollment and risk exposure to working Americans may be an option for strengthening the solvency of the legislation.

“Affordability is the key to this,” Gleckman says. “They’ve got to find a way to keep premiums below $100.” Moreover, policy makers must stop talking about long-term care “as a way to pay for the rest of health care reform.” “The more you talk like that, the more people don’t see this as insurance, they just see this as another government bait-and-switch program. ‘I’m going to be paying all this money, and 40 to 50 years from now, when I actually need it, it’s not going to be there.’ I would design it so that it would really fund itself and the money stayed separate from the rest of government.”