Affordable Long-Term Care

America is in desperate need of a long-term care solution. Nearly 30 percent of men and 44 percent of women turning age 65 are likely to need nursing home care at some point before they die. The cost of this care can be devastating; nursing home care averages $70,000 annually. Yet long-term care financing is the only area of the health system in which we under-spend compared to peer nations. On the verge of the Baby Boomers’ retirement–the 65+ population will increase by some 30 million over the next 20 years, a three-fold increase over the previous two decades–the United States is utterly unprepared to finance their long-term care needs.

From the start, Medicare has resisted expanding its limited long-term care coverage. Although growing, the private long-term care insurance market finances even fewer people’s care. As a result, many seniors pay for long-term care costs out of income and savings, and their low and diminished resources then qualify them for Medicaid. Indeed, Medicaid has become the default payer for long-term care, assisting three out of five nursing home residents. This avoidable impoverishment and reliance on Medicaid not only strains public budgets, but also erodes retirement security.

Greater insurance against the catastrophic costs of long-term care is clearly needed. How to achieve it has not been clear. Tax incentives and changes in regulation have been used to promote private insurance, with limited success. In 2005, the Medicaid Partnership for Long-Term Care Program was expanded to promote long-term care insurance, allowing participants access to Medicaid while maintaining their assets. However, this too may yield low enrollment since premiums remain high and Medicaid may not be attractive for those with means.

A better approach uses Medicare, rather than Medicaid, to leverage long-term care insurance. This would be achieved by creating a new catastrophic, long-term-care benefit for seniors who also purchase a private long-term care insurance policy–the Medicare Long-Term Care Partnership. The benefit would be “triggered” by the exhaustion of the insurance coverage, i.e., once the fixed-dollar amount of lifetime coverage has been spent. The trigger would be reduced for low-income seniors. Medicare would, in effect, be a reinsurer for long-term care insurers.

The new benefit would be available only to those who purchased high-quality coverage. As with Medigap, which covers about one-fourth of seniors, Medicare would set standards for the policies to ensure access, fairly set premiums, plan stability, and seamless coverage with Medicare. Insurers that agree to these terms would benefit from Medicare’s marketing, imprimatur, and back-stop financing capacity.

The policy would be optional and available only during an open-enrollment period, upon joining Medicare at age 65, or for a limited time upon enactment. People already needing long-term care could not enroll. This limits the potential for adverse selection and ensures time for premium payments to accrue. The Partnership could be linked to the federally backed reverse mortgage program, allowing seniors to use their home equity to pay for premiums and enhanced home- and community-based care. Low-income seniors would need less insurance coverage due to the new catastrophic benefit, and thus would pay lower premiums. States could buy qualifying Medicaid beneficiaries into this program as well by paying for their premiums and cost sharing.

To offset its new federal costs, the Partnership would be a “swap”: Beneficiaries who opt for it would forfeit Medicare’s home-health benefit, which would be covered by the private insurance plan. In addition, the increase in Medicare spending would be partially paid for by the resulting decrease in Medicaid spending.

The Medicare Long-Term Care Partnership would offer the possibility of jump-starting long-term care insurance for seniors. It would provide sliding-scale premium assistance for low- and middle-income people through an income-related catastrophic benefit, and it would encourage consumer confidence by ensuring long-lasting and reliable benefits. It would redirect existing public funding to paying for the highest-cost care, arguably the right role for government. And, most important, it would restructure the relationship between private and public coverage–a necessary relationship if the nation is to adequately finance long-term care for Baby Boomers.

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