What Should Be Done About Long-Term Care?

— Experts disagree on whether the private insurance market can provide the answers

A photo of nurses visiting an elderly woman in her room in a long-term care facility.

The problem of how to pay for long-term care continues to bedevil policy experts, with some arguing for a combination public-private insurance market and others arguing that a social insurance program is the best solution.

Marc Glickman, CEO of BuddyIns, a long-term care planning company, noted that a new type of hybrid long-term care/life insurance is picking up steam. "We are seeing a lot of growth in this 'combination' market, which combines life insurance with long-term care features," Glickman said Monday during a webinar hosted by the American Enterprise Institute (AEI). "And because of the competition in that space, the long-term care benefits for the premium dollar have actually rivaled -- and maybe even exceeded -- the amount of insurance coverage you can get from a traditional product."

Under such a "combination" product, a customer buys a set amount of life insurance, but if they need long-term care, the insurance company will "accelerate" the payout so it can be used to pay for that care, he explained. One advantage of these policies is that unlike traditional long-term care insurance policies -- which provide unlimited benefits and often see sharp rate increases because the cost of long-term care keeps going up -- the hybrid policies won't have big rate increases because they only pay out a set amount of money.

"For traditional policies, I think we've seen the worst of the rate increases," Glickman said. "You're still going to see them, but they're going to be milder and milder as they get more on track to be sustainable. What you're going to see on the hybrid market is a 'pre-built' policy that has guaranteed premiums built into it, where there can't be a rate increase, and that's, of course, very comforting to people that want a fixed outlay."

An Ongoing Need

The growth in long-term care offerings comes at a time when the need for long-term care insurance continues to grow. In 2021, the U.S. spent $467 billion on long-term care, said Mark Warshawsky, PhD, senior fellow at AEI, who cited numbers from CMS. Of that amount, $207 billion was financed by Medicaid, $93 billion was financed by Medicare, and $134 billion was paid from private funds, including $64 billion in costs paid out of pocket (Another $28 billion was listed as "other").

The risk of needing long-term care is greater throughout life for women than men, and at age 65 it stands at 64% for women and 49% for men, he continued. Black and Hispanic populations have about double the risk of other groups, Warshawsky said.

Medicaid, not Medicare, pays for 32% of long-term care -- of that, nearly two-thirds, or 60%, is spent on home care while the other 40% is used for nursing home care. Only about 11% of the population currently has a private long-term care policy, in part because medical underwriting requirements restrict eligibility, he said.

Attempts at Expansion Unsuccessful

Previous efforts to expand government coverage of long-term care have met with failure, Warshawsky noted. One early attempt in 1988 resulted in the passage of a bill in Congress, but that was repealed a year later when people realized it was going to be paid for by the elderly in the form of higher Medicare premiums.

More recently, a long-term care provision was included in the Affordable Care Act (ACA); it was a voluntary program that proponents hoped employers would offer to their employees. "The reason why it was included in ACA is it was thought to produce a lot of upfront revenue -- almost $70 billion -- for the ACA to pay for the expansion of health insurance," Warshawsky said. "As it turned out, a quick analysis showed that ... the program was not viable, there would be a lot of adverse selection. In other words, the people most at risk [of needing long-term care] would buy the insurance and others would stay away from it." The program was halted in 2011 and dropped from the law in 2013.

States have also looked at the issue, with Washington state currently implementing a long-term care insurance program known as WA Cares. It's a "modest" insurance policy paid for by mandatory payroll tax contributions, Warshawsky explained, adding that the program seemed to be "very unpopular" and there is currently a proposition on the state ballot to make the program voluntary.

What Happens Next?

With general agreement that the need for long-term care is only going to increase as the U.S. population ages, what should be done? Warshawsky said he recommends "self-reliance for those who can afford [to buy insurance] and appropriate assistance for those who cannot."

"I'm not proposing anything radical," he said. "We need to refocus Medicaid and get it back to what it was intended to be -- to help the poor and the middle class," rather than the current system which allows some wealthier people to retain their assets while still staying eligible for Medicaid.

But Wendell Primus, PhD, a visiting fellow at the Brookings Institution's Center on Health Policy, disagreed. "I think we need a social insurance answer, much like Social Security; this simply will not work in the private sector," he said.

And although this issue won't be addressed in the next election, "I do think that over the long run, in the next 10 to 15 years, we could see a solution here, mainly because this is expensive, and we don't have a solution right now," Primus said. "The numbers are going to put extreme burdens on [the Medicaid programs in] Florida, Arizona, and California, so I think there's going to be a need to tackle this issue just because of the cost and the fact that people haven't bought long-term care insurance, and I don't see any great reversal of that in the short run."

Any program that's developed will need to be mandatory "because almost by definition, there has to be a lot of [income] redistribution here," said Primus, who used to work on health policy issues for former House speaker Nancy Pelosi (D-Calif.). "I don't necessarily want to say redistribution is good, but because of the extreme cost, I don't think a low-income person can afford ... some of the cost of long-term care, and you're going to have to tax the higher-income individuals to make sure that you have adequate long-term provisions."

The benefit would include a defined set of services such as home care, adult day care, personal care services, homemaker services, care coordination, and transportation, Primus said. And it would need to be funded by a new trust fund similar to the current Hospital Insurance Trust Fund, with dedicated taxes.

On whom would the taxes be levied? "We think a federal income surcharge in the 5% to 7% range, starting at age 50 to 55," he said, noting that he was working on a proposal with his colleagues. "I don't think we should start that tax until age 50 or 55 because young families are having to buy a home, they're having to take care of [their children's] college education, and also, people don't start thinking about their long-term care needs until later in life. So I think politically, this would go down easier."

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    Joyce Frieden oversees app’s Washington coverage, including stories about Congress, the White House, the Supreme Court, healthcare trade associations, and federal agencies. She has 35 years of experience covering health policy.