Financing Long Term Care: The Myriad Possibilities

Another proposal by the Council of American Health Insurers, on the other hand, seeks to use individual medical accounts to finance LTC insurance risk either through the private market or government high-risk pools, using Medicare age eligibility as the jumping-off point.

In the chart’s third column, “Public Catastrophic LTCI,” lists more public-oriented solutions, with linkage to Medicare but with a decreasing yet still important role for private insurance.

At the top of the list is the CLASS Act proposed by Sen. Edward Kennedy, D-Mass., which would make available a voluntary basic LTC insurance benefit on a guaranteed-issue basis. This would be offered at a modest cost via employer payroll deduction. Premium payments would be collected automatically via payroll withholding unless an opt-out provision is chosen, yielding a large risk pool. While providing only limited benefits under a two-tier structure tied to degree of disability, the CLASS Act would force LTC insurance into the mainstream of basic protection and do so at an affordable price, thus relieving pressure on Medicaid. It would also preserve an important role for private insurance.

Other notable proposals include:

o The Social Contract plan of Brookings scholar William Galston, which would mandate purchase of private LTC insurance in exchange for Medicaid eligibility with asset protection.

o The Federal Catastrophic LTC Insurance Program proposed by Christine E. Bishop of Brandeis University, which would provide a basic LTC insurance benefit after an elimination period of three years.

o The Medicare-linked optional LTC insurance benefit proposed by Anne Tumlinson of Avalere Health and Jeanne Lambrew of George Washington University, which would allow Medicare beneficiaries to trade their limited Part B home health benefits for a more robust private LTC benefit that would be continued by Medicare after insurance benefits were exhausted.

o The Medicare Advantage plan from the Alliance for Quality Nursing Home Care, the American Health Care Association and the National Center for Assisted Living, which proposes a Medicare LTC benefit after an individual either establishes a personal cash reserve of $100,000 or purchases a qualified private LTC insurance policy, either of which would have to be used up before qualifying.

The column on the far right of the chart lists proposals to finance a uniform LTC benefit by taxes or mandatory premiums. It includes the Medicare Part E proposed by Leonard E. Burman of the Tax Policy Center and Richard W. Johnson of the Urban Institute as well as the American Association of Homes and Services for the Aging plan.

The Burman & Johnson proposal would provide comprehensive LTC benefits, including home health care, under a new Medicare Part E financed by income taxes, with subsidies to low-income persons. There would be some copay, again with subsidies for low-income persons.

The Burman & Johnson and the AAHSA plans would implement a European-type social insurance model of managing and controlling LTC risk on a larger scale, similar to what is now done in Germany, Sweden, the Netherlands, and Japan. Like these countries, America is beset with aging demographics, changes in the family structure reducing the availability of female caregivers, greater mobility, inflation, and systems that fail to integrate acute care and LTC needs to ensure quality of care and cost efficiency. The American version, like its European counterparts, would be pay as you go, with no actual funding as in allocated trust accounts. Nor does there appear to be any feasible way of guaranteeing funding for future LTC liabilities, as any attempt to do so would impose a crippling burden on working persons and government officials.

There are problems with all of these approaches to LTC finance reform. Here are the most obvious:

? Private Market LTCI, which proposes to transfer LTC insurance risk from private persons to insurers via private resources, such as private savings and private LTC insurance, assumes the continuance of public assistance for those who are without means or who must impoverish themselves to qualify for public assistance. Since many fall into these categories, this approach does not address the needs of the majority of Americans and is unsustainable.

? Expanding the public safety net by allowing more people to have access to preferred home and community-based care solves certain short-term problems like changing Medicaid’s institutional bias, and it may lower costs initially, but it is likely to increase demand exponentially, thus increasing Medicare and Medicaid costs. This would in turn further crowd out private LTC insurance.

? Public catastrophic coverage would increase the LTC safety net by offering a basic benefit for LTC, but it would not cover all the risk that families with LTC needs face. Efforts to link Medicare with private LTC insurance seem promising but may not yield the desired spread of risk and do nothing for the younger working age adult, who is also at risk.

? Mandated public LTC insurance (e.g., Medicare “Part E”) would address the LTC needs of the majority, but it would almost certainly mean an increased tax burden on a population in which fewer and fewer people are paying to support entitlement programs. If revenues aren’t equal to benefits plus expense, taxes would have to rise to cover the difference, or either rationing or means-testing would have to be introduced.

I wish to stress that the views I express here are strictly my own and not those of any organization with which I am affiliated.

Having said that, I see a change from the current private LTC-insurance-plus-Medicaid to a social model that provides LTC as part of a more complete social welfare scheme as inevitable.

But this change will be incremental. We will move gradually from the status quo through the creation of a stronger LTC safety net via reforms to Medicaid, including more standardized eligibility and deinstitutionalized care. From this, we would move towards the adoption of a social insurance financing mechanism that draws upon vastly greater pools of insureds or that uses federal tax revenues as a backstop to private insurers as they relax underwriting guidelines.

Whether these will usher in a mandated welfare program for the aging, millions of whom are not prepared to finance their care, is uncertain. Nevertheless, the seed for such a development has been planted. For private insurers, this means private market LTC insurance for higher incomes, an increasing limitation over time of the Medicaid LTC safety net to the genuinely impoverished, and the creation of large risk pools that should spread morbidity risk and help to drive down administrative and system costs.

This change should also make it easier for private LTC insurance to break down the denial barrier, because social insurance will have done the heavy lifting in that department.

Some may be alarmed at this prospect. They needn’t be. While the current environment is admittedly confusing, few of us ever imagined that private LTC insurance was a universal solution for all LTC needs or that some form of government action would not be needed at some point. The failure of the private LTC insurance market to grow over the past decade, in spite of a dedicated, able workforce with a strong belief in its value proposition, suggests the industry may stand to gain more than it will lose by government entry into LTC protection.

The emergence of any form of social insurance addressing LTC needs, whether aimed at covering the shorter-term “front end” of the risk, the longer-term tail, or some percentage of both, should not be looked upon as Armageddon. On the contrary, it would furnish a much needed stimulus for growth.

The evolution of these developments will allow us time to develop more consumer-oriented products; to consider the structure of the risk that works best with our approaches; to retool our operations in favor of Web-based services; and to align ourselves with government sponsors of education and awareness programs. The question is whether we will use this time well. I believe that we will.

Paul E. Forte is CEO of Long Term Care Partners L.L.C., Portsmouth, N.H., which administers the Federal Long Term Care Insurance Program for John Hancock Financial Services Inc., Boston.