long-term care financing: June 2009 Archives

Supporters of Senator Ted Kennedy's CLASS Act, which would create a national long-term care insurance program, are bragging that the plan would produce $59 billion for the government over the next 10 years, money they say could help pay for health reform.

As much as I like the ideas behind the CLASS Act, this claim is both misleading and counterproductive. It implies that premiums for this insurance would get tossed into the bottomless pit of the federal budget. In reality, a well-designed program, which the CLASS Act could be, would keep those premium payments totally separate from the rest of the budget. They would, instead, go into a discrete fund to be invested just like private insurance premiums.

The $59 billion in projected revenue comes from the Congressional Budget Office, which is responsible for estimating the costs of all legislation. CBO says the CLASS Act would raise $59 billion because, while premiums would be collected right away, no benefits would be paid out for the first five years. There are good financial reasons for setting this "vesting" period, but it is this unusual schedule that creates this temporary income.

It is easy to understand what the CLASS Act backers are doing. With lawmakers desperate to find money to pay for health reform, they want to make it appear that government long-term care insurance is something of a golden goose. But if a national long-term care insurance plan is going to pass, both consumers and lawmakers need to understand it is designed to be financially sound over the long-term. And if consumers are to believe they are paying a premium, and not a tax, they have to be convinced they are purchasing insurance, not a vague government promise of support for their long term care in 50 or 60 years.

Industry opponents have already jumped on the claim. Jesse Slome of the National Association for Long-Term Care Insurance, a trade group, blasted the CLASS Act as "an underfunded entitlement program." Supporters seem to want to counter that, no, it is actually an overfunded entirelement program. I don't think that's an argument they can win.

Many of the families I talked to in Caring for Our Parents would love to have access to financially sound long-term care insurance. But they don't want to pay premiums that will help fund health reform.  

I participated in an interesting panel discussion on long-term care this afternoon at The Urban Institute . My fellow panelists were an impressive group of policy experts, all of whom have designed their own reform plans.

They included Bill Galston from the Brookings Institution, Rich Johnson from The Urban Institute, and Anne Tumlinson from the consulting firm Avalere Health. While each approaches the problem from a very different perspective, all felt that the most workable solution would have to include some form of mandatory insurance.

Rich prefers making long-term care a new Medicare benefit, financed with an income tax surcharge. Bill likes the idea of mandatory private insurance along with extra government coverage for those who face truly catastrophic costs. Anne, who has looked at models where individuals pay a big deductible (perhaps $100,000 or more) before government insurance kicks in, concluded that it is difficult to make such a plan work without mandatory insurance.

The problem is that if insurance is voluntary, too few people will buy it. If only those who need it buy, premiums will inevitably rise, making coverage even harder to afford.

Unfortunately, at the moment, no mandatory insurance plan is getting attention in Congress. The most dramartic reform, Senator Kennedy's CLASS Act, would create national long-term care insurance. But participation would be semi-voluntary. People would be automatically enrolled at age 18, but have the option to opt-out of coverage. Nobody knows how many would do so, but several insurance experts say they fear many young people would walk away from this insurance.

In the many interviews I did for my book, Caring for Our Parents, it seemed pretty clear that long-term care insurance, as currently designed, will never cover enough people to become a broad policy solution to the long-term care financing problem. But how far are we willing to go to change things? 

This is an interesting example of  politics trumping economics. Kennedy believes that his opt-out plan is as far as Congress is willing to go, even though his staff is well aware of the problems that come with voluntary insurance. Kennedy is probably right, but an opt-out may result in premiums that are much higher than the $65 per month that he is aiming for.   

The Democrats on the Senate Health, Education, Labor, and Pensions Committee have, as I expected, included three key long-term care services proposals in their massive 615-page health reform bill. The measure would require states to offer the same access to home and community care as they currently provide for skilled nursing facilities under Medicaid. It would provide new incentives for training both paid and family caregivers. And, the bill includes Senator Ted Kennedy's CLASS Act, which would create a national long-term care insurance program. 

It is hard to overestimate just how far-reaching these changes would be. In my new book, Caring for Our Parents, I discuss each of these ideas. The long-term care training proposal has a good chance of passing this year. The Medicaid changes may be quite costly--as much as $5 billion-a-year--and supporters will have to compete for scarce dollars with dozens of other health reform proposals. The CLASS Act may face the longest odds this year, but at the very least it will focus a tremendous amount of attention on the critical issue of how we pay for long-term care.

Unfortunately, the Democratic leaders of three House committees also laid out their broad blueprint for health reform, but said barely a word about long-term care. Except for worker training incentives, reforms aimed at caring for the disabled as well as the the frail elderly seem to be on the back-burner.

But remember, this is just the first leg in what will be a very long race. Congress will be debating health reform at least through the end of this year.