The Long Term Is Now

As the population ages, the costs—financial and social—of long-term care will rise rapidly. And our current model of funding it will not work.

Another U.S. initiative is the Partnership for Long-Term Care program. Sponsored by the Robert Wood Johnson Foundation in the early 1990s, the program allowed an individual who purchased a long-term care policy to be able to qualify for Medicaid while retaining assets equal to the policy’s value. In this system, private insurance reduced Medicaid outlays, while the Medicaid backstop cut the cost of private premiums. Only four states—California, Connecticut, Indiana, and New York—implemented Partnership programs before Congress, fearing that high-income individuals would use it to abuse the Medicaid system, acted in 1993 to prevent new states from participating. Twelve years later, the Deficit Reduction Act (DRA) of 2005 allowed other states to create Partnership programs. Thirty-nine states now offer policies under this aegis.

Here again, the results have been modest, verging on disappointing. Policies sold in the four original Partnership states totaled only 259,000. While the DRA brought another 35 states into the system, their policies have collectively added only 230,000. Evidently, the incentives the Partnership offers have been unable to catalyze a broad response. Another step was taken in 2000, when Congress passed the Long-Term Care Security Act. It required the federal government to offer long-term care insurance to its employees and their families. The Office of Personnel Management (OPM) conducted a competitive bidding process and contracted with large carriers selling long-term care insurance in the private market to offer an array of insurance products. The contract ensured not only a wide range of choices but also the reliability of information about each option and enough standardization to permit ready comparison among options. As of 2011, the program had more than 268,000 enrollees, making it the largest private long-term care program in the country.

The cost of policies has contributed to the program’s success. A 2006 Government Accountability Office study found that annual premiums averaged 46 percent lower for single people and 19 percent lower for married couples who were both the same age than for comparable policies in the private market. In 2009, an unanticipated increase of between 5 and 25 percent affected about 150,000 participants, sparking widespread outrage and charges that the change reflected misrepresentations during the initial offering. Still, costs remain reasonable, at least for those who purchase plans well in advance of probable need. As of mid-2012, a 40-year-old federal worker would pay only $107 per month for a policy with expansive benefits. By contrast, a worker who waited until age 60 would pay more than twice as much—$231 each month, while a worker who put it off until the threshold of retirement would pay nearly $300.

Unlike most of the health insurance the federal government offers its employees, long-term care insurance receives no subsidies. The government does negotiate, however, with carriers who want to offer policies and makes information about costs and benefits available in an understandable, user-friendly format. And while most long-term care insurance is purchased on the individual market, the federal program enjoys the cost savings of a group plan.

That said, the program’s results should be kept in perspective. More than four million civilian and military personnel are eligible to participate, along with spouses and retirees. Even with the program’s convenience and cost advantages, the participation rate is barely 5 percent. If the objective of long-term care reform is to move away from traditional public programs toward a new insurance model, the OPM program represents a very modest step toward that goal.

The most recent effort to improve long-term care coverage was an instructive fiasco. The CLASS (Community Living Assistance Services and Supports) Act, appended to the 2010 Affordable Care Act (ACA), was intended to provide a benefit averaging $50 per day, mainly to support home-based long-term care. The legislation’s language was unusually sparse and general, delegating most key design decisions to the secretary of Health and Human Services. Republican Senator Judd Gregg succeeded in adding an amendment requiring the Administration to certify that the plan it developed would be actuarially sound and self-sustaining over 75 years. But the underlying legislation made that impossible, by allowing everyone—even those with serious health problems—to sign up, by permitting policyholders to collect benefits for life after only five years of contributions, and by limiting premiums the poor would pay to $5 per month. In the end, the Obama Administration had to admit that it could not square the circle: The Act’s mandatory features made it impossible to design a program that would achieve long-term sustainability. So the Administration threw in the towel and suspended implementation of the program.

The CLASS Act’s failure illuminates some basic truths about long-term care insurance. A voluntary program that must accept all applicants is bound to trigger adverse selection that will require higher premiums, public subsidies, or both to keep the program afloat. If neither is permitted, the program quickly enters a death spiral. Something has to give: Either the program must abandon guaranteed issue and select participants based on their health status, or it must get everyone to participate, generating a predictable pool over which it can spread the cost of benefits (much like the ACA). And if one of the purposes of the program is to limit or eliminate public subsidies out of general revenues—as should be the case, in order to avoid the costs associated with the ACA—then it must be allowed to adjust premiums so as to achieve long-term sustainability.

What’s Next for the United States?

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