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.
If we think that the aims of the CLASS Act were worthy but the means fatally flawed, what should we do instead? My proposal, in brief, is to be bigger, bolder, and more fiscally realistic. There are two basic models for fundamental reform—one that mimics the structure of the ACA, the other that proceeds along the lines of the German program. The first option would work as follows: At age 40, every adult would be required to purchase a long-term care insurance policy or to pay a penalty equal to 2 percent of wage and salary income for each year without coverage. The policy would need to have certain features: a term of five years, a benefit of at least $150 per day, an automatic annual inflation adjustment of 5 percent, a 90-day deductible, and benefits that could be received in cash or in kind and used for both home-based and institutional care. The government would provide subsidies for purchasing the plans. Individuals with household income between 150 and 300 percent of poverty would receive income-related premium subsidies; those below 150 percent would be enrolled for free.
The federal government would create a competitive bidding process along the lines of, but broader than, the current system for federal employees (and the exchanges under the ACA), with the aim of creating a large menu of carefully vetted, readily comparable choices. After the five-year benefit period expires, Medicaid would assume full financial responsibility for any remaining costs. Individuals in this category would not be required to spend down their assets to be eligible.
The five-year requirement is intended to track the distinction between normal expectations—the maximum amount of time that 80 to 90 percent of Americans will spend in nursing home care—and unusually long stays that represent the equivalent of financial catastrophe. The average nursing home stay is 2.4 years—higher for women, lower for men. As we’ve seen, relatively few stays last longer than five years. The choice of age 40 to mandate the purchase of insurance rests on a judgment as to when it is reasonable to expect adults to begin providing for events that may occur in later life.
Insurers in the current federal program offer 40-year-olds the policy on which my proposal is based for an annual premium of $1,285. With mandatory participation and more competition among insurers, premiums under this system should be substantially lower. Regulations would permit premium increases in only a narrow range of circumstances that companies would be required to document and subject to strict review.
Under this plan, Medicare expenditures would be reduced somewhat since private insurance would finance a portion of the 100-day rehabilitation period that Medicare now covers. The impact on Medicaid would be far larger in fiscal terms, and much more significant structurally. Medicaid’s revised role in long-term care would be to: 1) create, through a competitive process, the options among which individuals could choose and provide information to assist individuals in making that choice; 2) use regulations to ensure appropriate standards and safeguards; 3) provide premium subsidies for low- and moderate-income individuals; and 4) serve as insurer of last resort after the expiration of the five-year private benefit period.
The design of this proposal deliberately mimics that of the ACA and therefore should raise no constitutional issues under the congressional taxing power. Like the ACA, it involves the private sector, which would increase choice and competition but also administrative complexity.
That’s one idea. The alternative to the ACA model is an approach that adapts Germany’s program to American circumstances. Under this approach, workers over age 50 would remain in the current system. All workers 50 and under would be required either to contribute 2 percent of their wages into a long-term care fund or to purchase private long-term care insurance with at least the coverage features specified below. For all workers making less than twice the median wage, the federal government would make a sliding-scale contribution to ensure a minimum annual contribution of $1,000 per worker.
The government would establish eligibility criteria for companies wishing to participate in the new program’s market exchanges. All companies meeting the criteria would qualify for inclusion, and the terms and conditions of their policies would be arrayed in standard formats that make it easy to understand and compare them. The government would ask every worker to choose a program and a policy offering no less than five years of coverage at $150 per day with a 5 percent automatic annual inflation adjustment, a 90-day deductible, and fully flexible benefits as in the first option. Drawing from the long-term care fund, the government would subsidize that choice up to the value of the lowest-cost policy with the basic features specified above. Individuals who select more expensive policies would pay the difference into the fund, while individuals who fail to make a selection would be defaulted into the lowest-cost basic package. Workers who directly purchase at least a basic package for themselves on the individual market would be exempt from the mandatory payroll contribution.
Every five years after the new long-term care program went into effect, an independent long-term care actuarial commission would evaluate the program’s financial soundness and recommend whatever changes it deems necessary to ensure its long-term sustainability. Any proposal involving changes in benefits or the payroll tax rate would be submitted to Congress for an up-or-down vote within 90 days. If Congress failed to act, a package evenly balanced between revenue increases and benefit cuts would be triggered and would remain in effect until such time as Congress accepted the commission’s recommendations or enacted its own package making financially equivalent changes to the program.
A Moral and Responsible Goal
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