The Healthcare.gov marketplace for Obamacare health insurance policies is a wreck and the Affordable Care Act itself is taking its lumps. So this is a perfect time to talk about how the U.S. government could help Americans pay for the soaring costs of long-term care, don’t you think?
Irony aside, it actually is.
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'Chicken Little Moment'
Dr. Bruce Chernof, who recently chaired the federal Commission on Long-Term Care, calls this America’s “Chicken Little moment.”
He says that over the past 25 years, long-term care analysts have repeatedly cried “the sky is falling” while discussing the nation’s inability to shoulder soaring costs incurred by the frail elderly. Now America’s 78 million boomers are approaching the age where many will need several years of care at nursing homes, assisted living facilities and in their own homes. “We need a new set of solutions and we need them in the next five years,” says Dr. Chernof, president and Chief Executive of The SCAN Foundation, a nonprofit based in Long Beach, Calif. that focuses on “improving the quality of health and life for seniors.”
Wait longer than that, he warns, and “we will have a completely different problem to solve because we will have missed the window to help people plan or save.”
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Big Problem for 'The Big Middle'
The public needs help with these crushing costs. “It’s not rational to think middle-income Americans can finance long-term care out of their own pocket during the coming age wave,” says Anne Montgomery, senior policy analyst for the Altarum Institute’s Center for Elder Care and Advanced Illness in Washington, D.C. and a visiting scholar at the National Academy of Social Insurance.
The very, very poor can obtain long-term care through the safety net of Medicaid and the wealthy can afford to self-insure potential costs. The problem today is that “The Big Middle,” as Dr. Chernof calls them, are on their own, facing prospects such as paying roughly $84,000 a year for a private room in a nursing home. (Nationwide Financial says a nursing-home tab will reach $265,000 by 2030.)
In a new Harris Interactive/HealthDay poll, 87 percent of Americans called the issue of paying for long-term care “serious” or “somewhat serious;” 68 percent said they were worried about it.
Little Love for Long-Term Care Policies
Long-term care insurance policies, designed to help defray costs, are often pricey —if you’re not turned down. “You can’t get one it you’re judged to be at risk of needing the insurance,” says commission member Judith Feder, a professor of public policy at the McCourt School of Public Policy at Georgetown University and a fellow at The Urban Institute think tank. The average annual premium is $2,268, but some policies go for upwards of $4,000 a year.
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What’s more, long-term care insurers lately have been reducing benefits, denying claims and socking policyholders with double-digit annual rate hikes.
Little surprise, then, that most Americans over 50 don't own long-term care policies and that sales have been sliding. “Seventeen percent of the population is without health insurance," says Feder, "but we have close to 100 percent without long-term care insurance.”
No Consensus From the Commission
Now here’s some more irony: When the bipartisan long-term care commission issued its report, its members couldn’t agree on ways to address financing. Yet financing, as Feder says, “is the ballgame.”
So I decided to talk with long-term care analysts across the political spectrum to see what the government could realistically do now — working with the insurance industry — to help Americans afford long-term care.
Off the table in today’s high-deficit, entitlement-axing times is a big, new federal program providing long-term care for every older American who needs it or any plan that would balloon Medicaid spending.
4 Ways the Government Could Help Americans
But here are four ideas I heard that do seem worth considering:
1. Streamline government regulations to make it easier for people to buy new, less expensive forms of long-term coverage. Just a handful of insurers now sell “hybrid” policies that can make long-term care premiums more affordable because they combine life insurance or annuities with long-term care insurance.
But “there are a lot of obstacles in the flexibility insurers need to make these types of products attractive,” says Grace-Marie Turner, a member of the Long-Term Care Commission and president of The Galen Institute, a public policy research group in Alexandria, Va.
Dr. Chernof favors relaxing government regulations to allow for a new type of policy that would provide coverage just for catastrophic long-term care costs. For instance, a policy might start paying benefits in the second or third year someone is in a nursing home.
2. Offer tax breaks, similar to those for health insurance, to subsidize the cost of long-term care insurance premiums. “It’s indisputable that you need tax incentives in order to get people to buy long-term care insurance,” says Turner. In the Harris poll, 79 percent of Americans supported tax breaks to help people buy the policies.
Employees could be allowed to pay for policies with pre-tax dollars, as they can for health insurance in cafeteria benefit plans. That could effectively lower the cost of long-term care premiums by 30 to 40 percent.
“We need to level out the tax treatment of long-term care and health policies so they’re all treated the same way,” says Turner.
3. Allow withdrawals from 401(k)s and IRAs to pay for long-term care premiums or at least lower the taxes due on those payouts. You can already buy a policy through a tax-deductible Health Savings Account if your employer offers one, but the contribution limit is $3,250 ($4,250 if you’re 55 or older.)
Some argue against relaxing the tax rules for 401(k) and IRA withdrawals, saying it would harm Americans’ retirement prospects. I say not being able to pay for long-term care would deal a devastating blow to someone’s retirement.
4. And maybe, just maybe, Medicare could start offering limited long-term care benefits. This is an approach Feder endorses “to create a public core and a clear role for private insurance and individual responsibility.”
The federal health program for Americans over 65 could, for instance, just cover catastrophic costs or be limited to low- and middle-income Americans. This initiative, however, would likely require boosting Medicare payroll taxes, premiums or both or possibly adding an income-tax surcharge.
But I’m not so sure the public wouldn’t go for it if the alternative would be depleting their savings and begging family members for financial assistance, which may be the road we’re heading down.
So will policymakers and insurance companies seize the Chicken Little moment and prevent what looks like a looming long-term care crisis?
Dr. Chernof is optimistic, precisely — if not counterintuitively — because Washington is eyeing entitlement reform.
“I’m starting to see glimmers of recognition that this is a problem,” he says. “While there’s not a lot of activity in either house of Congress on this issue now, there are folks who could, and potentially would, step up if there was a broader discussion. And that could happen in the context of entitlement reform. Thinking through this piece of the puzzle is part of making the entitlement programs more sustainable.”