Can Long-Term Care Insurance Work for More People?

You’d have to be a policy wonk to care about statistical models of long-term care insurance, right? Either that or have a personal stake, maybe as much as $91,000 or $182,000, riding on how the data gets used. (Those figures are the average long-term care costs faced by the typical man and typical woman.)

The room was full of policy wonks when the Urban Institute and Milliman, Inc., a research group and an actuarial firm respectively, released new data at a November event showing how specific kinds of change in long-term care coverage would influence the number of Americans who purchase policies. The research, funded by AARP, LeadingAge and the SCAN Foundation, is published in the journal Health Affairs, which hosted the event.

But many of the wonks in the audience also identified themselves as caregivers for a family member when Larry Minnix, president and CEO of LeadingAge, asked them to raise their hands. And most hands stayed up when Minnix asked, “How many of you have written a check for that?”

The costs of long-term care are not always catastrophic for families, but they can be. When someone turns 65 in America today, there’s about a 50-50 chance he or she will need not just medical care as they get older, but extensive help with basic activities like dressing, bathing, walking and eating. Expenses are sometimes lower than the $91,000 and $182,000 averages, but they can range much higher, too. Generally, families pay more than half of these costs out of pocket.

“Most don’t understand the risk they face,” said Debra Whitman, chief public policy officer for AARP, about the large majority of Americans who do not have long-term care insurance. Only about 8 percent do. “Many believe mistakenly that Medicare will pay for long-term services and supports,” Whitman added.

“The cost to families is now bigger than the cost to public programs,” Minnix said. “And the public programs are imploding because there’s not enough money to sustain them.” Medicaid does pay for long-term care for many Americans, but only after those people have exhausted their own funds. Federal and state Medicaid spending for these services now totals more than $146 billion.

The Urban Institute and Milliman used statistical modeling to illustrate what would happen if various levers in the design of long-term insurance were moved. In other words, what changes would make insurance more appealing and more affordable for more people? And what changes would bring the biggest savings to Medicaid?

“We’re not here to choose a single best approach. We’re here to illustrate tradeoffs,” said Urban Institute Senior Fellow Melissa Favreault. “The best approach is going to depend on your values and priorities.”

The researchers plugged specific variables into their models: whether insurance was voluntary or mandatory, and whether the cost was covered entirely by individuals or reduced with the help of a government subsidy. They tested those options by pairing each with three hypothetical insurance products: a front-end product that covered the first two years of need once a 90-day qualifying period had passed; a back-end product that required people to pay out of pocket for two years, but then covered costs for the rest of a person’s lifetime and a comprehensive product that gave coverage after a 90-day wait and continued for as many years as needed.

What emerged was a nuanced picture of people’s behavior, but a couple of findings stood out:

• Given a choice, most people will decline buying long-term care insurance. It’s hard to get high participation with any voluntary insurance offering, the researchers found. Even with help from a government subsidy, at most about 20 percent of people would be likely to buy long-term care coverage in any of the tested scenarios. “If the primary purpose is to significantly increase insurance coverage, the mandatory programs we modeled would be far more successful than the voluntary ones,” the researchers said in Health Affairs.
• Mandatory programs would cost less for Medicaid. “If the major aim is to reduce Medicaid costs, the comprehensive and back-end mandatory programs would be most beneficial,” they wrote.

What the public or policymakers will do with this information remains to be seen. Minnix described himself as optimistic about the prospect for change in long-term care financing if only because aging, caregiving and bearing the costs have become a crisis for so many families — including those who work on Capitol Hill.

Want a brief and boiled-down look at the research? For non-wonks, the SCAN Foundation (which also funds some of Next Avenue's coverage of aging and caregiving issues) has published a summary.