Why Long-Term Care is So Hard to Provide

New proposal, part of health-reform plans, shows why it's so hard to devise an affordable solution.

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Finding a better way to protect people from being forced into poverty by long-term care expenses would seem a laudable goal of health reform efforts. The difficulties in finding that better way provide just one of many lessons about why reform efforts are so hard. Long-term care is very expensive and most people will need to be cared for at some point in their lives. There is private long-term care insurance, but it's expensive and few people buy it. There is a relatively new market for group long-term care policies and while it shows some promise, its development has been hurt by the recession and cutbacks in all types of employer benefits.

[See Best Affordable Places to Retire.] Our "solution" to this problem has been to force families to spend all their money on care. Once their assets have been depleted, they can qualify to go onto Medicaid and enter a nursing home. Medicaid was restricted to funding only institutional long-term care until recent years. In-home care is now a priority, because it's cheaper than providing 24/7 support in an institution, and because people prefer it.

So, on paper at least, it would make sense to create additional programs to encourage and provide in-home services for people needing long-term care. Such a provision has been placed in the health reform bills in the U.S. House and Senate. It's known as CLASS, which stands for Community Living Assistance Services and Support. CLASS was championed for many years by the late Sen. Edward Kennedy, who would regularly, and unsuccessfully, run it up the legislative flagpole. So it wasn't surprising that it was included in this year's package of health reform bills, and has garnered support from many senior advocacy groups. What perhaps has been surprising is that the measure has survived, both in the House-passed bill and the Senate measures that are about to be extensively debated.

In part, it is still around because the form of long-term care created by the bill is designed to pay for itself. In addition to being budget neutral, it would be a voluntary insurance program offered to employees. The levels of support most commonly discussed are benefit limits of either $50 or $75 a day. Nursing services can easily be several times that level. CLASS is not designed to pay everything but to provide a baseline amount of protection—much like basic Medicare does for hospital and physician services. Further, CLASS benefits would last as long as care was needed, while most private policies have lifetime caps on benefit dollars and the duration of care. And, as in Medicare, it's possible that a private market would develop so that consumers would be able to buy add-on policies providing enhanced long-term care coverage.

CLASS also has survived because it will reduce the federal deficit by an estimated $72 billion during the 10-year window used to evaluate the budget impact of health reform. Consumers would pay premiums into the program beginning in 2010, but would have to wait five years to make any claims. This waiting period was designed to let program premiums build up for the program to be self-supporting. Most purchasers of private long-term care insurance buy the policies decades before they're ever used. Because pre-existing conditions could not be a basis for excluding people from CLASS, the waiting period also would help protect the program from being depleted quickly by people who are already in need of care.

[See Best Places to Retire.]

So far, so good. Except that several notable outside experts have said the program as designed won't work. That includes the government itself, in the form of the chief actuary of the Centers for Medicare & Medicaid Services. Last week, in a wide-ranging memo that looked at the entire health reform bill that was passed by the House, Richard S. Foster said CLASS premiums would need to be substantial if the program were to be self-supporting. He said monthly premiums would need to be $180—easily more than a lot of private long-term insurance costs, particularly in the group market. Further, Foster said the measure would not be budget neutral but would begin burning through that premium cushion only four years after people could first begin making claims, and would start running annual deficits 10 years later.

The problem is that in a voluntary insurance program, healthy people tend not to get insurance and the market is left to those who are ill. It's called "adverse selection" and it defeats one of the core principles of insurance, which is called "pooling of interests"—healthy and sick alike support a system and those who are healthy wind up subsidizing rates for those who aren't. Because there would be relatively small numbers of healthy people in a voluntary CLASS program, the Foster memo suggests, and because the program must break even, premiums would need to be raised to that $180 figure. This would make the program less attractive, limit sales, and guarantee it won't succeed. “There is a significant risk that the problem of adverse selection would make the CLASS program unsustainable,” Foster's memo said.

The American Association of Homes and Services for the Aging, one of the groups supporting CLASS, disagrees with Foster's assessment, particularly his assumption that only 2 percent of the eligible market would buy CLASS policies. Other estimates, the group noted, project higher enrollment rates, and thus lower monthly premiums. As for the budget impact of CLASS in later years, it referred to projections by the Congressional Budget Office. The CBO says CLASS would have only a modest impact on future budget deficits. In part, that's because people receiving CLASS benefits would reduce Medicaid spending.

"The CLASS provisions were carefully crafted to ensure affordability, accessibility and fiscal solvency," AAHSA said in a statement. "Participation would be voluntary and the premiums will cover the costs, not placing any drain on the federal budget. The result would be a system that supports America’s families and has the potential for significant Medicaid savings."

[See Long-Term Care Insurance Getting Attention.]