Last month, the Obama administration abandoned the Community Living Assistance Services and Supports (CLASS) Act, the landmark national long-term-care insurance program that was included in the 2010 health-reform law.
CLASS was probably doomed from the start ― a victim of political ill will and poor design. Premiums would have been high and too few healthy people would have enrolled. But it would have been an important first step toward the fiscally sustainable national-insurance program we need to finance the backbreaking costs of long-term care. Two-thirds of us are likely to need this help in old age.
Yet, the current system is falling apart. Medicaid, which funds almost half of all paid long-term care, is under immense financial pressure. Few Americans have saved for their long- term-care needs in old age ― half of retirees have less than $55,000 in financial assets, barely enough to pay for nine months in a nursing home, or two years of limited daily help from a home health aide. And hardly anyone buys private long- term-care insurance ― only 7 million Americans own policies.
Despite the death of CLASS, the challenge of long-term care financing is not going away. So, how can we fix a badly broken system?
The best way is probably through universal long-term care insurance. Every major developed country on the planet ― except for the United States and the United Kingdom ― has already gone this route. Here, insurance could be offered by the government, or by private carriers in a regulated national marketplace (much like the Medicare Part D drug benefit or Medicare Advantage managed-care plans).
We’ve just had a nasty debate over public health insurance, and it’s clear that Congress isn’t interested in universal coverage. However, there are ways government could create a public mechanism to encourage people to voluntarily buy insurance. That’s what CLASS tried to do, but its design was poor and its incentives were too weak.
Here are some ways the incentives could be supercharged in a national system in which the policies themselves are sold by private companies with, perhaps, a public option:
― Limit enrollment to people who work at least 20 hours per week. This would replace the traditional underwriting that private insurance companies use. Any national system needs to make insurance broadly available, but if it is too generous, too many working people with disabilities would participate, driving up premiums for everyone else. CLASS would have allowed anyone who earned as little as $1,200 per year to participate in the program.
― Start premiums very low for young buyers but increase them each year by the rate of inflation. Add additional penalties for those who delay enrollment, a design already used by the Medicare Part D drug benefit.
― Allow insurance buyers to select from a menu of policies, including, say, a small daily benefit for life (like CLASS); $150 a day for three years; or $200 a day for five years. Companies could compete on premiums but would have to offer identical benefits so that consumers could easily compare policies.
― Penalize people who don’t buy insurance by including the value of their home when they calculate whether they are eligible for Medicaid long-term-care benefits. Today, only very expensive homes are included as assets when Medicaid eligibility is determined.
Another option might be a very high-deductible long-term-care policy, where individuals would pay, say, the first $100,000 in personal-care costs. This very high deductible would reduce premiums significantly and might be attractive to some buyers seeking catastrophic coverage.
These are just a few examples of how to design a national system. Other models may work as well. The point is that it is possible. With these and other options available, it would be irresponsible for policy makers to walk away from the looming crisis of long-term-care financing.
By Howard Gleckman
Howard Gleckman is a resident fellow at The Urban Institute and the author of “Caring for Our Parents: Inspiring Stories of Families Seeking New Solutions to America’s Most Urgent Health Crisis.” The opinions expressed are his own. ― Ed.
