Financing Reform for Long-Term Care

Abstract

The way the nation provides for the financing and delivery of long-term care is badly in need of reform. The principal options for change are private insurance, altering Medicaid, and 110 FROM NURSJNG HOMES TO HOME CARE public long-term care insurance. This article uses the Brookings-ICE Long-Term Care Financing Model to evaluate each of these options in terms of affordability, distribution of benefits, and ability to reduce catastrophic out-of-pocket costs. So long as private insurance is aimed at the elderly, its market penetration and ability to finance long-term care will remain scverely limited. Affordability is a major problem. Selling to younger persons could solve the affordability problem, but marketing is extremely difficult. Liberalizing Medicaid could help solve the problems of long-term care, but there is little public support for means-tested programs. Finally, universalistic public insurance programs do well in meeting the goals of longterm care reform, but all social insurance programs are expensive and seem politically infeasible in the current political environment. The way the nation provides for the financing and delivery of long-term care is badly in need of reform. No other part of the health care system generates as much passionate discontent as does long-term care. At the heart of the problem is the absence of any satisfactory way to help people anticipate and pay for long-term care. The disabled elderly find, often to their surprise, that the costs of nursing home and home care are not covered to any significant extent by Medicare or private insurance. Instead, they must rely on their own savings or, failing that, turn to welfare in the form of Medicaid. At a national average cost of $40,000 a year for nursing home care, long-term care is a leading cause of catastrophic out-of-pocket health care costs for the elderly. In addition, despite the strong preferences of the disabled for home and community-based services, current financing is highly skewed toward care in nursing homes. While the debate over long-term care reform has many facets, it is primarily an argument over the relative merits of private- versus publicsector approaches. Differences over how much emphasis to put on each sector partly depend on values that cannot be directly proved or disproved. Some believe that the primary responsibility for care of the elderly belongs with individuals and their families, and that government should act only as a payer of last resort for those unable to provide for themselves. The opposite view is that the government should take the lead in ensuring comprehensive care for all disabled older people, regardless of financial need, by providing comprehensive, compulsory social insurance. In this view, there is little or no role for the private sector. Between these polar positions, many combinations of public and private responsibility are possible.