By Steven Syre
A new report proposes a “policy roadmap” for financing long-term services and supports. The report was co-authored by Marc Cohen, co-director of the LeadingAge LTSS Center @UMass Boston.
What would a better way to finance long-term services and supports (LTSS) for older Americans really look like? Even more importantly: How would it perform for middle-income consumers?
A new report attempts to answer those questions by proposing a “policy roadmap” for LTSS financing that combines public catastrophic insurance with gap-filling, private LTSS insurance.
The report was written by Marc Cohen, co-director of the LeadingAge LTSS Center @UMass Boston; Judith Feder, a professor at Georgetown University’s McCourt School of Public Policy and fellow at the Urban Institute; and Melissa Favreault, a senior fellow at the Urban Institute. Cohen and Feder presented their plan at a Jan. 31 discussion hosted by the Bipartisan Policy Center.
“The fundamental LTSS financing problem is the absence of an effective insurance mechanism to protect people against the cost of extensive LTSS they may require over the course of their lives,” said Cohen, who is also a professor at UMass Boston’s McCormack Graduate School.
Reduced Spending on Health Care
In A New Public-Private Partnership: Catastrophic Public and Front-End Private LTC Insurance, Cohen, Feder, and Favreault outline a plan they say would enhance benefits for people with long-duration impairments, reduce unmet LTSS needs, and mitigate burdens facing family caregivers. When compared with projected spending under current law, the plan would:
- Enhance LTSS spending by 14%,
- Reduce out-of-pocket spending by 15%, and
- Cut Medicaid spending by 23%.
The authors suggest that their plan could “provide meaningful protection for people with catastrophic LTSS needs” by creating a financially strong LTSS insurance system, and shifting away from current dependence on impoverishment and last-resort public financing to pay LTSS expenses.
Plan Components
The plan that Cohen, Feder, and Favreault propose has several components:
Public Insurance Surcharge: Taxpayers over age 40 would pay a 1% Medicare tax surcharge, which would be used to finance the public-insurance element of the plan. A worker earning the 2016 average covered wage of $48,642 would pay about $41 per month. If that surcharge were split evenly between employees and employers, the direct monthly cost to the worker would be about $21. The authors suggest that the surcharge could be presented as a premium, and taxpayers could be offered the opportunity to opt out of the plan.
Public Benefits: Individuals with 2 or more limitations in activities of daily living, or severe cognitive impairment expected to last longer than 90 days, would qualify for public benefits once they satisfied the program’s waiting period. For a 65-year-old, that waiting period would range from 1 to 4 years, depending on income. Higher earners would be subject to longer waiting periods.
Private Insurance: Private insurance would offer a way to cover care during the waiting period. The authors estimate that this gap-filling coverage would amount to 2%-4% of income for all groups, except the lowest 20% of earners. These estimates, which are based on the average cost of private policies on the individual market, are within the range of what people appear to be willing to spend for policies, according to the authors.
Benefits for Direct Service Costs: The level of benefit payments would be linked to direct service costs, excluding room and board. The proposed plan would provide $110 per day, which was the average expense for 5 hours of service by a home health aide in 2016. The benefit could also be spent on nursing home care.
Not a High Priority
Cohen and his co-authors acknowledge that the search for better ways to finance long-term services and supports is not currently a high priority on America’s political agenda. But they believe that working on the issue now can pay dividends in the future.
“Research undertaken now on the design and challenges of specific proposals for LTSS financing reform will provide the necessary intellectual infrastructure and foundation for effective action when policymakers are inevitably forced to address the issue in the years ahead,” they write.