Long Term Care problems won’t go away

Busy week and little time to blog, but a quick note on this Kaiser story reporting on a SCAN Foundation poll on long term care needs/perceptions/preparations in California, sent my way by Brad Flansbaum. The article nicely summarizes the surprise many families receive when it comes time for a loved one to need LTC:

Long-term care costs can surprise many families who expect Medicare to cover their needs. After a hospital stay, Medicare will pay for 100 days of nursing home care, but after that, families are on their own or are forced to spend down their assets to become poor enough to qualify for Medicaid.

Only 35% of Californians correctly understood that Medicare does not pay for extended nursing home care and only 1 in 5 understood the Medicare home health benefit (they think it is more generous than it is). So, Medicaid is the default nursing home payer in the U.S. and the program pays around half of the nation’s nursing home bill. Block granting Medicaid in a way that reduces fairly costs for the program will pit LTC services for the elderly and disabled against the need for acute care insurance for children and pregnant women, and say to states “tag; you’re it!”.

We desperately need a more coherent LTC policy in this country. Private LTC insurance offers no hope of a population based answer. Families are left to stand in the breach, doing the best they can. As I have said before, one of the worst outcomes of the ACA debate was the demise of CLASS in a way that treated those provisions only through the lens of deficit reduction. Deficit accounting is important, but cannot answer all important policy questions.

CLASS wasn’t a deficit gimmick, it was an attempt to set up a self sustaining LTC insurance benefit that could have helped people age in their homes and delay NH admission. Like so much of health reform, critics know far more about what they are against than what they are for.

The question remains: how will our country insure against the need for LTC?

Private LTC Insurance is a not a population solution

The WSJ has a good point/counter-point on the question “should you purchase private Long Term Care Insurance?” (h/t Brad Flansbaum). Mark Meiners argues for purchase by saying “you shouldn’t hope for the best” while Prescott Cole says “LTC insurance is too expensive, you should invest what you would spend on premiums.”

Essentially, they are both arguing that you should prepare for LTC, one via purchasing insurance, the other by building flexible assets that could be use for LTC, or bequeathed to your favorite charity upon your death if die without needing it.

The Journal piece outlines an important conversation that misses the main public policy point: private LTC insurance will never be the solution for the LTC needs of the general population due to income and wealth levels.

Perhaps 10 percent of the population has enough income to pay premiums, and/or enough in assets they may wish to partially protect from a potentially catastrophic LTC cost. For example, past work I have done showed that around 4 in 10 elderly persons had income and assets at age 65 low enough to qualify for Medicaid before paying for any LTC. Those people are removed from the complicated decision framed in the WSJ piece, but they are certainly at risk of needing LTC.

If ever there were a risk profile that cried out for social insurance, it is LTC. The reason that seems so laughable, is our countries failure to grasp the most important thing in all public policy debates: the counterfactual, or the costs and benefits of what happens by default, in this case for LTC.

The cost of caregiving and the demise of CLASS

AARP estimates that around 25 Million persons are providing unpaid caregiving to a loved one with a disability, and that those who do so while juggling market work lose around $325,000 in lifetime income after accounting for foregone wages, income from Social Security, and private pensions. The worst part of the demise of the CLASS provisions in the Affordable Care Act has been the fact that the majority of the focus was on the impact of CLASS on the 10 year deficit score assigned to the bill be the CBO (it accounted for around half of the ACA’s deficit reduction), diverting attention from one of the most profound public policy questions facing our nation:

• How will we insure Long Term Care?

CLASS wasn’t an accounting gimmick, but an attempt to set up a self sustaining, voluntary LTC insurance program that would provide modest benefits (not enough for a nursing home; best thought of as aiding aging in place) to persons with disabilities. If CLASS had worked perfectly and been a self sustaining program, it would have decreased the deficit in the short term, while increasing the deficit in the out years. As I wrote in December, 2009 about CLASS:

…Proponents claim that CLASS is self-financing over the long term, and opponents say it will increase the deficit in later years. Both are correct.

It is hard to project what will happen with CLASS, mostly because of uncertainties regarding disability rates 30-plus years from now, but there are numerous provisions designed to ensure that the program is self-financing. Regarding the long-term deficit, when a program runs a surplus, it buys federal securities that pay interest. When interest is later used to pay for care, it is counted as a transfer instead of revenue. Therefore, CLASS will inevitably increase the deficit in years 30 to 75 even if it pays for itself totally through premiums and interest earned on premiums, given current budget accounting rules. [update: it would add to the deficit before the 30th year]

One of the key beneficiaries of a self sustaining LTC insurance program would be the adult children of the disabled–who provide unpaid caregiving, with all the related harms (there are also benefits). CLASS was flawed, but could have been fixed had we focused on the policy goal–how will we insure LTC as the baby boomers move into retirement? I think the federal budget deficit is very important to address, but you cannot answer all important policy questions using deficit accounting. The CLASS episode whereby LTC policy was lost in a sea of deficit accounting scores shows this.

The essence of planning for long term care

Dan Diamond (@ddiamond) alerted me to a Senate Special Committee on Aging hearing (The Future of Long Term Care: Saving Money by Serving Seniors), that will be webcast live today at 2pm via the committee homepage. I hope they manage to talk about practical solutions to the difficulties of providing long term care, and do not simply spend their time clucking about what they oppose.

I was guest lecturing on Long Term Care and the demise of the CLASS provisions of the ACA in Peter Ubel’s health policy class on Monday and someone asked, “what is the essence of planning for LTC?” My answer was that it entails planning for who will wipe your ass when and if you can no longer do it for yourself.

Now, that it not what the 20 year old’s in the class were dreaming about discussing when they came to Duke, and I get that. It is very easy to put off thinking about LTC until tomorrow.

Around 7 in 10 persons who attain age 65 will use some LTC. Of the users, about half will do so for less than a year, but around 1 in 10 will need such care for longer than 5 years. It is impossible to look at a room of 20 year olds and say who will need LTC among the subset who live to 65; and of course someone in that room could need it much sooner due to a catastrophic event. Almost no one has the assets to self finance a 5-10 year period of LTC use (~$1.5 Million max risk), so nearly every0ne is at risk of needing such care and not being able to afford it. If ever there was a risk profile that called for social insurance it is LTC. Instead we have a default system in which families do their best, availing themselves of an incomplete safety net, and when care needs become too great and assets are exhausted, Medicaid pays for them to live in a Nursing Home until they die (Medicaid pays for about half of the total national NH cost). We can do better.

A few links with many LTC details if you want more (they will still be here tomorrow):

• What is the best way to insure LTC?
• Private LTC insurance options are shrinking, as the baby boomers are coming
• There is no evidence that voluntary private insurance can work for LTC
• Would assigning actuarially fair premiums expand LTC insurance market share?
• A paper I did on genetic markers as risk raters for LTC insurance and a follow up on GINA 2008
• Will we ever replace CLASS?
• Gleckman on what next after CLASS
• Where did CLASS fit into LTC?
• CLASS demise is not just a scoring issue
• A fair amount of CMS policy action is designed to prevent a back-door LTC policy
• Some LTC ideas from Heritage
• Here is one attempt that is greatly wanting
• Informal caregiving is a silent epidemic

Will we ever replace CLASS?

The House is set to vote today to repeal the CLASS provisions of the ACA. The remainder of the post below is very similar to my post on October 14, 2011, the day that Secretary Sebelius announced that HHS would not move ahead with CLASS implementation; the reality is unchanged.

CLASS clearly had flaws and I think that it is true that many LTC types knew this and felt that CLASS needed a conference bill more than most parts of the ACA. However, CLASS could be easily fixed with a change in the definition of work, a simple one time underwriting (can you climb one flight of stairs would likely do it) and auto enroll procedures if anyone was actually interested in the policy. People can of course be opposed to the government trying to set up a self sustaining LTC insurance scheme as a matter of principle, but then how do they plan to insure long term care?

The thing that irritates me most about the debate is the singular focus on the deficit accounting angle. Even if CLASS succeeded in policy terms (it became a self sustaining LTC insurance program) it would reduce the deficit for the first 10-15 years and add to it later simply because of the accounting rules used by CBO and the need to pre-collect premiums if the program was to be self sustaining. This doesn’t mean the CBO’s rules are flawed—you need one set of rules with which to judge policy and CBO is easily my favorite institution. However, deficit reduction/increase estimates just can’t answer every important policy question.

It is easy to get rid of CLASS. It is hard to figure out how to provide long term care. I hope the House Republicans will not only repeal CLASS, but mark up a replacement to address some of the many LTC problems facing our nation. John Goodman gave a few ideas. We really do have to do something unless we decide we are fine with the current system that has Medicaid as the last resort nursing home payer. Here is a nice summary of the status quo given by James Kwak who is sorting through the choices, options and problems as he considers purchasing a private long term care insurance policy today.

It is easy to be against something, but much harder to do better.

DT

update: revised for clarity

Gleckman on what next after CLASS

Howard Gleckman noting some options given the demise of CLASS. He highlights several key points:

• Long term care needs aren’t going away so we have to do something, with one  option being to keep our default system (informal care first, with Medicaid as ultimate nursing home financier)
• Universal social insurance would be the most effective route to expand coverage, but we aren’t going to do that (a few thoughts on private LTC insurance)

One thing Gleckman suggests to move ahead:

• setting up a voluntary program provided via private insurers, with numerous benefit options

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. (similar to Medigap plans)

The most interesting aspect of the HHS report on CLASS was the conclusion that consumers were not interested in the benefit structure offered in CLASS (small benefits on the order of $50/day for unlimited period of time). From the memo of Kathy Greenlee in the CLASS office to Sec. Sebelius recommending CLASS not go ahead:

We developed a broad range of alternative CLASS benefit plan options….the benefit design that follows from the most natural reading of the statute….which calls for an average fifty dollar per day benefit for a beneficiary’s lifetime, diverges significantly from the design most buyers in the private market choose. Most buyers prefer higher daily benefits over a few years.

In the end, this may have been the most fundamental problem with CLASS; small benefits for a long period of time are not the type of LTC benefits that those interested in purchasing insurance want to buy. A big problem for a voluntary program. And the law as passed didn’t allow for changing the benefit structure appreciably without further legislation, which is politically impossible right now. There are options available to move ahead on LTC, but all will require the same impossible legislation, even if the vehicle used is private insurance. We appear likely to stumble into continuing with the default system that everyone knows has flaws, because of our inability to take any policy steps in LTC.

Are fair premiums key to private LTC insurance?

I give John Goodman credit for writing about actual policy options for improving long term care (LTC) policy in the wake of the demise of CLASS (Avik Roy also has a post; I blogged last week about Stuart Butler’s suggestions). I am glad conservatives are entering the fray on what they are for in LTC.

However, I think the premise of one of John’s 5 suggestions is wrong, and wanted to point it out since he linked to a post of mine as support for it:

Allow Insurers to Price Risk Accurately. The principal reason for the failure of CLASS is community-rated pricing. Everyone was going to be charged the same premium, regardless of expected long-term care expenses.

I think this is wrong. The primary problem with CLASS was not community rating, but adverse selection (only bad risks would sign up). It is true that community rating would have made CLASS even more attractive for poor risks, but if you had a massive risk pool, you wouldn’t only have poor risks and community rating would work just fine. Consider two possibilities:

• Adverse selection and pricing due to true risk. For example, if you changed CLASS only by allowing for the assignment of an actuarially fair individual premium. In this case there is no community rating, but you also wouldn’t expect a functioning insurance market to develop because no one could afford the premiums due to adverse selection; you would be assigning premiums to only a sliver of those at (high) risk. All insurance markets need good risks to balance bad ones.
• Forced risk pooling. This could be done either through a mandate, or we could borrow some of the auto-enroll procedures from Rep. Paul Ryan’s Patients’ Choice Act (essentially soft mandates that we agree to call something else). If a large number of persons were forced/nudged into the risk pool, then a market for LTC insurance could probably develop. If you got enough people into the risk pool, then a second step of assigning an actuarially fair premium could make the market more efficient, but of course there is a tradeoff between the transaction costs of assigning a more correct premium and the benefits of the fairness achieved. Once the pool got large enough, it is probably not worth it.

Assigning an actuarially fair premium makes sense within the (poorly) functioning LTC insurance market, especially since it is voluntary. However, the only way to get such a market started from nothing is forced risk pooling of some sort. Whether such a step is worth it or not depends on how bad you understand the default system to be.

 

Blahous on CLASS, reform

I respect Charles Blahous a great deal as an analyst, and I like him and think that he is a nice guy. In fact, I brought you a series of interviews with him last May on the Medicare and Social Security Annual Trustee reports. However, I find his latest at e21 on the CLASS Act and health reform generally to be frustrating, because it focuses on deconstructing (CLASS and the ACA) without offering something better.

I agree with him that CLASS as passed wouldn’t work, but it is just as clear that there are policy options that could make it work and address LTC. Imagine the impact a post by him (Medicare and Social Security Trustee) offering solutions might have–saying something like “CLASS was flawed but how we deal with LTC is also flawed, and the the current default is for Medicaid to be on the hook for massive nursing home expenditures. Here is how we could move to implement a voluntary LTC insurance program. This is good for the country.”

However, I respect the idea that an adversarial political system creates better policy through the competition of ideas. Yet, in health reform, conservatives seem to be far clearer about what they are against as compared to what they are for (I mean this generally, and am not singling Blahous out here). When I hear Republicans say “lets repeal Obamacare and we will then pass common sense reforms” I can only think why didn’t you do anything from 2002-06 when you controlled both branches of Congress and the White House?*

I can respect the adversarial argument, and have spilled about 50,000 words saying the key to a long range sustainable budget is a compromise on health reform. However, it takes two sides to compromise. The House of Representatives owes it to the country to move ahead and begin marking up bills like the Patients’ Choice Act, and Rep. Ryan’s Medicare reforms in the committees with jurisdiction such as Commerce and Ways and Means to show us what they would do. They need to commit to the details so that the CBO can weigh in and we can look at both the fiscal impact and effect on the uninsured of their ideas under the same bright lights to which the ACA has rightly been exposed. And then we can decide what to do.

*Many of my conservative friends will say they did worse than nothing, they deficit financed the Medicare Part D drug benefit during this period.

Dranove on CLASS

Interesting post in the Health Care blog by David Dranove on the demise of CLASS.

We viewed this as a traditional market analysis. Anyone can enter a market and lose money – the base CLASS plan would be a poster child for this obvious point. We wanted to understand whether there were any opportunities to turn a profit in the LTCI market. We also wanted to understand why, if there are profits to be had, private insurers had not already exploited these opportunities? (emphasis added)

What we found was a rather strange market. There are lots of LTCI sellers, mostly crossovers from the life insurance market. This makes sense, because the main purpose of LTCI is to help enrollees preserve their retirement savings. The same customer who buys life insurance to make sure their next of kin are well taken care of would therefore also want to buy LTCI. These customers trust life insurers, most of whom have been around for a century or longer and can be counted on to pay out future benefits. At the same time, LTCI products are remarkably (perhaps unnecessarily, and likely strategically) complex, so customers rely on their insurance brokers to explain their options. These features helped mute competition among LTCI insurers and possibly pose entry barriers to new sellers.

Some interesting examples of ideas that were considered in their market analysis, and a fundamental question.

Putting on our strategy hats, we wondered if DHHS could come up with new product features, thereby attracting a broader base of enrollees. Exchanging ideas with DHHS economists, we came up with quite a few suggestions: tontines (where enrollees enjoy rebates of premiums if they don’t end up needing LTC), extended vesting periods before coverage began, “short term” LTCI and others. We laid out the advantages and disadvantages of each feature and we asked a critical strategy question: If these features are so promising, why aren’t private LTCI insurers offering them? (emphasis added)

There is really no evidence to suggest that private, voluntary insurance can play a key role in insuring LTC. Private insurance could potentially be the insurance vehicle used, but the biggest need in LTC is to plan ahead and pool risk. This will only happen with some sort of policy intervention such as social insurance, a mandate of some sort, or at least a strong nudge.

 

From the archives: What is the best way to insure LTC?

The post below was initially published in TIE on July 20, 2011, and is relevant given the demise of the CLASS Act.

*******************

Lots of reports that the CLASS provisions will fall in any Senate-driven budget deal. Even if that doesn’t come to pass, CLASS is likely to go in any negotiations to move ahead on health reform. Most of the focus is on how CLASS influences CBOs score of deficit reduction, but I want to focus on the problem that CLASS is designed to address, the need for and cost of Long Term Care (LTC). Because we cannot repeal disability.

CLASS was an attempt to set up a self sustaining LTC insurance program that would provide a relatively small amount of money per day ($50-$75) that could be thought of as cover to help people live in their homes with disability and perhaps keep them out of a nursing home. It is a partial response to what many would say is a failure of the private insurance market to cover LTC.

I wrote a paper in Health Affairs (I believe ungated here via NIH depository) with colleagues from Duke and Boston University that was in the January 2010 Health Affairs that looked at the viability of using genetic markers as risk adjustors for private LTC insurance. I don’t want to focus on the genetic piece, but the reasons people don’t purchase private LTC insurance:

The policy big picture is this.

• Families are the first line provider of LTC and this will always be the case. AARP estimates the value of such informal LTC to be $450 Billion per year.
• Medicaid is the default payer of nursing home care in the U.S., the most expensive setting for LTC and pays around half of all such care. You could think of Medicaid as a universal NH insurance program with the deductible being your wealth. NH and LTC generally are where the big money is for Medicaid programs.
• I suspect CLASS will eventually be goners. Do the repealers have any ideas about how to expand insurance coverage for LTC? We have had tax credits for LTC insurance for years….
• The private LTC insurance market is small and there are many good reasons people don’t buy such coverage, including the fact that 3 in 10 of those surviving to age 65 die without using such care. Amongst the users, there are tremendous variations in length of use and the amount of money needed to finance the longest stay is probably $1. 5 Million. So, almost everyone is at risk of being unable to pay for the LTC they could need.
• If ever there were a risk that called out for social insurance (broad spreading of premium in return for broad coverage) it is LTC. The policy answer is risk pooling and the private market has failed to do it. Medicaid certainly plays a crowd out role for NH coverage, but think through the 6 reasons for non purchase above; all of them must be addressed to move off of the status quo.

What is the answer? The population is aging….