If you thought the fight over Obamacare was bruising, brace yourself for the coming battle over long-term-care insurance. Demographic pressure and ill-fitting public programs make the current approach unsustainable, whether we like it or not.
Long-term care for the ill and impaired is a good example of market failure. With a year in a nursing home costing an average of $80,000, few families can save enough to meet their own needs. It may not even be rational to do so: About 9 percent of people over 85 live in nursing homes. Because few people aspire to be one of them, there’s little incentive to save for the possibility.
Yet most of us will eventually need help. Two-thirds of those 65 years or older will require assistance at some point. Although it’s hard to predict the cost of any one person’s care, the total bill is huge -- the U.S. spent $134 billion on institutional care in 2011, plus $58 billion on home and other community-based care.
Clearly, what’s needed is long-term-care insurance. Yet the private insurance market has proved ill-suited to this type of coverage: Because future costs are hard to predict, it’s difficult to set adequate premiums. A number of large insurers beset by this problem -- and, more recently, low interest rates, which reduce revenue -- have stopped issuing new policies altogether.
Lackluster demand doesn’t help. In 2011, just 3 percent of U.S. adults had long-term-care coverage, and only 20 percent of large employers even offer it. With average premiums as high as $5,000 a year for a healthy 60-year-old couple, even Americans who can afford it may choose to spend their money on something else. And that’s assuming they qualify: As many as 35 percent of 60-year-olds can’t get coverage because of health problems.
So instead of relying on insurance, most Americans who get long-term care end up falling back on Medicaid. This is not an ideal strategy for aging with dignity; Medicaid is a welfare program, and to qualify beneficiaries must exhaust most of their assets.
Nor is it good fiscal policy. Medicaid is already overwhelming federal and state budgets, and growing fast because of the Affordable Care Act. The problem will only get worse. By 2030, one in four adult Americans will be 65 or older, up from one in six in 2010. By 2050 the demand for long-term caregivers may more than double, to encompass about 10 percent of the working-age population, according to the Congressional Budget Office. This challenge is too big for families to face on their own.
Demographic pressure, market failure and an inadequate welfare safety net suggest two options for federal policy makers. The first is to lean harder on the private market, by creating a combination of incentives for people to buy private insurance, subsidies to make that insurance affordable, and regulations to ensure it meets most people’s needs. If that sounds like a replay of Obamacare, with its unwieldy amalgamation of private and government roles, it is.
A better option is for the U.S. to follow the lead of almost every other developed country and create a social insurance plan for long-term care, in which the government collects premiums from the working-age population and uses the money to fund care for those who qualify. More like Medicare than Obamacare.
Such a system eliminates the problem of adverse selection, in which the people most likely to sign up for insurance are those most likely to need it, driving up costs. This is the problem that killed the CLASS Act, a voluntary government program included in the Affordable Care Act and later abandoned because it wasn’t actuarially sound.
The policy fix for long-term care is thus relatively straightforward -- what’s needed is someone to champion the cause. It’s understandable if Democrats, still smarting from the battle over health care, are wary of taking up the challenge. Republicans, though, have good reason to take on this responsibility for them, because a national long-term-care program would do several things that Republicans like.
First, it would shrink the Medicaid program, which Republicans have long sought to cut. It would also relieve pressure on states, which pay almost half the cost of Medicaid. With a federal program to manage long-term care, Republican governors could more easily limit or cut state taxes.
It would also offer Republicans a chance to win middle-age voters, and cater to their aging base. Fifty-six percent of voters ages 65 and older picked Mitt Romney over Barack Obama in the 2012 presidential election, but just 51 percent of those ages 45 to 64 did. Making it easier for people to care for their parents could be good fodder for campaigns; if that’s not pro-family, it’s hard to see what is.
The politics of long-term care become especially pronounced at the state level. By 2030, the states with the highest projected share of elderly residents will be Florida, New Mexico, Wyoming, Maine and Montana -- states that vote Republican or where Republicans would like to compete to retake the White House.
Unlike the health-care system, the current long-term-care system works well for almost nobody. And fixing it isn’t about redistributing wealth, or catering to one political philosophy or another. Whatever ideology you adhere to, we’ll all get old, and almost none of us can afford to pay for it.
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