Long-Term Care Financing Reform: The AAHSA Plan
- Date
- Jul 7th, 2008 11:28am
- Author
- Eric Schubert
- Category
Following are highlights of the
American Association of Homes and Services for the Aging (AAHSA) framework for financing long-term care, which was presented at the
recent forum at the University of Minnesota Humphrey Institute. Earlier we outlined the AARP plan
here. To read more about The Long-Term Solution by AAHSA,
go here:
Key Features
- Cash should be the one, if not the only, choice of benefits to be used at the beneficiary’s discretion.
- Benefits should be tied to a simple level of need based on functional status, not age.
- Benefit levels should provide for a foundational level of services for people in the community and in residential settings, consistent with keeping the program actuarially sound.
- Systems to ensure that beneficiaries can access with appropriate help selecting and securing needed services must be available.
The Solution: National Insurance Trust Financed by Premiums
The foundation of a long-term financing strategy should be a broad-based national insurance trust with low overhead costs and an all-inclusive risk pool. This insurance should be financed by premiums, not by general tax revenues, with premiums and benefits aligned to produce an actuarially sound program. This approach would allow baby boomers to prefund their long-term care needs. An independent, federally-charted organization could manage the premiums, investments and payments to ensure the funds are used only to pay benefits for this program.
Benefits Available Regardless of Setting
Benefits should be available regardless of setting. The dollar value of benefits should be tied to simple level-of-need determination that consumers can easily understand and focuses on a person’s need for assistance with activities of daily living (ADLs), including bathing, dressing and eating.
Even if all or most Americans are enrolled, the benefits would not cover all long-term care costs. Some may wish to purchase extra wraparound insurance to cover full costs, and some may pay the difference with private funds. People with very low incomes will continue to need financial assistance.
Wraps Around Medicare, Doesn’t Replace It
The optimal financing plan is one that wraps around and extends, rather than replaces, existing Medicare benefits, which will continue to provide for the more intensely medical and shorter-term rehabilitation needs.
Future expected Medicaid costs could be mitigated, helping to ensure the sustainability of Medicaid as a safety net. But near universal participation will be required, which could be achieved through a mandate or - perhaps more likely - through a strategy in which people are automatically enrolled in the plan and can opt out if they wish.
Could a National Insurance Trust Work? Yes, For the Cost of a Cup of Coffee a Day
AAHSA commissioned
The Moran Company, a nationally known economics consulting firm, to model a long-term care insurance trust that would provide a daily cash benefit for people needing assistance with two or more ADLS and be fully funded for at least 75 years. The model provided premium prices for one, two, three and five-year benefits as well as a lifetime benefit. For simplicity, participation was determined to be mandatory for all adults.
The study found that for about the cost of a large cup of coffee each day for each of us, we can create a national insurance trust that would pay a benefit of about $27,000 per year to each adult who needs assistance with two or more ADLs.
9 Comments
After watching my grandmother lose all her assets to pay for long term care due to Alzheimer's, my parents decided to get covered. The found Insure Your Future (www.disabilityinsuranceadvisor.com) and worked with Rene to find the exact policy they needed. Now they have coverage for $145/day which is indexed to inflation. The piece of mind they have now is priceless.
[...] and Sen. John McCain 10 reasons to discuss long-term care financing. The blog also outlines a financing plan put forth by the American Association of Homes and Services for the Aging (AAHSA), which would [...]
Dear Ecumen, You stated, "This wouldn’t cover all costs. If a person wanted more coverage, they would buy a supplemental LTC insurance product. The key also would be to get younger people to participate. I’m not sure about the LTC Partnership program; it hasn’t been enrolling people in high numbers. What is appealing about this approach is that it combines personal savings and LTC insurance and Medicare, and it’s a national approach, rather than a scattershot one." First of all, I'm not sure why you think your approach would combine LTC Insurance, personal savings and Medicare, since Medicare does not pay for long term care (except for a maximum of 100 days in SNF's under certain circumstances). Maybe you meant to say "Medicaid". Secondly, the biggest problem I have with your approach is that both the federal and state governments already pay for long term care services for the poor and for much of the middle class. A married couple can have as much as $500,000 in home equity and a little more than $100,000 in savings, and still qualify for government-funded long term care. A new "national program" would mostly benefit the rich and the upper middle class who can't qualify for government-funded long term care. Why should working Americans pony up $50 per month to pay for a new program that will primarily benefit the upper-middle class and the upper class? Since the poor already get free long term care, a national program would primarily benefit the richest Americans. Working Americans should not be required to pay for a national program that will primarily benefit the rich. In regards to the LTC Partnership programs, until recently, they were only available in 4 states and those states had many requirements on the programs which made them unattractive and not very competitive compared to "non Partnership" policies. Fortunately, with the signing of the Deficit Reduction Act, the LTC Partnership programs are now being expanded to the remaining 46 states. The new regulations allow for much more affordable policies and within a few years, more than half of the 400,000 LTCi policies that are bought each year will be Partnership Qualified policies. That is why I believe that the Long Term Care Partnership program will do more in the long run for protecting Medicaid for the truly needy.
Scott, I think you raise an important question: Why should people who have nearly a $1 million in assets by your estimation have their long-term care pay for by Medicaid? They shouldn't. This system would ideally help make sure that government dollars are not being taken by these folks who could pay for their own care. While I hope your projections on the LTC Partnership come true in terms of participation. Thus far, people aren't lining up to participate in the program. I seriously doubt that they will. We have to do something different.
I admit it. I'm an insurance agent who primarily sells long term care insurance. If I'm reading this summary correctly, if every working adult paid about $45 per month, if a person needed assistance with 2 or more Activities of Daily Living, that person would receive about $27,000 per year in benefits. Unfortunately, in most parts of the country today, $27,000 would not even cover half of the costs of care (let alone what care might cost 20 years from now). I guess $27,000 is better than nothing, but it's just a starting point. The real problem, in my opinion, is adverse selection. The younger, healthier adults will not want to participate. The older, "less healthy" adults will join in groves. I think the Long Term Care Partnership programs will do more in the long run for protecting Medicaid for the truly needy. Scott A. Olson, CLTC
[...] other day we wrote about the long-term care financing solution put forth by the American Association of Homes and Services for the Aging [...]
Ecumen, I'm sorry. I must have misunderstood your plan. Originally, you said that the program would have workers pay about $50 per month in exchange for a "national long term care benefit". The benefit wouldn't cover all their long term care expenses, but would probably cover about a third of their LTC expenses. You seemed to imply that this benefit would be available to all particpants regardless of their income or assets. The reason I don't think that's a good idea is because the poor and most of the middle class already receive free nursing home care from the federal budget. Your plan would, in my opinion, take money from working Americans and provide long term care benefits to anyone else in the plan, even if they are ultra-rich. Now, you're saying that you're system would not provide benefits to the rich. You state, "This system would ideally help make sure that government dollars are not being taken by these folks who could pay for their own care." Please help me to understand. If your "national long term care plan" is only designed to pay long term care benefits for the poor, then how is it different from Medicaid? If you want to protect gov't dollars to only help the poor, wouldn't the easiest way to do that be to just change the Medicaid rules? Why not just make the Medicaid rules more stringent? Why create a brand new bureaucracy.
Scott, thanks for your post. The benefits accrued in the National Insurance Trust would apply to everyone. It will not replace Medicaid. But it would reduce Medicaid costs because fewer people (rich and non-rich) would be accessing Medicaid b/c they now have a long-term care benefit through the trust that they paid into. If the beneficiary is "rich" or "ultra-rich," they would be using private-pay dollars to wrap-around their national benefit either in the form of their own dollars or a wrap-around long-term care insurance product (this national fund would make long-term care insurance more appealing to the very people who should be buying insurance, but don't today). They should not be tapping Medicaid benefits. Under this framework low-income individuals would receive financial assistance to purchase the proposed insurance. Those premiums could be financed one of two ways or a combination to ensure that these are progressive, not regressive contributions: 1. Higher income individuals would pay premiums that cross subsidized the premiums of low-income Americans. 2. Subsidy amounts would be transferred to the administrator of the fund (an independent, federally-charted organization) Hence the costs of subsidies would be derived from federal grant revenues, and recorded as outlays in the Federal budget. B/C of the progressivity of the Federal income tax system, the incidence of these costs would also fall on higher-income Americans. In terms of your point about "just making the Medicaid rules more stringent." There's only so much savings to wring out there.
Good points. This, however, wouldn't cover all costs. If a person wanted more coverage, they would buy a supplemental LTC insurance product. The key also would be to get younger people to participate. I'm not sure about the LTC Partnership program; it hasn't been enrolling people in high numbers. What is appealing about this approach is that it combines personal savings and LTC insurance and Medicare, and it's a national approach, rather than a scattershot one.
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