Last week, the New York Times asked me to write an opinion piece for its “Room for Debate” section.
Here is the topic that the Times asked participants to discuss:
“An article in the Times this week focuses on a 5,000-member clan in Colombia that has an unusually high incidence of early-onset Alzheimer’s disease. A medical study of this large family, which lives in one Andes region, is being planned to see if giving treatment before dementia starts can lead to preventing the disease. In that traditional society, the heavy burden of caring for the ill falls on siblings, spouses, children and other family members.
“Relying on sisters and nieces, however, may not be possible or desirable in American society, where families may be far-flung but better off, and institutional care is more common.
“But as the United States population ages, the number of people with Alzheimer’s is projected to double from the current 5.3 million in the next few decades. Who will provide the care? What social policies might be needed to help the U.S. deal with growing numbers of older patients?”
Responding to the question:
- Wendy Max, Institute for Health & Aging, U.C. San Francisco
- David C. Grabowski, Harvard Medical School
- Richard Schulz, psychiatry professor, University of Pittsburgh
- Maggie Mahar, health care fellow at the Century Foundation
- Harold Pollack, professor, University of Chicago
- Marc E. Agronin, geriatric psychiatrist
Below, my response:
Voluntary Long-Term Care Insurance
We need to make it possible for Alzheimer’s patients to remain in their homes. Not only are institutions too expensive, patients who are “warehoused” can deteriorate rapidly.
The health care reform legislation opens doors, though it may require some amendments. For example, a new voluntary long-term insurance program will help people who are functionally impaired stay in their houses and communities. While they are working, individuals will pay small monthly premiums through their employers; as of January 2011, all adults over 18 will be eligible to participate. After paying premiums for five years, anyone who becomes unable to perform two or more functional activities of daily living will receives cash benefits of $50 to $100 a day.
Reformers are currently trying to figure out how much premiums will cost, and how people might be able to enroll if they are self-employed or if their employers decline to participate.
If a large number of younger, healthy people decide to sign up for this voluntary program, it will be cheaper for everyone, and the benefits will be larger. Participation may be aided by the fact that all Americans who work for larger companies will automatically be enrolled in the program; individuals can opt out if they do not wish to participate. If that doesn’t work, we may have to consider individual and employer mandates, but only if the premiums are very low.
Reform also helps Americans under the age of 65 who suffer from early-onset Alzheimer’s: private insurers will be required to cover them, and the government will provide subsidies to help low and middle-income families meet the premiums.
But the final legislation lets insurers charge older Americans three times as much as younger customers. This will have to change. I am fairly certain that, sometime before the individual mandate becomes the law in 2014, this rule will changed. Otherwise, taxpayers will find subsidies for older Americans unaffordable.
Note to HealthBeat readers: Since we were limited to 500 words, I didn’t have space to explain why government-run long-term insurance is preferable to the commercial long-term care insurance available on the market today. First, most people don’t buy the private sector insurance until they are in their 50s or 60s and at that point, it is extremely expensive. By contrast, if 20-something workers start making small contributions through payroll deductions to a government fund, over time, the miracle of compounding will create a deep, reliable pool of funds. Secondly, some potential buyers worry that commercial insurers may have underestimated how long boomers will live, how many will live long enough to develop Alzheimer’s, and how much insurers could wind up paying out. Insurers who miscalculated could go under.
Maggie, I’m not sure why you would write about the new government run long term care insurance program without mentioning that both CMS actuary Richard Foster and the American Academy of Actuaries have indicated that the program is very poorly designed and likely to be insolvent in just a few years. Not to mention that they are not even setting aside reserves to pay the eventual claims, they are spending all of the premiums received on the new health reform bill, so it is inaccurate to say that purchasing this insurance means paying into a “deep, reliable pool of funds”.
AB–
I am aware of Foster’s comments, but take them with more than a grain of salt. He is projecting so far out that his projections just aren’t meaningful.
First, who are the most vocal critics of the program? Many for-profit insurers are not happy about the govt LTC insurance because they don’t like the idea of competing with a program with will have lower costs (lower adminsitrative costs) and will be offering better benefits. (Unlike 98% of LTC insurance policies offered by private insurers, the govt program will cover you for as long as you live. Commercial LTC insurance promises to cover you for a certain number of years. If you live longer– that’s your problem.)
I don’t know whether Foster has been influenced by the for-profit insurers’ fears.
But I do know that Foster’s comments are based on speculation about
what will happen after 2030.
Foster and the Congressional Budget Office agree that the program will be in good shape during its first decade, and the CBO says that premiums will outstrip payouts in the second decade.
To try to guess what will happen after 2030 is impossible. Too many variables–What will happen to inflation over the next 30 years? Workers’ wages after inflation? (Since premiums will be a percentage of workers’ wages, if they go up, the fund will be taking in more money.) How
many younger workers will be signing up in 2030? (Answering this means reading minds going 20 years forward).
Foster ignores the fact that employees of large corporations will be automatically enrolled in the program–unless they opt out. Experience shows that in situations like this, people often don’t get around to opting out. .
How much progress will we make in improving home health services between now and then?
Over the next 20 years, will the govt’ make the payroll tax mandatory, the way the Medicare payroll tax is mandatory? I woudl say that’s fairly likely, since we don’t have any other solution to providing long-term care for the many baby-boomers who will need it.
If the tax becomes mandatory, Foster’s argument that only sick people and old people will sign up for the insurance goes out the window.
As for where the money goes: for-profit insurers that offer LTC insurance invest the money in the markets. Thus, they face “market risk”–if markets fall, they lose part of the premiums.
By contrast, the government program will hand the premiums over to the federal government in return for IOUs. No market risk. Unless you think that the U.S. governmetn is going to go banrkupt over the next 20 years, the money will be there when they need it. (If you do think the U.S. is in danger of going under, long term care insurance is the least of our problems.)(
Finally, the Secretary of Health and Human Services has the power to change premiums and benefits, as needed, over hte years to keep the program solvent.
Many people fear that some for-profit insurers will underestimate how much they will have to pay out, and will go under. I agree that this is a real concern.
Maggie:
You really suggest we should set up a long-term care program to complement Medicare?
You don’t think that Part D did enough damage to our long-term deficits?
And, you have the audacity to suggest we should issue IOUs to merely add to our already crushing deficits?
The American Academy of Actuaries made some very objective determinations, in my opinion.
And, what is this about protecting the for-profit insurers?
How much of the potential market do they have – 7%?
Don Levit
Don–
The Gov’ts long-term insurance program (CLASS) is something that workers will be paying for through payroll deductions.
As I know you understand, this is not a gov’t “giveaway.”
And the fact of the matter is that if we don’t set up a government-backed long-term care insurance program that encourages Americans to begin saving small amounts, early on in their careers, to cover LTC, then a great many (perhaps the majority) of baby-boomers will have to go on Medicaid (after using up virtually all of their savings to qualify for Medicaid) in order to receive Medicaid payments for long term care in nursing homes.
We know that a great many boomers will live long enough to develop Alzheimers, other forms of senile dementia, forms of cancer that kill slowly, and other long-term diseases.
This will be very, very expensive for the nation as a whole.
I understand your concern about the premiums going to the govt that will give the program IOUs in return.
But this is, in may view, much, much safer than investing premiums on bond or stock markets.
And while the system is far from perfect, Social Security is on a solid financial footing. We will have to tweak it, but it’s not in jeopardy. (See my next post on fear-mongering about the budget deficit that I hope to post tomorrow.)
Granted, Medicare will run into huge problems if we don’t rein in the growth in Medicare spending.
But this has Nothing to do with the way the federal govt’ deals with the financing of so-called “entitlements” and everythign to do with the fact that hospitals and doctots are doing more, while everyone (drugmakers, hospitals, device makers) is charging more each year.
Bottom line: Don, because people are going to be living longer, we absolutely need long-term health care insurance.
The only way to get people to begin saving for it when they are young is to make it a gov’t program. A commercial insurer cannot call for payroll deductions–unless employees decide to “opt out.”
The gov’t can.
And unless people use the “miracle of compounding”– based on their ability to pay (a percentage of their paychekc) there just won’t be enough money to pay for the care they will need as they age.
Maggie:
I share your concerns about the importance of paying for long-term care through a citizen-paying insurance program, rather than through Medicaid.
Having to deplete one’s assets to qualify for medical assistance must be excrutiatingly difficult for people.
Unfortunately, as you well know, for the vast majority of Americans, it doesn’t take very long to deplete their assets.
In a sense, by buying long-term care insurance, the majority of Americans would not do so to protect their meager assets, as they would to protect the taxpayers, and the solvency of our country.
That would be way too much to ask, in my opinion, for the vast majority of Americans.
That is why, as you mentioned, they may be compelled to do so.
Thus, the need for the CLASS program, on a mandatory basis, much as Medicare is financed.
Don Levit
Don–
You are right, most people don’t have enough assets to protect to justify buying long-term care insurnace when they are 55–at that age,it is very expensive.
And they just aren’t going to voluntarily buy it when they’re younger.
But if small payments are deducted from their paychecks over many years, this would be relatively painless. MOreover, many people do worry, in the back of their minds, about what they will do if they live a long time and need care. Most people don’t want to go into nursing homes if they can avoid it.
So I think that if the payroll deductions are small, many people will accept them as a fair trade-off for peace of mind.
It’s really all about using “the miracle of compounding.” When we’re young, most of us aren’t sensible enough to put away small amounts of money –even if we could afford to, starting with our first job.
This is one good thing about mortgages: enforced savings, especially if you don’t keep refinancing.
I’m way late returning to this post, but I have to take issue with a few of your replies Maggie.
First of all, you say Richard Foster’s projections aren’t meaningful because he is projecting so far into the future, and you specifically say 2030. That’s not really accurate. In his report:
http://graphics8.nytimes.com/packages/pdf/health/oactmemo1.pdf
He projects the first 10 years of premiums, but he does not make any specific projection far into the future, other than to say that after 2025 benefit payments would exceed premiums. This is not at all a controversial or questionable statement. The program is designed to bring in more premiums than benefits early on, and since it is designed to self-sustaining in the long run by definition you will hit a date when future benefits will exceed future premiums. His primary criticism is not based 20 or 30 year cost estimates, but on what he believes is a fundamentally flawed design to the program itself, and the American Academy of Actuaries agrees.
And I have to say that your bias is in display when the first rebuttal you have to offer is that for-profit insurers who sell LTC are the most vocal critics. This is nothing but ad hominem. The criticisms of the program should be addressed on their merits. It is also very irresponsible to insinuate that Foster may have been influenced by them, he has always shown himself to be an impartial and unbiased observer, and he almost lost his job by refusing to cave in to the Bush administration on Medicare Part D.
You then point out that both Foster and the CBO say that premiums will exceed benefits for the first 2 decades, but this is a non sequitur. The fact that the premiums are front-loaded is not in dispute. The issue is twofold: 1) are the premiums sufficient (the American Academy of Actuaries says they are not), and 2) can you spend that premium surplus in the early years on other parts of health reform. If you do that you’ve created a new unfunded liability, because those IOUs have to be repaid.
You then go on to play armchair actuary, questioning Foster’s skepticism by speculating about the cost of home health services in the future, inflation, wages, etc. Don’t you think the actual actuaries who are trying to evaluate this program think about those same variables? Don’t you think that those variables could just as likely move in the opposite direction and make things even worse? Do you think the Academy did not consider those things when they came to the conclusion that the program was flawed? A whole team of actuaries, outdone by Maggie Mahar? “Ahh, inflation and home health costs could be lower, why didn’t we think of that?”
You also mentioned how for-profit insurers invest the early duration premiums and face market risk. This is correct, but 1) they are also compensated for that risk in the form of higher returns, and 2) insurers selling LTC insurance are not investing in junk bonds and volatile tech stocks, so the market risk they face is not all that substantial. And what’s more, this is really an apples and oranges comparison; the problem with the CLASS Act is that they are spending that money, not investing it. The for-profit insurers don’t spend that money on a completely different program, but that is exactly what the government is doing. Where is the money going to come from to pay back those IOUs?
And your final point, that the Secretary of HHS can just reduce benefits if the program is in bad shape, are you suggesting that they could do this to existing policyholders? So the people that pay into this program and were promised a benefit should have the terms of the agreement changed after the fact because the government either designed it poorly or spent the money on something else? That is an acceptable outcome to you? Would you be OK with a private insurer doing something like that?