By Cyril Tuohy
If there’s one conclusion to be drawn from the now-completed hearings held by the federal Commission on Long-Term Care, it is this: The private sector by itself will never be able to fund long-term care services and supports (LTSS), but private health insurers will remain a small part of the eventual solution should lawmakers ever agree to one.
That private long-term care insurers would never be able to fill the void for public funding of LTSS might be obvious to policy analysts today, but that wasn’t the case 23 years ago when, in September 1990, the Pepper Commission delivered to Congress its final report on health care and long-term care reform.
“The emergence of job-based long-term care insurance, combined with anticipated increases in the elderly’s income, makes some observers optimistic that private insurance will fill a considerable part of the need by the year 2020,” the report said.
Fast-forward 23 years and financing of LTSS from private long-term care insurers remains exactly where it was nearly a quarter century ago: a minor player in the $317.1 billion spent on LTSS in 2011.
With private insurance expenditures for LTSS amounting to $19.3 billion — only 6.1 percent of the $317.1 billion spending pie — the private sector’s ability to pay for LTSS is nowhere near what optimists in 1990 had hoped for.
With its reliance primarily on public and out-of-pocket sources paying for nearly 90 percent of the cost of LTSS, financing long-term care has remained in much the same place it was in September 1990. It is as if long-term care has remained in a time warp.
“There is no universal solution,” said Jesse Slome, executive director of the American Association for Long-Term Care Insurance. “Both public entities and private insurers have a role to play and that is positive news for the long-term care insurance industry."
It was with a sense of urgency that the Pepper Commission urged Congress to act and find a funding solution for LTSS. “We can build carefully and deliberately one step leading to the next,” the final sentences of the Pepper Commission read. “Universal coverage in an effective, efficient system is within our reach. We must act now.”
Like the Pepper Commission’s report 23 years ago, this latest commission’s “call to action” seems just as urgent. “The need is great. The time to act is now,” the long-term care commission said, in the opening paragraphs of its final report.
Financing LTSS was a major sticking point, according to commission members, and five of the nine Democrats appointed to the panel voted against the final report released Sept. 18, following a 9-to-6 vote.
“We have no financing mechanism, this issue isn't going to get any easier and we have more and more need for these services as the baby boom ages,” said Judy Feder, a Georgetown University professor of public policy and one of the Democratic appointees to the panel.
“Private insurance has not been able to do the job,” Feder added, in a telephone interview with InsuranceNewsNet. “We have private insurance but they have been challenged to develop adequate products.”
More than 12 million Americans rely on long-term care, and that number is expected to swell as baby boomers move deeper into retirement even as fewer family caregivers will be around to help them.
The commission, however, went much further than the Pepper Commission in suggesting more private sector solutions to financing LTSS.
It encouraged the penalty-free withdrawal of funds from retirement accounts to pay for LTSS expenses, pushed for life care annuities to be used as an investment in tax-managed accounts, called for the removal of some regulatory burdens on long-term care insurance carriers, and suggested tax incentives similar to 401(k) plans to encourage the purchase of long-term care insurance.
“It has put a lot of options on the table,” said commission member Christopher Jacobs, a senior policy analyst at the Heritage Foundation, and the only Republican appointee to vote against the report.
Some of the suggestions in the final report, he also said, could raise costs for insurers and nursing homes. In a separate letter to Congressional leaders, six commissioners insisted that the final report’s recommendations not increase financial pressures on federal and state budgets, he said.
“In terms of what comes of it, some of the recommendations apply to Congress, but Congress has a very full plate heading into the fall and we'll have to see how it plays out.”
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].
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