Planning for long-term care

DURHAM -- Most people think of nursing homes when they hear the phrase long-term care. However, 10 million people receive LTC provided mostly by family members, while just 1.5 million live in nursing homes. The explicit costs of LTC are large, but so are the implicit costs to families (time, stress, missed work).

Health reform has not focused on LTC, with one notable exception: the Community Living Assistance Services and Supports program, which is part of the recently passed House bill and is being debated in the Senate.

CLASS is an attempt by the federal government to set up a completely self-financing LTC insurance plan. Currently, most LTC is financed by families through in-kind time and out-of-pocket payments for nursing homes. The Medicaid program finances about half of all nursing home costs because many people become impoverished and eligible for Medicaid by paying for LTC. Medicare pays for limited amounts of LTC, and less than 10 percent of us age 55-plus have private LTC insurance. Most Americans have not planned well for LTC.

Deleting a Tax Subsidy from the EquationCLASS would work as follows: Employers could create auto-enroll procedures that allowed workers to opt out, or workers could choose to enroll and pay premiums for five years before they could receive benefits. Premiums in the Senate bill would average $123 a month, would vary with age and would not increase once you signed up (but they would increase for those signing up later). The House version allows nonworking spouses to buy in, increasing premiums to $146 a month on the assumption that nonworkers are more likely to be disabled in the future. CLASS would not help persons now disabled. The Congressional Budget Office estimates that 10 million people would sign up by 2019.

Benefits would be modest ($50-$75 a day, increasing with inflation) and would provide flexibility for families to buy community-based care or to partially defray the cost of a nursing home. People would be eligible for benefits if they have difficulty completing two or three basic functions such as eating, dressing or bathing, regardless of age.

CLASS was a favorite cause of the late Sen. Ted Kennedy, and it is one of the few major provisions from the Senate HELP Committee that is recognizable in the full Senate bill. The CBO says that the Senate CLASS would reduce the deficit by $72 billion over 2010-2019, more than half of the deficit reduction it has ascribed to the entire bill.

CLASS is designed to be self-financing, meaning premiums plus interest must pay for future benefits. The 10-year deficit reduction occurs because benefits are not paid out for the first five years, but premiums are paid in. 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.

There are several LTC-specific issues and questions that are key.

First, people my age and younger are going to be the generations most affected by providing long-term care for our parents (because there are fewer of us for each of them). CLASS could help some baby boomers help themselves and their kids.

Second, it could provide an easy vehicle for younger workers to make planning for LTC a natural part of being a young adult. It is quite easy to delay thinking about your own LTC.

Third, would the development of CLASS boost the ability of private insurance companies to sell nursing home-focused policies and reduce costs to Medicaid?

This would leave CLASS covering that part of the market with the largest moral hazard (you use more if it is paid for by insurance), with the private market covering the part with the least (I don't know anyone who wants to live in a nursing home). But, if buy-in rates are substantial over time, CLASS provides a vehicle for stimulating people to plan ahead for their own long-term care and perhaps boosting coverage rates in the private insurance market as planning for LTC becomes more common.

Donald H. Taylor Jr. is an assistant professor of public policy. His blog is available for discussion of this article and health care reform in general. This is part of a series of articles by Donald Taylor exploring aspects of the health care reform issue originally published in the News & Observer