Fresh approaches to paying for long-term care

Long-term care is a wild card in the deck for any retirement plan. Half of all Americans develop a disability at age 65 or older that is serious enough to need long-term care, and one in six will spend at least $100,000 out of pocket for care, federal data shows.

The financial risk is real, but our current system of insuring that risk is a mess. Don’t even call it a system–what we have is a patchwork of private insurance that hasn’t penetrated the market widely, and an inadequate public social insurance safety net.

Only the most affluent households can afford to pay for long-term care out of pocket, and private long-term care insurance covers only about 7.4 million people, according to the National Association of Insurance Commissioners. Many others will be covered under Medicaid, which funds care only in cases where a patient’s assets have been almost completely spent. Meanwhile, a great deal of care is provided by family members. That can lead to other problems, including job interruption, reduced Social Security benefits and retirement saving, and general financial instability for the provider of care.

Most experts worry that the current approach isn’t sustainable. Long-term care costs are rising at a much faster pace than overall inflation–nursing home care’s five-year annual growth rate is 4%, according to Genworth data. An especially troubling sign on the cost side is the shortage of professional caregivers.

Medicare and Medicaid together cover 61% of long-term care costs–and both systems face financial stresses that will only accelerate as the country ages. Meanwhile, most households don’t enter retirement with enough savings to cover a long-term care expense. Among workers 55 or older, just 30% have saved more than $250,000, according to the Employee Benefit Research Institute; 15% have between $100,000 and $249,000. But 33% have saved less than $25,000.

Congress hasn’t addressed the problem, partly due to ideological divides. Conservatives advocate private-market insurance solutions, while liberals advocate for stronger public coverage, mainly through Medicare.

Clearly, fresh thinking is needed. And that is starting to happen.

Three in-depth reports were released recently calling for a hybrid public-private approach to financing long-term care costs. The reports, which were developed by a nonpartisan consortium of researchers, represents an ideological middle ground. It calls for streamlining and simplifying private long-term care insurance to make it work better, but also covering the most extreme risk through a publicly financed insurance program.

Meanwhile, while the big thinkers think their thoughts, some insurance companies are tinkering around the edges by rolling out new private insurance products aimed at getting around traditional consumer objections to long-term care insurance.

Research Recommendations

The three reports all are based on a single, detailed core analysis of the nation’s long-term care needs, insurance markets, and financing mechanisms conducted by the Urban Institute and Milliman, an insurance industry actuarial consulting firm. Taken together, they reflect input from most of the nation’s long-term care policy experts–and each was written with balanced representation across the ideological spectrum. A side-by-side comparison of the three sets of recommendations can bedownloaded here.

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