by Marc A. Cohen, Stuart M. Butler
Roughly one week before Americans celebrated the July 4 holiday, Representative Thomas Suozzi (D-NY) introduced a revolutionary bill (H.R. 4289) designed to repair our broken system for financing long-term services and supports (LTSS). The “WISH Act”—Well-Being Insurance for Seniors to be at Home—is based on an idea first put forward by a group of long-term care experts known as the Long-Term Care Financing Collaborative, which was convened in 2012 by the Convergence Center for Policy Resolution and included the authors of this blog post. The idea was developed further in a 2018 paper presented at the Bipartisan Policy Center. If enacted, the WISH Act could significantly transform our LTSS financing system by harnessing the best of what the public and private sectors can jointly do to solve a problem that neither sector seems able to solve on its own. And it does this in a fiscally responsible way.
The legislation seeks to address the growing problem that needing LTSS for a long spell and, particularly, receiving them in a nursing home, can be financially devastating even for middle-class Americans with significant savings. A year in a two-bed nursing-home room can cost upwards of $93,000, causing many to exhaust their funds and become reliant on Medicaid.
In theory, private insurance is the appropriate tool for protection against such a risk. But the private long-term care insurance market has been declining over the past two decades, with fewer than 10 percent of Americans having policies. What is more, in 2017, private coverage payouts accounted for less than 5 percent of total national spending on LTSS. Moreover, while premiums have been rising substantially, the number of insurers selling a meaningful number of policies has precipitously declined.
There are multiple reasons for the condition of the insurance market. One is the widespread but erroneous belief that Medicare will pay for LTSS, combined with confusion about what private long-term care policies cover, and an aversion among consumers to the policy’s upfront cost. Meanwhile, growing uncertainty among actuaries—and earlier mistaken assumptions—about potential payouts, has led many companies to withdraw from this line of business leaving remaining firms to offer policies that are largely unaffordable to most middle-income Americans. And the remaining companies no longer sell policies that cover long-duration LTSS need, that is, lifetime protection.
For more than 30 years, policy makers have been grappling with this issue. Some have argued that the solution is for government to step into the gap and take over the responsibility of protecting middle-class people from the costs of extensive LTSS. The Community Living Assistance Services and Supports (CLASS) Act (part of the Affordable Care Act) aimed to do this by creating a voluntary, publicly administered insurance program. But after it was enacted, the proposed program was found to be financially unsound. It never got off the ground and was repealed in 2013.
Agreement on a policy solution has long been stymied by a fundamental philosophical conflict between those who would limit public policy to the promotion of private insurance as the only appropriate policy for protecting private resources and those who regard public insurance as essential to the assurance of adequate, affordable protection for all.
The WISH Act, however, steers a careful middle course. It combines public and private roles in ways that would promote comprehensive insurance protection while strengthening the private insurance industry. It does so by creating a modest “catastrophic” public program to limit exposure for LTSS costs that modest- and middle-income people can reasonably be expected to manage, either through reliance on family caregivers, personal resources, or on private insurance. In this way, the WISH Act gives private insurers the opportunity and greater actuarial certainty to design insurance as a gap-filler (much like private Medigap insurance does for health costs). The likely result: Many more middle-income people would buy private policies that, combined with the new public insurance, would provide nearly comprehensive insurance protection against LTSS costs. This fundamental idea is key to the WISH Act: using limited public insurance in part to help stabilize private insurance.
Recognizing That “One Size Does Not Fit All”
Under the legislation, the public program would begin paying a benefit only after an individual has a LTSS need that lasts for at least one to five years—depending on income. In this case, a LTSS need is defined as becoming functionally impaired in two or more activities of daily living or suffering from dementia for a pre-determined amount of time. The benefit would be $3,600 paid monthly to help support that individual in the setting of their choice, which is most often their home.
The innovative idea behind this approach is the recognition that for some families having a need lasting just one year would represent a catastrophic burden—either for family caregivers providing care or due to the significant financial costs associated with paying for care. For others with greater resources, the need would only be truly catastrophic after four or five years—when a combination of family care, private insurance, and savings would no longer be adequate. Thus, the amount of time a family would wait to receive the public insurance benefit would be directly related to their income history so that those with lower incomes have to wait less time to receive benefits. This scaled, income-based waiting period is designed to target benefits to middle-income households and protect them from financial ruin.
Valuing Family Caregiving
Most individuals who require LTSS receive it from family caregivers. In fact, in 2017, more than 34 billion hours of unpaid care, valued at $470 billion, were provided by family members to adult relatives. Many people who cannot afford costly services must rely entirely on family care when they have LTSS needs. Even if the individual receiving care does not incur any direct costs, the caregivers themselves, who are often adult daughters, often do incur heavy costs in the form of making workforce accommodations or even leaving the labor force, thus putting their own future retirement security at risk.
Typical health insurance requires individuals to spend money on health services until a deductible amount is reached. The WISH program does not require this; the waiting period for benefits is instead based on the amount of time someone has had an LTSS need, not on how much money they spend out of pocket on LTSS services. The implication is that those who rely exclusively on unpaid family supports, who tend to be individuals of more modest means, will be able to receive public insurance benefits at the same time as those who have paid for such care out of pocket, once they have met their waiting period requirement. Unpaid family care is thus valued the same as paid care.
Stabilizing The Private Insurance Market
The WISH Act would also strengthen private insurance by using public insurance to address a part of the risk that is hard for the private insurance market to predict: the costs associated with long-duration LTSS need. Historically, the unpredictability of these costs has discouraged insurers from offering policies in this market. But having a well-defined public insurance program in place would stabilize the market and make it more appealing to new entrants. And for the public, it would crystallize that in the period before the public insurance would take effect, there is a definable risk they need to plan for. Because that period varies by income, WISH would make private insurance coverage affordable to people of more modest means, since they would only need to buy short-duration, less costly policies. Most such people have never considered private insurance as an option.
With the public catastrophic insurance in place, private insurance carriers could fill the gaps in public coverage and do so for lower prices than plans charge today. Sales costs would be lower because carriers would not have to spend as much on education and marketing because more middle- and modest-income people would understand the risks and enter the market. The WISH Act includes substantial efforts to educate the public about their risks and likely costs. Underwriting guidelines could be relaxed as more people become part of the target market. And, like Medicare Medigap supplement insurance, insurers could market their products in alignment with the public coverage. The number of Medicare supplement policies in the market far exceeds the number of long-term care insurance policies, suggesting that keying off public-program coverage can significantly help the industry and lead to more carriers re-engaging in a revitalized market. In essence, the WISH program could lead to a “mainstreaming” of private insurance for first-dollar costs, thus assuring Americans that they have access to a comprehensive insurance solution built on well-defined public and private roles.
Reducing Medicaid Spending And Advancing Health Equity
The largest public payer of LTSS is the Medicaid program. While it pays for more than half of all LTSS, however, it covers support services only after people expend most, if not all, of their personal resources. Moreover, in many states Medicaid limits access to services at home or in the community, and thousands of individuals with LTSS needs are on waiting lists to receive home and community-based care. Furthermore, Medicaid represents one of the fastest-growing state budgetary items; several states are in the process of examining new state-based LTSS financing initiatives, largely motivated to help stem what they view as unsustainable growth in the program.
The WISH Act would have a dramatic impact on state Medicaid programs, helping to stem expenditure growth and in a manner that also advances health equity. Indeed, by covering long-duration LTSS needs, which are the primary driver of LTSS costs, the WISH program would reduce Medicaid expenditures by at least 23 percent, based on an analysis of a similar approach. This would mean significant budgetary relief for states. Meanwhile, the reduction in the number of middle-income Americans eventually making claims on Medicaid because of LTSS costs would provide the program more capacity to serve those for whom it was designed.
Achieving Fiscal Sustainability
One of the shortfalls of the CLASS Act was that its design made it fiscally unsustainable, leading to its repeal in 2013. In contrast, the WISH Act is financed much like a typical insurance program, with a payroll premium offsetting program costs. In this case, 0.6 percent of wages would be collected from all participants (half from employees and half from employers). Like Social Security, full benefits would be available after 40 quarters of work. Pro-rated benefits would be available after six quarters. This structure would fund projected benefits and administrative expenses without general revenue.
What does this mean for a typical worker? In early 2020, median weekly earnings for full-time wage and salary employees were $936. Thus, for such full-time employees, a total of $5.62 per week ($292 per year) would be set aside into a trust fund to pay for future catastrophic LTSS needs.
Filling Gaps
The risky market conditions of long-term care insurance have left most people without an effective way to plan for the single greatest threat to their financial security during retirement—the possibility of heavy LTSS costs. The WISH Act seeks to ameliorate this threat by focusing public spending on a risk that private insurers are unprepared to take on. This public focus will, in turn, encourage private insurers to focus on the role they have historically been more willing and able to perform, filling gaps in public insurance coverage with products that “wrap-around” a well-defined public benefit. In doing so, the proposed legislation would help slow the growth of Medicaid and protect many middle-income Americans. As Congress considers ways to strengthen the care infrastructure for older adults, the WISH program could be an essential component.
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