What next for long-term care after CLASS act folds?

The federal government threw in the towel on creating a public option for long-term care coverage last week, and that would seem to be definitive for now. In defeat, Health and Human Services (HHS) Secretary Kathleen Sebelius was doing the right thing in admitting the concept’s flaws and cutting the government’s losses of the proposal, which was a lesser-known component of the new health reform law. It was an attempt to expand the number of Americans with long-term care coverage by providing a basic, inexpensive LTC option deployed mainly through the workplace as an opt-out choice in benefit plans.

Republicans were overjoyed with the decision, obviously, since they have always seen CLASS as a budget trick to pump up the health law’s revenue and make the law seem less expensive than it is (CLASS had been projected to generated $86 billion in revenue in the early years from premium payments made by policy holders whose coverage had not yet vested).

But there is still the problem to solve about how we’ll care for our frail elderly in the years ahead, and it’s unclear what the path to a solution will be. After the shouting subsidies, we’re still left with an inadequate, patchwork system for funding long-term care in the U.S.

The Center for Retirement Research at Boston College (CRR) says about one-third of Americans turning 65 this year will need at least three months of nursing home care sometime during their lives.

Medicare covers only a small portion of long-term care needs, and the cost of a semi-private room averages $79,000 per year. CRR calculates that the mean lifetime exposure to long-term care costs for a 65-year-old couple is $260,000, with a five percent risk of a $570,000 expense.

Meanwhile, Medicaid remains the nation’s largest LTC funder, paying for more than 40 percent of all care. And the market for private LTC insurance continues to limp along, the victim of collective national denial and expensive policies.

About seven million Americans have private LTC coverage, according to LIMRA, the insurance industry research and consulting group. Although a 2010 LIMRA survey suggested that 20 percent of U.S. adults have some form of LTC coverage, the researchers thought that was “an overstatement” caused by confusion about what consumers do and don’t have.

And, while LIMRA says the number of LTC policies sold in 2010 jumped 11 percent, that gain came against 2009, when the economic crash produced numbers that were the worst since the early 1990s.

The LTC industry also suffered a bout of bad publicity in the past year — the result of double-digit rate hikes on existing policyholders and decisions by several major insurance carriers to exit the market.

Sales for the first half of 2011 are up a modest two percent, according to the American Association for Long-Term Care Insurance (AALTCI). “Sales should be down, considering the bad economy and the bad image surrounding the product — but they’re not,” says Jesse Slome, the association’s executive director.

Indeed, the recession has forced Americans to cut back on all kinds of insurance. For example, ownership of individual life insurance has hit a 50-year low last year, according to LIMRA data, with only 44 percent of U.S. households covered. “If Americans are cutting back on that kind of protection, you can imagine that long-term care insurance is a far lower priority,” a LIMRA spokeswoman says.

Following the demise of CLASS, Some believes the government should consider steps to reform Medicaid funding of LTC, and create tax incentives to stimulate sales of private policies. “We need to change the rules so states aren’t going broke, and Medicaid is a program only for those who really can’t afford their own insurance — and provide incentives for middle class people to get coverage.”