COLUMN-Cliff deal offers hope of solution on long-term care

Wed Jan 2, 2013 4:33pm EST

By Mark Miller

CHICAGO Jan 2 (Reuters) - There's a lot of complaining about the fiscal cliff deal, but there is one notable bright spot: Congress agreed to take a hard look at long-term care.

With the repeal of the Community Living Assistance Services and Supports Act (CLASS Act), a feature of Obamacare that attempted to create a mass "public option" for long-term care insurance, comes a commission tasked with developing a new workable solution to one of our most serious retirement security problems facing the nation.

Congress now has the chance to address - at long last - the huge deficiencies of our current patchwork long-term care system. It has six months to developed a plan for "the establishment, implementation, and financing of a comprehensive, coordinated, and high-quality system" for long-term care services.

And while there is no guarantee that the commission's work will not wind up just gathering dust on shelves in Washington, it is encouraging to see Congress and the Administration at least asking the right question about long-term care: Where do we go from here?

LONG-TERM PROBLEM

Current options for long-term care are fragmented and dysfunctional, but the need is large and growing. Seventy-nine percent of women who turned 65 in 2005 - and 58 percent of men - will need some form of LTC during their lives, according to the Georgetown University Long-Term Care Financing Project.

Thirty-seven percent will require the most expensive option, nursing facility care, for an average of 1.1 years. This year, a private nursing home room will set you back an average of $81,030, according to the 2012 Genworth/Carescout Cost of Care survey.

Private long-term care insurance policyholders have been hit with waves of double-digit rate increases and the price of new policies has soared. A long list of major insurance companies have stopped writing new individual policies, including Prudential, Metlife and Allianz. And overall market penetration remains less than 5 percent of the total possible market, according to LIMRA, the insurance industry research and consulting firm.

Medicare will cover up to 100 days of skilled nursing care or rehabilitation if it is ordered by a physician. Patients must have already been enrolled in Medicare Part A (hospitalization) and have been formally admitted to a hospital for at least three consecutive days. After 20 days, patients are responsible for a small co-payment.

The stressed Medicaid system is the nation's largest insurer. But it's only available if you're indigent or receive Social Security disability payments. Some patients begin by paying for care out of pocket and go on Medicaid after their resources have been exhausted.

POSSIBLE SOLUTIONS

CLASS was an attempt to fix some of those problems by attempting to create a mass long-term care insurance based in the workplace and self-financed through individual premiums.

The program faced criticism even before the health reform law was passed. Critics charged it would not be financially sustainable and would create a sustained drag on the federal deficit. The Obama Administration shelved CLASS last year after acknowledging that the numbers did not work.

The real Achilles heel of CLASS was that it was optional. That left open the risk that healthy, younger people might not enroll at all and others might sign up only when they suspected they would soon be sick enough to require nursing care.

What might the solutions be? Call me crazy, but I've long thought the best way to fund a national long-term care insurance system is through a new tier of Medicare - with mandatory participation.

In 2007, researchers at the Urban Institute proposed expanding Medicare's coverage of long-term care through a 1 percent surcharge on everyone filing a federal income tax return and existing general revenue that now supports LTC through Medicaid. The plan resembled Medicare Part A in that seniors would not pay premiums, but instead pay a $500 annual deductible for care and a 20 percent co-pay.

Dubbed "Medicare Part E," the idea would have the benefit of a mandatory revenue source and participation by the widest possible pool of insured participants - all Americans. However, it is unlikely to gain momentum in a political climate focused on reducing - rather than expanding - Medicare expenditures.

The income tax surcharge might sound unpalatable in our current political climate, yet it would buy a tremendous amount of peace of mind.

"Surveys show that long-term care risk is really what scares people about retirement. We may have some problems with Social Security and pensions, but what if I get really sick? What do I do then?" says Richard Johnson, a co-author of the plan.

If the members of the new commission can come up with the answer to that, it might make the whole fiscal cliff fiasco seem worthwhile.

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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