A nurse taking care of an older man.
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Long-term care costs are rising even as families struggle to keep up with increases in their ordinary living expenses, making it tougher than ever to save for personal care needs in old age. That combination is raising interest in public long-term care insurance.
But what would a public program cost? It all depends on the design, but we are learning that a well-structured benefit could be quite affordable.
Alternative Models
Washington State has begun paying initial benefits under its WA Cares program, a front-end public insurance model that covers the first $36,500 in costs, once a participant needs enough help to trigger the payments.
Under the universal Washington program every worker pays an extra payroll tax of a bit less than 0.6% of wages. For someone making the state’s median annual salary of about $75,000, that’s a yearly premium of roughly $450, or $9-a-week. Not a bad deal.
But what about a public catastrophic insurance program? In one version of that model, a person with long-term care needs could receive a monthly cash benefit of about $3,600 for life after they meet a waiting period that would vary with their income. A low-income beneficiary first might have to wait a year, while a very high-income person might have to cover their costs out-of-pocket for up to five years.
The Costs Of WISH
That’s the idea behind a congressional bill called the WISH Act, sponsored by representatives Tom Suozzi (D-NY) and John Moolenaar (R-MI). The catastrophic design has some advantages over a front-end program like Washington State’s. For example, it targets benefits to those who need them the most—people with very long spells of care needs, such as those with dementia. And it can substantially reduce Medicaid’s long-term services and supports costs.
But a team of actuarial firms estimated early versions of that bill would cost about $200 billion, equal to a payroll tax rate of 1.7%. A median income worker in the US makes about $63,000 annually, which would make the tax about $1,100 or about $21-a-week. And that’s probably too much for most individuals, and the political system, to swallow.
As a result, the actuaries ran the numbers for various alternatives. (full disclosure: I serve as an unpaid member of an advisory group that helps Suozzi design a financing model for the plan).
The analysis was done by Actuarial Research Corporation, GCG Consultants, and the firm Oliver Wyman. It was funded by insurance companies Genworth Financial and Nationwide Financial.
How To Save Billions
It turns out that with some tweaks, WISH could come in at around half its initial cost, keeping public insurance affordable for middle-income workers. Many of those changes reduce benefits or limit eligibility compared to the original, but they retain its basic design.
Here are few ways to lower costs:
- Replacing cash benefits with reimbursement for services would save about $30 billion. Another option that the modelers did not calculate would give people a choice between reimbursement or a smaller cash benefit.
- Raising the minimum age for benefits from 65 to 67.5 would save another $16 billion.
- Tying automatic benefit increases to the overall cost of living rather than wage growth would lower costs by almost $90 billion.
- Adjusting benefits so those getting care at home would receive $1,800/month while those in nursing homes would get $3,600 would save about $70 billion. Covering home care only at the full $3,600 would lower the overall cost by $45 billion.
- Changing how program revenues are invested. This could lower the tax rate without reducing benefits.
The way a public program’s reserves are invested can matter a lot. Social Security payroll taxes are invested only in US government bonds. But the government could put long-term care insurance funds into a diversified portfolio, which Washington State is doing with its program.
Over the past half-century, the average annual return for a 60% stock, 40% bond portfolio was about 9.5%. Assuming even a 5.8 percent annual return, for example, would reduce funding needs by about $40 billion, the actuaries found.
Keep in mind that the actuaries’ various savings ideas are not additive and interactions among them could impact total savings. But the analysis shows it is possible to bring the overall price of WISH to below, say, $100 billion or half the initial bill.
A payroll tax of roughly 0.9%–$585 annually or $12-a-week– for a worker earning the median wage in the US (about $65,000) would be much easier to swallow than an increase of twice that amount.
A Long Road Ahead
Of course, the actuaries had to make many assumptions about unknowables such as average life expectancy or duration of illness over the next 75 years. But their estimates provide a good ballpark estimate of the future costs of a program such as WISH.
The need for some enhanced public program is undeniable. About 70% of older adults will need some long-term care before they die, and half will need a high level of care. The WISH actuaries, like others, estimate that about 20% of those needing care will require help for 5 years or more.
They estimate that those 5 years will cost more than $600,000 on average, an amount that exceeds the net worth of 90% of US households at age 65. Only those with a nest egg of $1.1 million or more have any realistic chance of paying for such care along with their other expenses.
Those costs will drive even more people on to Medicaid, a program already under enormous political and financial stress.
A program such as WISH has a long political road ahead. Most Republicans and even many Democrats are reluctant to support a new federal program that would require tax increases. Advocates for people with disabilities strongly oppose an insurance program that pays benefits only in old age.
And many lawmakers have other, higher priorities, such as reducing the federal deficit, paying for Medicare for All or a bigger military, or fixing Social Security. All would likely require tax increases of their own.
But long-term services and supports are a growing and vital need for more and more Americans. And it is an expense the vast majority simply cannot afford. That leaves the government with three realistic choices in the coming years: Paying for more care through Medicaid, creating a Medicare long-term care benefit, or building a public insurance program.
The fourth choice seems unthinkable: letting tens of millions of people die prematurely or endure long, costly, avoidable hospitalizations because their personal care needs go unmet.
