EUROPEAN PAPERS ON THE NEW WELFARE

Appendix

Statement on Long-Term Care by the Task Force on Health Care Reform, May 3, 1993.

‘Expand long-term care choices to Americans with disabilities’. President Bill Clinton

Long-term care consists of services to individuals with chronic physical or mental limitations who cannot care fully for themselves. The type of services provided are generally custodial (e.g., bathing, cooking, and shopping), rather than medical. At least two-thirds of the individuals who need extraordinary living services receive them at home from family and friends. The remaining third pay for professional care at home or in nursing homes.
Currently, there is little public or private insurance that covers long-term care. Although Medicaid covers some medical or related services, the recipient must spend most of his assets before becoming eligible. Congress, however, is leaning toward some form of public financing for long-term care that will not require recipients to spend down all their assets to become eligible.

Current and Future Long-Term Care Needs

Currently, about 7 million persons age 65 and over require some form of long-term care. In the future, as the elderly become a larger proportion of the total population, the increase in those over age 80 could lead to a significant increase in the demand for long-term care (from 22.870 to 28.0% between 1980 and 2040, according to HCFA (Health Care Financing Administration).
The greatest percentage of elderly individuals requiring long-term care is among the older elderly, since they are more susceptible to developing long-term debilitating functional limitations. In addition, the ‘old-old’ are less financially prepared to deal with long-term care costs since the real value of private pension income (most of which is not adjusted for inflation) is lower for them. As a result, the old-old face rising uninsured extraordinary living costs which they must pay with diminishing real incomes.

Financial Status of the Elderly

A year of nursing home care currently costs over $30,000 annually, on average, allowing few uninsured persons to receive such formal care for prolonged periods. Many become impoverished even by short stays and turn to Medicaid, the major source of funds for nursing home care. As the elderly population grows, it is important for policy officials to be prepared to deal with their long-term extraordinary living expenses and begin to develop a means for financing such long-term care in a way that does not increase our current debt burden.
The overall financial status of the elderly has improved dramatically over the last few decades. Overall, the income of the elderly is approximately the same as that of the non-elderly. Further, the ‘young elderly’ (age 65-70) have higher after-tax incomes, lower poverty rates, and greater net worth than on average than both the older elderly and the non-elderly. This trend is expected to continue as private pensions and social security are expected to grow in real terms – reflecting the higher real earnings of today’s workers over those of a generation ago. Based on this, a practical policy for financing long-term care is one that taps into the wealth of the young elderly and ensures them of extraordinary living expenses where they are most likely to need them – when they are older and less wealthy.

Possible Actions

As an alternative to costly legislation, we suggest a ‘budget neutral’ proposal to indemnify extraordinary living expenses based on a ‘reorientation’ of social insurance resources. Since long-term care is generally associated with personal services for elderly persons with limitations, rather than medical care, funding could be derived from a reorientation of existing social insurance expenditures. In short, a portion of an individual’s social security benefits could be directed to low overhead insurance for extraordinary living expenses.
This plan essentially mimics an OPM [U. S. Office of Personnel Management] proposal to add a new option under the Federal Employees’ Group Life Insurance (FEGLI) Program. OPM’s proposal would have allowed Federal employees to convert a portion of basic life insurance to long-term care insurance.
For the most part, new retirees receiving social security can afford to exchange some of their social security benefit for long-term care insurance. This would be a wise investment since such insurance would benefit these individuals when they are older, and less well-off than when they first retired. A reorientation of social security benefits would also lower future State and Federal Medicaid costs since the elderly would no longer spend all their assets on extraordinary living expenses and be forced onto the Medicaid rolls.

Optional Coverage

Specifically, our proposal establishes a long-term extraordinary living expenses social insurance fund — Securing Essential Care for the Uninsured and Restricted Elderly (the SECURE account) — from investing a modest percentage of a new retiree’s social security benefit payment. By exchanging one social insurance benefit for another, costs are spread across those who stand to benefit. Beneficiaries would have the option of contributing 11.5% of their monthly social security benefit to become eligible for SECURE. Sample 1993 SECURE contributions for new retirees would be as follows:

The proposal would require a five-year waiting period before benefits begin, allowing time for the SECURE account to build a sufficient balance to ensure future extraordinary living expenses. Most new beneficiaries would have little need for the insurance immediately, since their physical condition is not likely to deteriorate to the extent that long-term care is required until they are well into their retirement years.
Previous long-term care proposals introduced in Congress carried costs estimated between $5 and $15 billion annually. Our proposal assumes that enrollees amounting to 30% of the eligible social security benefit base (about $90 billion in 1995, the first year SECURE would operate) will opt into SECURE in exchange for 11.5% of their monthly social security benefit. This would generate a SECURE account reserve of some $57 billion over the first five years (1995 through 1999).
We assume outlays will be contained to 11.0% of the benefit base and would amount to some $13 billion in 2000, the first year benefits would be available. The five-year waiting period between the start of insurance payments and availability of extraordinary living expenses will ensure the financial stability of the SECURE account by providing a contingency amount and reduces adverse selection.

Pages: 1 2 3 4 5