EUROPEAN PAPERS ON THE NEW WELFARE

Indemnification Program

SECURE is an indemnification program that compensates eligible individuals in relation to their functional limitations (somewhat akin to the DVA [Department of Veterans Affairs] Compensation program). Individuals would not have to be in institutions and may be cared for at home by family, volunteers, social service agencies, or private providers. The amount indemnified would be set by an annually updated schedule and apply nationwide. The schedule would be keyed to the relationship of a person’s functional limitation to the extraordinary living expenses encountered by people with similarly classified functional limitations.
SECURE would assess the applicants through a Functional Assessment Board governed by nationwide standards. The standards would assume some functional limitations are normally associated with age and are not indemnifiable. Only the extraordinary costs of non-expected functional limitations would be covered. If reassessments are desired more frequently than a pre-specified review period, the applicant would pay 50% of the Functional Review Board review costs.
SECURE would pay the insured beneficiaries, not institutions or other third parties. Each beneficiary would choose his or her service provider — family member, neighbour, community-based organisation, or nursing home. Individuals need not become institutionalised to get SECURE payments. Instead, people with extraordinary living conditions could live in their own homes, with their families.
Since institutions would receive no direct SECURE funding, they would not be subject to myriad complicated regulations. Nor would the Federal government have to undertake costly reviews to ‘accredit’ institutions.

Never a Deficit Buster

SECURE payments would be limited to available funds. Unlike Medicare, where unpredictable and exorbitant cost increases require frequent law changes to adjust payment rates and schedules, SECURE payments would be established to ensure no cost overruns. There would be no automatic indexing of payments, and no limitations on when and how payments would be adjusted. Payments could be adjusted as needed to ensure program outlays stay on schedule. By definition, SECURE would always be self-financing, and would never be a deficit buster.
Assumptions. In summary, our proposal makes the following assumptions:
• SECURE contributions of 11.5% of monthly social security benefits begin in 1995 for retirees who opt for the insurance.
• The participation rate is 30% of the eligible benefit base (excludes child, young spouse, and lump sum death benefits).
• Extraordinary living expenses begin five years later in 2000 and are contained to a rate of 11.0% of the benefit base.
• Extraordinary living expenses will be available at age 67 or after, provided the beneficiary has contributed to the SECURE account for at least five years.
Based on these assumptions, the annual income, outgo, and accumulated surplus for the
SECURE trust fund are displayed in the graph below.

SECURE Trust Fund — Income, Outgo, and Reserves

* Note: Y Axis in $billions.

Elections for SECURE coverage would place an added burden on the incomes of the elderly poor. Since Medicaid already finances some long-term care, SECURE would not be available for individuals eligible for Medicaid. In addition, individuals collecting social security Disability Insurance would not be eligible, due to problems of adverse selection. SECURE, however, could be revised in the future to include these individuals, perhaps through a separate risk pool.
In summary, SECURE seeks to show how the long-term care needs of the elderly can be met through a reorientation of existing social insurance resources. The elderly would have the option of exchanging a small portion of their monthly social security benefit for valuable insurance against extraordinary living expenses.

Long-Term Care: SECURE

As a budget-neutral proposal to insure for certain long-term care costs, Securing Essential Care for the Uninsured and Restricted Elderly (SECURE) would establish a long-term extraordinary living expenses indemnity fund. Participation in SECURE would be voluntary. Social security recipients could elect to contribute a fraction (for example, 11.5%) of their OASDI cash benefits into the SECURE account. After 5 years, participants could begin to collect SECURE cash payments if their functional limitations exceed those expected for their age group. Payments would be limited to 95% of fund income.
Five Year Waiting Period. For the first five years of SECURE, no payments would be made. This waiting period is designed to prevent adverse selection involving the most disabled elderly. Significant fund reserves would accumulate in the first five years. If, for example, 30% of the eligible base chose to participate in SECURE at a contribution rate of 11.5% of OASDI cash benefits, the income would generate a fund reserve of approximately $57 billion by the fifth year.
Benefit Pay-Out. After the initial five years, cash payments for extraordinary living expenses would be available. An individual would be eligible for payments if he or she meets the functional limitations criteria and has contributed to SECURE for at least 5 years. SECURE would restrict total payments to 95% of the fund’s income in any year, so that the cumulative fund balance would continue to grow modestly over time.

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