Long-term care insurance for the masses came and went without much notice. Last week, the Obama administration quietly abandoned the CLASS Act, a provision slipped into health care reform two years ago that would have ensured funding for assisted living for the frail and elderly before they went bankrupt.
A worthy effort that was bungled from the start, the Community Living Assistance Services and Supports Act had been hailed by some as Sen. Ted Kennedy’s legacy and derided by others as a Ponzi scheme. It never gained traction and, as designed, ultimately came to be seen by pretty much everyone as unsustainably expensive.
In essence, the provision would have set up a system where workers paid a long-term care tax, much like they pay into Social Security and Medicare. They would then be guaranteed the funds for a costly stay in a nursing home or other assisted living near the end of life. We desperately need something like this. End-of-life costs can be catastrophic. Yet just 10% of seniors have widely available private long-term care insurance. Most see it as unnecessary or too costly.
The wealthy, of course, do not need such insurance. They can pay out of pocket for the care they may end up needing in their frail years. The poor do not need it either. They are covered under Medicaid. This is a middle class issue. Medicaid won’t pay for long-term care until your resources are exhausted, and a nest egg of $300,000 can be stripped bare with just a few years of assisted living. As Lee Goldberg, Vice President for Health Policy at the National Academy of Social Insurance, noted in CongressBlog:
“In the absence of CLASS, Medicaid will continue to be our de facto long-term care public policy. State Medicaid programs that require near if not actual impoverishment are, as others have said, like having an insurance policy with a deductible that is all your wealth.”
Long-term care is a ticking time bomb. The Center for Retirement Research at Boston College estimates that a typical 65-year-old couple can expect to pay $197,000 in lifetime health-related costs, including health policy premiums, co-payments for hospital visits and drugs and home-based care. If you add in nursing care, expenses for a typical couple balloon to $260,000 with an upside risk of paying as much as $570,000. Few retirees have such resources. That leaves Medicaid to fill in the gaps, and it simply cannot. As Naomi Freundlich writes in HealthBeatBlog:
“Everyone agrees that the enormous burden that long-term care places on Medicaid is unsustainable. Already many states have cut reimbursement rates to providers, setting them so low that in some areas doctors and other practitioners who agree to accept Medicaid patients are in short supply. Nursing homes in poor, inner-city neighborhoods are closing at an increased pace; and even though the care they provided was often low quality, they are still considered critically important parts of the safety net. There just aren’t any other alternatives.”
The basic idea of CLASS was to defuse the situation with a new safety net. Maybe middle class retirees could get long-term care without busting their nest egg after all, if only the government put the right system into place. But government did not put the right system into place. One massive failing was that participation in this program was optional. That means that pretty much only those already needing expensive care were likely to sign up. Without universal participation, the finances just don’t work.
This failed effort is a shame because as a nation we really do need to address the issue of long-term care. It’s a solvable problem. As Goldberg writes:
“The need for expensive long-term care is a risk that can be insured against. Half of individuals turning 65 will spend nothing on long term care while a little more than 5 percent are projected to spend $100,000 or more. While everyone ages, we don’t know in advance whether our long-term care costs will be negligible or catastrophic.”
In other words, if everyone pays, then everyone is protected and there is enough money for the program to remain long-term solvent. But that’s not the program we got; so now we’ve got no program.