• The long term care counterfactual

    I wrote last week about the shrinking private long term care insurance (LTCI) options.

    From the comments to that post,wintercow20 asks:

    …Wouldn’t it just be simpler to institute a forced savings system in general rather than trying to figure out who may be using LTC or not?…

    And I answered that yes, it would definitely be simpler, and noted that the risk profile of LTC use of persons attaining age 65 is best addressed via some sort of social insurance-based approach. At a minimum, it seems clear that private LTCI is unlikely to work well for a variety of reasons (more context on public v. private provision of LTCI: here, hereherehere).

    Also in the comments Theodore Whitfield provides a reasonable back of the envelope calculation of what a Medicare or Social Security-based LTCI program might cost and notes:

    …Admittedly this is just a quick, approximate analysis, so I would put much faith into the specific estimates. But it does suggest that funding LTC through SSI or Medicare might be very expensive…

    Lets take away the uncertainty–LTC funding via Social Security or Medicare would be very expensive. However, providing LTC is very expensive now. Most of it is provided by family members on an informal (unpaid basis) and there are a variety costs (lost wages for caregivers, negative impacts on caregiver health, etc.) that are not so easy to estimate. The AARP estimated the costs of informal care provided to adults with limitations in Activities of Daily Living to be $450 Billion in 2009. And Medicaid is the payer of last resort for nursing homes and finances around 4 in 10 dollars spent on NHs (~$150 Billion annually), the most expensive LTC setting that exists.

    All of that happens now and will continue to do so by default. Much of the debate about the CLASS act, or about any discussion of expanding social insurance to cover LTC implies that the admittedly big cost of doing anything new is correctly compared to zero.* That is incorrect. The correct counter factual for any LTCI proposal is the piecemeal system that we currently have and its costs, including the already large public expenditures.

    The most important thing in public policy is counter factual thinking, and many seem to struggle with understanding the correct LTC counterfactual.


    Comments closed
    • Dear Don –

      Hey, you read my post! Cool.

      I agree that in order to assess or evaluate something, we generally have to ask, “Compared to what?” So, if we are in a situation where we are contemplating strategy A, we really want to determine how the advantages and disadvantages for A compare with those of a rival strategy B. That’s true of everything where we have to make a choice about a course of action — medicine, love, war, anything.

      But there can be multiple options for the comparison, depending on the specific question we want to answer. For instance, let’s say that we want to run a clinical trial for a new drug. If we want to answer the question “Does the drug work at all?” then the appropriate comparison group is a placebo control. But if we want to answer the question, “Does the drug work better than our current treatments?” then the appropriate control is the current best clinical practice. The choice of comparison depends on the specific question being answered.

      The back-of-the-envelope calculation was conducted in response to the suggestion that Medicare or Social Security could be expanded to handle LTC, and I was attempting to provide a quick estimate to the question, “What would be the impact on Social Security if we included LTC?” Since SSI currently DOESN’T cover LTC, then the appropriate comparison value is 0. If on the other hand we wanted to address the question of the broader impact on society as a whole, then I agree that we would have to take into consideration the overall expenditures that we make. But, if the issue is simply, “What would be the change in SSI if we included LTC?”, then the relevant comparison is to the current program, and since right now the cost to SSI for LTC is 0, that’s the relevant value to use *for that specific question*.

      Here’s a similar example. Many people have suggested increasing the eligibility age for Medicare to 66 or 67. If we ask, “How would such a policy affect the finances of the US Federal Government?”, then we would only look at the US Federal expenditures, and that might look very attractive. But if we ask “How would such a policy affect society at large?”, then we would have to take into consideration the fact that now insurance premiums for individuals will rise considerably.

      In short, for most general debates, there’s almost never one “correct” comparison. Instead, there are many different questions that we can ask, each with its own appropriate comparison group.

    • @Theodore Whitfield
      You make a good point, that there could be many counterfactuals to a given issue, and that in addition to assessing benefits and costs, we need to look at distributional effects, both for people as well as for “accounts” of govt entities. It shows that having the question clear also helps. You give a good example of raising Medicare age. Thanks for comments…not trying to harsh you out!