A few ideas on expanding LTC insurance

Ron Lieber in Bucks blog hits the nail on the head regarding Long Term Care (LTC) policy:

Pair the Class Act news with an essay in the Sunday Review section of The Times by Jane Gross on how Medicare ultimately fails so many elderly people, and you start to get a sense of the size of the problem we are facing. Plenty of people think Medicare will cover all their needs, but it doesn’t…if you want high-quality care…it can sometimes cost $100,000 a year or more.

Sure, you could try to buy insurance via the private market. But the companies that offer it are no dummies. They see what is coming, and they are either rapidly raising prices or getting out of the industry altogether…

So how would you solve this problem? I’m out of ideas but still enraged by the fact that nobody wants to talk about this.

Four ideas.

  • Shift responsibility for LTC to adult children. Mark Pauly wrote a classic paper on rational non-purchase of LTC insurance that concluded the main benefit of such coverage flows to children via increased estate size. How could we incentivize children to plan ahead for the potential LTC needs of their parents? Back in 2008, I proposed forced savings in private accounts that could be used to finance the LTC of parents, but if not needed, the assets could be used for other things. Howard Gleckman outlines similar thinking in a Health Affairs blog post yesterday.
  • Change private LTC insurance premiums from level to increasing. Paul Van de Water has suggested premiums could be indexed to inflation, making them lower when persons are younger than they would be under the common practice of LTC insurance policies offering level premiums for the life of the policy.
  • Increase understanding of the cost of LTC. One reason for non purchase of private LTC may be not understanding the costs of  providing such care. Gleckman notes

” the government had asked for $120 million to market CLASS and to get it going. Imagine if the government spent $120 million to market the need for long-term care,”

“The trick…is to get as close as possible to a mandate without actually having a mandate. Gleckman suggests a possible model in which private long-term care insurance options would be offered “in a highly regulated and transparent environment,” somewhat akin to Medicare Part D, with penalties in the form of higher premiums the longer one waited to purchase coverage.”

In this way, the problems of CLASS are similar to those faced by the Republican alternatives to the ACA; the need for something functioning like a mandate to pool risk, while being able to say there is no mandate for political reasons. Gleckman notes,

 “This is the classic chicken and egg problem of insurance: If you can get a good enough risk pool, you really ought to be able to get the price down.”

Whatever we call it, it is abundantly clear that it will take policy change to improve risk pooling in LTC and alter the status quo.

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