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.


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