As the 80 million baby boomers approach retirement, many are concerned they will not have sufficient savings to sustain their standard of living in retirement. Few, however, may be focused on another risk to their retirement security--the potential cost of financing often expensive long-term care (LTC) services. LTC services include help with either functional or cognitive impairment and generally include assistance with activities such as bathing, eating, and dressing. For the majority of older Americans, the cost of obtaining paid help for these services may far exceed their financial resources in the future. LTC cost is expensive for the individual and families as well as for federal and state governments.
About half of LTC spending is financed by the Medicaid program, which is funded jointly by the federal government and states. Medicaid is not available to everyone. To be eligible, individuals must meet certain functional criteria as well as state-specified income and asset thresholds. Medicare, which currently provides health care to older Americans, finances about 22% of long-term care spending, but these funds were predominantly for post-acute care for short-stays in a skilled nursing home following hospitalization or for skilled home health care.
There are 68 million people covered by Medicaid, nearly half of these are children, but much of the program's spending is for the health services for the more than 16 million seniors and individuals with disabilities and Medicaid coverage, including long-term care services. Although individuals age 65 and older and persons with disabilities account for less than one-third of enrollees, they account for about two thirds of Medicaid spending on benefits.
Individuals age 65 and older and persons with disabilities account for a disproportionate share of Medicaid spending because they have substantially higher per-enrollee costs than others. According to a recent report issued by MacPAC, a commission established to review Medicaid and CHIP policies and provide recommendations to Congress, the estimated average spending on a non-disabled child enrolled in Medicaid for the entire year was about $2,900 in FY 2009 (including federal and state dollars); the figure for a non-disabled adult under age 65 was about $4,100. In comparison, estimated average spending on a person eligible on the basis of a disability who was enrolled for the entire year was about $16,600; for a person age 65 or older, it was about $15,700.
These differences in Medicaid costs across groups are particularly interesting because most enrollees older than 65 and about a third of enrollees with disabilities also have Medicare coverage, which is the primary payer for their hospital, physician, and other acute care services. One in every six Medicare beneficiaries is jointly enrolled in Medicaid. Even with the payment assistance from these programs, long-term care is extremely expensive.
Currently, the majority of paid LTC services and supports are funded by public programs, such as Medicaid and Medicare. However, these programs are limited in scope and continue to face increased financial pressures. Although private LTC insurance is available to provide some financial protection against an individual's risk of the potentially high cost of LTSS, fewer than 10% of individuals age 50 and older own such a policy. Thus, for the majority of older Americans, the out-of-pocket cost of obtaining paid help for these services may far exceed their financial resources.
To date, LTC insurance has been offered to individuals through the private market, either purchased through employers or in the individual market. For those Americans most in need (low-income and the disabled), Medicaid has served as the principal safety net for LTC costs to date, with each state setting its own guidelines regarding eligibility and services.
During Congressional debate on health care reform, advocates of the Community Living Assistance and Supports (CLASS) program argued that the private market options were too costly and too difficult for certain populations to access due to pre-existing conditions and disabilities. Supporters of the CLASS program claimed it was intended to be a voluntary, government-administered LTC program to provide a cash benefit of $50 per day (indexed to inflation) for the purchase of nonmedical services to use either at home or at an LTC facility or residence that would not be financed with federal tax dollars.
The CLASS program was said to be self-funding, meaning individuals paying premiums into the program would cover the costs of individuals receiving benefits. However, even before the passage of the Patient Protection and Affordable Care Act, Republicans recognized the CLASS Act had a critical design flaw. CLASS would never be self-sustaining and would go bankrupt. More people would receive benefits than pay into the program. After determining that the CLASS program could not meet the law's solvency requirement, the Department of Health and Human Services has decided not to implement this provision of the law. Now that the administration has agreed that CLASS is not sustainable, we must find solutions to help Americans prepare for their long- term care needs.
Private insurers that sell LTC policies report that many Americans believe that Medicare and Medicaid will pay for their LTC services, not realizing this is only true for the low income population. This is expensive for taxpayers as well as seniors. We must create incentives encouraging a vigorous private LTC insurance market. To address these concerns, Congress should consider a number of legislative options to increase participation in the voluntary LTC market. The issue of long-term care will increase in importance as baby boomers age. To ignore the problem is not good for the individual or for our society.