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How Will You Pay for Long Term Care? – Part I

Many people are disappointed that the CLASS program will not be implemented as planned because it solved a real problem in our society.  CLASS was a government insurance plan intended to relieve the financial burdens of long term care carried by the elderly and disabled unable to care for themselves.  However, the program was deemed financially unsustainable as written and the Department of Health and Human Services (HHS) cancelled it last week.

Long-term care (LTC) is defined by insurers as assisting individuals who are unable to perform “Activities of Daily Living” (ADLs) such as bathing, dressing, moving about, eating, toileting, continence, procuring necessary items, and cleaning.  It might involve visiting nurses, health aids, transportation, home delivered meals, chore services, and adult day care.  Such services take place as needed in a person’s home or in an assisted-living arrangement or nursing facility.  Strictly speaking, medical treatment expenses are not covered under LTC policies.

Long-term care is becoming an urgent issue.  Right now, people over age 85 are part of the largest growing population segment.  It is estimated that 55% of them will require some degree of long-term care services in their lifetime.  The Center for Retirement Research at Boston College says 1/3 of people turning 65 this year will need at least 3 months of nursing home care sometime during their lives.  10% will stay there 5 years or longer!  Expenses for long-term care services varies. One year in a nursing home averages $50,000.  Assisted living arrangements are averaging $2000 a month and in-home assistants coming 3 times a week for a couple of hours can cost $1000 a month. And these costs can total much more in some areas.  How many of us can bear this expense?

The Community Living Assistance Services and Support (CLASS) program was to be a government insurance program for working people that would provide a daily cash benefit of $50 to cover long-term care needs in the event beneficiaries became incapable of caring for themselves for more than 90 days.  Participants would become vested after 5 years of making payments.  Premium costs would be determined solely on the worker’s age at time of sign-up.  Pre-existing conditions, poor health or unhealthy habits or living conditions would have no bearing.  No one would be turned away.

In the real world, the cost of insurance premiums is based on the probability of how much will be paid out in benefits given the pool of people participating in the insurance plan.  Premiums paid for by healthy people cover the cost of care required by those less fortunate, making the cost of insurance affordable for everyone.  Unfortunately, private actuaries as well as the Health and Human Services (HHS) own staff deemed CLASS financially unsustainable because it would draw a preponderance of people with pre-existing conditions and general poor health.  This would drive the premium cost up, making the plan overly expensive.  Healthy people would turn away or buy cheaper private insurance. As written, the law required the program to be self-sustainable; and so, when HHS couldn’t find a way to implement it that would guarantee its financial stability, it was cancelled.  Families facing a possible future of caring for disabled and elderly members will have to look elsewhere for help.

How are people with long-term care needs cared for now?  Medicare only covers medical costs for the elderly and limits long-term care to a short after-hospitalization period.  However, Medicaid, the state/national program providing medical care for the poor and disabled, does cover long-term care services.  In fact, today, Medicaid pays more than 40% of all nursing home costs.  Long-term care on all levels has become the single largest component of Medicaid, making up 1/3 of its reimbursements.

In the past, adult children, faced with their parents’ declining capacities, have sheltered their parents’ assets making them compliant with Medicaid’s  poverty standard.  However, states struggling with exploding Medicaid costs are making such moves more difficult.  Additionally, the current recession has forced states to cut back services and reduce already low reimbursements to long-term care facilities.  As a result, fewer and more spare facilities are available to all people under Medicaid.

Right now, only 2.8% of Americans have long-term care insurance coverage. The government’s already whopping outlay for entitlements and the coming deluge of aging baby boomers needing assistance make for a perfect storm unless we start thinking more seriously about how we’re going to cover the expense of long-term care.  Our next blog will look at possible options.

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