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The Collapse of Long-Term Care Insurance

October 21, 2020

Topics: Quote of the Day

By Alexander Sammon
The American Prospect, October 20, 2020

There is perhaps no component of health insurance where the private sector has failed more profoundly than long-term care, making this one of the worst and most rapidly faltering aspects of our impossibly expensive, wildly inefficient, and poorly performing health care system.

Common estimates say that about 50 percent of older adults will need long-term care at some point in their lives; for adults over 65, the odds shoot up to 70 percent. But, like much of our health care system, just because there’s demand doesn’t mean there’s supply. Though long-term care can be exorbitantly expensive, the percentage of Americans currently in possession of insurance coverage is just a small fraction of those who are likely to need it.

At its peak in 2002, about 750,000 individuals successfully purchased LTC insurance in a single year. By 2018, that number had plummeted to 57,000, a more than tenfold contraction.

Part of that trend is explained by a wild mispricing error by the insurance industry, which severely underestimated the cost of such plans.

Meanwhile, insurers have strained to deny policies to as many people as possible. Any combination of two or more chronic conditions is grounds for near-automatic disqualification, as are diseases like AIDS and multiple sclerosis, a history of strokes, or diabetes requiring insulin shots.

Yet despite rates rocketing up, and plans being increasingly difficult to even qualify for, claim losses have still managed to exceed expectations since 2008, as insurers have found it impossible to structure a long-term care program in a profitable way.

The Affordable Care Act did initially include a provision for a national, public long-term care insurance system, called the Community Living Assistance Services and Supports (CLASS) Act. A pet program of the late Sen. Edward Kennedy, CLASS would have allowed all working adults to apply for insurance that would provide up to $50 a day in cash benefits, money that could be used to help with in-home assistance or nursing home care.

CLASS was derided as an accounting feint rather than a serious attempt to manage the long-term care problem. Because the program collected premiums for the first decade before paying out any benefits, it was scored as saving $70 billion inside the ten-year budget window. By 2011, it became clear that the Obama administration had no intention of actually pursuing it.

CLASS was formally repealed in the American Taxpayer Relief Act of 2012, replaced by a Federal Commission on Long-Term Care. The commission went on to complete its study, replete with some of the data seen in this article and a handful of suggestions for limiting costs. And that was that.

The end result has been a powerful combination of denial, wishful thinking, and severe financial shock.

Medicaid, meanwhile, currently the single-largest source of funding for long-term services, only kicks in at a point of financial ruin. But forcing people into penury to get assistance to feed and bathe themselves robs the elderly of dignity. Many are forced into nursing homes because they can no longer afford living on their own.

There’s no reason to believe any of these trends will reverse on their own. The cost of policies will continue to skyrocket, the amount those policies pay out will continue to drop, the number of people in need will continue to grow, and the number of applicants rejected will continue to increase in lockstep.

Long-term care is a market-breaker; there’s no meaningful way for it to conform to market principles, or to keep it from losing money. But the need for long-term care is an absolute certainty, and herding a huge percentage of our fast-aging population into the corral of bankruptcy is not a solution either.

Some policymakers are finally coming around to this reality. Washington state passed a long-term care social-insurance program last year, which reimburses at $100 per day for in-home care up to a fixed lifetime maximum that translates to one year of daily support. But as with any expensive and necessary public-health program, piecemeal solutions at the state level are not likely to be sufficient. It will take federal commitment to get it done.


Report to the Congress

U.S. SENATE, Commission on Long-Term Care, September 30, 2013

The Commission sought to address the challenges of delivering and financing LTSS (long-term services and supports) for both older and younger people with significant cognitive or physical functional limitations.

Chapter III: Recommendations

Part Three: Financing

The Commission considered very different approaches regarding the mechanisms needed to make this vision possible. The Commission did not agree on a financing approach, and, therefore, makes no recommendation.

Alternative Approaches

  • Approach A: Strengthen LTSS financing through private options for financial protection.
  • Approach B: Strengthen LTSS financing through social insurance.



By Don McCanne, M.D.

Anyone who has had to deal with the financing of long-term care in the United States knows that it is a disaster. It is expensive and yet many who have developed a need for it do not have the funds to pay for it. In typical American fashion, we’ve tried to develop a market of private insurance plans that would cover long-term care. That has been a total failure. It is one more example of Kenneth Arrow’s lesson to us that markets do not work in health care.

For those individuals who absolutely require long-term care but do not have the funds to pay for it, Medicaid – a health financing program for those who live in poverty – is available. But, as Alexander Sammon states in The American Prospect article, Medicaid “only kicks in at a point of financial ruin,” and “forcing people into penury to get assistance to feed and bathe themselves robs the elderly of dignity.” The last thing a civilized society should do is rob the elderly and disabled of dignity. We have to find a solution.

Sen. Ted Kennedy fought for the Community Living Assistance Services and Supports (CLASS) Act, and it was included in the Affordable Care Act. Unfortunately it was converted into a financing gimmick by requiring voluntary premiums to be paid for ten years before any benefits would be paid out. It is more or less representative of the compromises that were made in putting together the patchwork of Obamacare, which explains why we continue to have so many health care financing problems (and will continue to do so under Biden’s proposed incremental tweaks). The Obama administration saw that CLASS wouldn’t work and so they made no effort to implement it.

In place of the Class Act, the Commission on Long-Term Care was established. Although they covered several aspects of long-term care, the really important one was how would it be financed? The politically diverse members of the Commission could not agree on a financing approach and thus they made no recommendation. In fact they voted 9 to 6 as to whether they would even submit the report as an agreement of the Commission. However, they did submit two alternative approaches that could be considered, even if not recommended by the Commission.

Approach A was basically financing long-term care through private options. That is essentially the disaster that we have now. They did suggest market and consumer-style gimmicks such as tax deductible long-term care savings accounts that would work for the wealthy, much like health savings accounts. But Approach A can be rejected flat out since markets have not worked and will not work to meet the need.

Approach B was to establish a social insurance program to cover long-term care, as has been successful in other nations. In fact, it is part of the single payer model of an improved Medicare for All.

For decades we’ve been discussing the disaster of financing long-term care, and now the answer is sitting right there in front of us: single payer Medicare for All. Would a public option work? Absolutely not. It would collapse just as the market for private long-term care plans has collapsed.

We need to start working on this in January, right after the inauguration.

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About the Commentator, Don McCanne

Don McCanne is a retired family practitioner who dedicated the 2nd phase of his career to speaking and writing extensively on single payer and related issues. He served as Physicians for a National Health Program president in 2002 and 2003, then as Senior Health Policy Fellow. For two decades, Don wrote "Quote of the Day", a daily health policy update which inspired HJM.

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