Stalking the Silent Financial Killer in Our Midst

The vast majority of older Americans, facing steep and rising health-care costs that threaten to bankrupt them, are doing little to protect themselves. Ninety percent of people don't buy long-term care insurance policies, for example. The reasons why are simple: Not only are policies expensive and confusing; many leading insurers have stopped selling them.

Millions of consumers have only one plan for covering long-term health-care costs. It's to spend themselves into poverty until Medicaid -- the state-run health-care program for the poor -- picks up the tab. That puts them in care they often don't want, such as nursing homes rather than home care or assisted-living facilities. It also saddles fellow taxpayers with annual expenses of $130 billion, a third of Medicaid's budget.

"We've got a five-year window to fix this," says Bruce Chernof, chief executive officer of the SCAN Foundation, a nonprofit organization focused on health-care policy. There are still ways for individuals to try and weave their own safety net out of products available today -- a particular need for long-lived women -- but it's not easy or cheap.

Challenged Commission

The good news: Washington is making another run at the issue. Chernof and 14 other health-care experts have been appointed to a commission on long-term care, created by the tax law that was signed in January. Members include Massachusetts' Medicaid director, Louisiana's secretary of health and hospitals and the vice chair of AARP's board of directors.

The bad news: The commission only has six months to finish its work, has no budget and must borrow staff from a government sapped by automatic budget cuts and preoccupied with other matters, such as implementing the health-care reform bill.

The commission will propose fixes to a Congress already burned by its last run-in with the issue. The CLASS Act, an attempt to set up a voluntary long-term care insurance program, was included in the health-care reform law but then rejected as unworkable by the Obama administration and repealed by the same law that created the commission. "It was a catastrophe," says Howard Gleckman, Urban Institute resident fellow and author of the book, "Caring for Our Parents."

Complete Redesign

Even the most experienced experts aren't sure what to do about long-term care. "There's not an obvious solution," says Gleckman. "You need to think about completely redesigning what we are doing" -- something that's difficult-to-impossible in six months, he says.

The failure of the CLASS Act has prompted many other experts to suggest fixes. It "was just one idea," says Connie Garner, executive director of the nonprofit Advance CLASS. "There are a million ideas out there."

Here are some approaches being explored:

Buy early. Scholars of the long-term care dilemma are asking the insurance industry for new and innovative products. There should be ways to "restructure policies to make them simpler and also more attractive to younger users," says Karen Holden, emeritus professor of public affairs and consumer science at the University of Wisconsin-Madison.

The goal would be to get people to buy coverage at 45, not 65. Premiums would need to get cheaper, possibly by offering policies with higher deductibles. Those might leave customers to pay for their own long-term care coverage for two or three years.

That leaves out the most common use of the policies -- by the elderly for short periods of time. It protects people, however, against a long-term care catastrophe, especially the rare-but-real danger they'll need care because of an accident or disease in middle age or younger.

Related content: The Real Cost of Long-Term Care (slideshow)

While health-care experts would like new products, insurers have reasons to be cautious. Several insurers stopped selling long-term care products after they underestimated how much they would have to pay out in benefits. Low interest rates also make it hard to earn much on the premium money they do collect, forcing the remaining insurers to raise prices further.

Prices are the "biggest obstacle" to buying coverage, says Scott McKay, senior vice president of product strategy at Genworth, one of the largest long-term care insurers. "We are actively looking at new product designs and features that could help address affordability issues while still meeting the needs of consumers and shareholders."

Hybrid policies. One increasingly popular approach already on the market is hybrid policies -- life insurance in which the death benefit can be spent on long-term care. Longevity insurance, an annuity that pays out if a buyer reaches 80 or 85, is also available. These alternatives require handing over a lump sum -- in the case of the average life/long-term care hybrid policies, about $70,000.

As long as the complexities aren't too great, it might make sense to combine longevity and long-term care insurance in one product, Gleckman says. Buyers would get protection at all ages, while insurers wouldn't be stuck with too many unhealthy people, who tend to want only long-term care insurance, or with too many healthy people, who tend to buy longevity insurance.

Bigger risk pools. Some academics suggest long-term care insurance be treated more like health insurance. Harvard University health economist Richard Frank and others suggest it could be sold through employers and state health-care exchanges, giving customers a better deal and insurers a bigger pool of customers. Only one in five companies with at least 10 employees offers long-term care insurance. Or it could be an optional add-on to Medicare, the federal health-care program for older adults that currently doesn't cover long-term care.

Better coordination. If you have a heart attack, Medicare or private health insurance will cover your hospital bills, but if you're stricken with Alzheimer's Disease, your daily care won't be covered. This distinction doesn't just confuse people who think Medicare will pay their long-term care bills; it creates incentives for elderly patients to end up in the hospital rather than be cared for more cheaply at home. Experiments on better coordination between Medicare and Medicaid are going on in half of U.S. states.

Subsidies to encourage the purchase of private insurance by those most likely to end up on Medicaid may lower the government's costs. Escalating and unexpected costs have prompted insurance companies to boost long-term care premiums 40 percent or more in recent years. Premium increases have been worse for women.

Universal LTC. A study by Harvard's Frank and others estimates that changes to private insurance could boost the percentage of Americans over 50 with long-term care insurance from less than 10 percent to more than 20 percent. The rest of the population would benefit from universal long-term care. It's the subject of a 243-page report published in September by the Russell Sage Foundation, focused in part on lessons from other countries. Germany, for example, requires everyone to buy long-term care insurance either from the government or the private market.

Universal coverage is the only option for Americans too unhealthy to buy long-term care insurance. There are a lot of those people: Insurance companies reject one out of five people who apply for long-term care insurance in their late 50s. Getting to universal coverage could be expensive and controversial after the fight over mandatory health-care coverage in Obama's health-care law. It's "unlikely we're going there," says Gleckman.

Harsh Education

It's because the long-term care issue is so closely related to the debate over entitlements that Chernof says it "could be a very important part of the discussion" of budget issues in Washington. "There is a small but real opportunity to do something significant here," he says. At a minimum, adds fellow commission member Judith Feder, a Georgetown University public policy professor, it "creates an opportunity to educate people."

More education is always good. What the aging U.S. population really needs though, with an urgency that grows greater every year, is workable, affordable, real-life solutions.

To contact the editor responsible for this story: Suzanne Woolley at

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