Opinion Column

As The CLASS Act Comes Under Fire, The British Propose A New Model for National Long-Term Care Insurance (Guest Opinion)

Howard Gleckman is a resident fellow at The Urban Institute and author of Caring for Our Parents.

Since the 1990s, nearly every developed country on the planet has reformed the way it finances long-term care for the frail elderly and adults with disabilities. Among the handful of exceptions: The U.S. and the United Kingdom.

In 2010, Congress took a small step in the direction of reform when it passed the Community Living Assistance Services and Supports Act, a voluntary public insurance program that would provide a modest daily benefit for life. But even before the first policy is ever issued, a bipartisan group of senators has targeted it for repeal as part of a broad-based deficit reduction plan that has already won the support of President Obama.

While repealing CLASS would represent a lost opportunity, the program’s vulnerability highlights the challenges the U.S. faces as it tries to find a way to finance long-term care for its aging population, as well as younger people with disabilities.
Currently, the U.S. model is built on the means-tested Medicaid program, which pays for more than 40 percent of all long-term care costs and is itself under tremendous financial pressure. Only about 7 million Americans own private long-term care insurance, which is costly and unattractive to many. CLASS would take a small step toward a public insurance-based system where people would be responsible for financing a share of their own care. But because CLASS is both voluntary and open to nearly all who want to buy, regardless of their medical status, its premiums may be unaffordable for many and the program may not be sustainable.

The problem is that while Congress seems on its way to both dumping CLASS and further shredding the already-tattered Medicaid safety net, it has no ideas for an alternative. Meanwhile the U.S. struggles with the fate of CLASS, a high-profile government commission in the U.K. laid out a reform plan July 4 to address its long-term care needs. And this blueprint heads in a very different direction.

The panel, chaired by economist Andrew Dilnot, ripped Britain’s existing Medicaid-like system as “confusing, unfair, and unsustainable.” Echoing the sentiments of studies over the past 13 years, the Report of the Commission on the Funding of Care said the means-tested system is “not fit for purpose” and needs “urgent and lasting reform.”

As an alternative, it proposed a new universal social insurance plan. This one, though, would provide only catastrophic benefits for many middle-class and wealthy seniors. Those with limited assets would continue to receive Medicaid-like assistance while everyone else would be expected to pay about the first $55,000 in personal care costs. In addition, those living in nursing homes would be responsible for their room and board, on the theory that they’d have these expenses wherever they lived. This approach, by the way, is a common feature in most European systems and the panel estimated it would increase the cost to seniors by about $15,000 a year.

While British middle-class and wealthy seniors would receive only catastrophic assistance, the number of people eligible for unlimited public long-term care support would increase. Currently, the eligibility cutoff for such benefits is about $37,000 in personal assets. In the new proposal, public support would be available to seniors with assets of as much as $160,000 — including, importantly, their home. Young people with disabilities would be eligible for first-dollar benefits, no matter what their wealth.

The panel estimated the new system would increase government spending by about $2.5 billion, or about 0.25 percent of current outlays. In the U.S. budget, that would be equal to about $80 billion.

While the Dilnot panel said very little about how those needing care would finance their share, I could imagine them using home equity, annuities or private long-term care insurance. Although such an insurance product barely exists in the U.K., it should be relatively inexpensive to purchase a basic $55,000 policy that would cover would cover about nine months of nursing home care.

The Dilnot plan is in stark contrast to the CLASS Act. Instead of full coverage after a big deductible, CLASS would provide modest first-dollar insurance (probably about $50 to $75 a day) for life. Such a “long-and-skinny” benefit is also very different from a typical private long-term care insurance policy, which normally includes a 90-day deductible and has a more generous daily benefit for three to five years.

Could such a catastrophic plan work in the U.S.? Several researchers, including Christine Bishop at Brandeis University, Anne Tumlinson at Avalere Health, and Bill Galston at the Brookings Institution, have proposed similar ideas. But they’ve never gotten much traction.

Dilnot’s plan would protect those who most need financial support — the poor and those with true catastrophic costs, such as people with dementia. But by requiring those who can finance some of their own care to do so, it could hold down public costs, making the plan both fiscally and politically more acceptable. As universal insurance, it would avoid all of the problems that go with a voluntary program such as CLASS.

The plan’s biggest downside is probably the opportunity for people to game the system by shifting assets so they can claim those generous public benefits. And its failure to recommend a specific source of funding is a huge omission.

I don’t understand enough about British politics to know if this idea has a chance, although the government response has so far been noticeably cool. Still, advocates seem to like it, and given the jeopardy CLASS is in on this side of the pond, some form of a catastrophic insurance system might be worth a look.

Congress can repeal CLASS but it can’t slow the aging of America and the growing need to provide personal care for the frail elderly or others with disabilities. Much as it might try, it cannot walk away from the problems of long-term care by trashing the only options available to many Americans.