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What We Already Know about Long-Term Care and Should Tell the Commission

What We Already Know about Long-Term Care and Should Tell the Commission. Joshua M. Wiener, PhD RTI International Washington, DC. Introduction. Great increase in empirical research on long-term care over the last 30 years 4 points from the research literature:

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What We Already Know about Long-Term Care and Should Tell the Commission

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  1. What We Already Know about Long-Term Care and Should Tell the Commission Joshua M. Wiener, PhD RTI International Washington, DC

  2. Introduction • Great increase in empirical research on long-term care over the last 30 years • 4 points from the research literature: • Long-term care expenditures will increase substantially, but will remain a modest percentage of GDP • Private long-term care insurance is unlikely to play a significant role in financing • People who spend down to Medicaid start out with very modest income and assets • Transfer of assets is a small problem

  3. Long-term care expenditures will increase substantially, but will remain a modest percentage of GDP

  4. Public Long-Term Care Expenditures as Percentage of GDP, 2005 and 2050, Selected Countries

  5. Private Long-Term Care Insurance Unlikely to Play a Major Role in Financing Problems

  6. Implosion of Private Long-Term Care Insurance Market • Insurers fleeing employer market • Insurers recently raise premiums by existing policyholders by 25 to 100 percent. • Insurers tightening medical underwriting • After 30 years of marketing, only 4.5 percent of population age 45 and older have private LTC insurance (Johnson and Park, 2011) • One of major barriers is price: $2,300 in 2010 (Rivlin and Wiener, 1988, Wiener, Illston and Hanley, 1994; Cohen et al., 2012)

  7. Options to Promote Private Long-Term Care Insurance: Tax Incentives • Goal of tax incentives for private long-term care insurance is to make product more affordable • To have a major impact on the number of people with insurance requires very large tax incentive • Wiener, Illston and Hanley (1994) found that a 20% nonrefundable tax credit increases the number of people with insurance by a third • Nixon (2006) found that offering a state tax incentive did not increase market penetration • Kim (2008) found the price elasticity of private long-term care insurance to be -0.08

  8. Tax Incentives for Private Long-Term Care Insurance • Goda (2010) found that average tax subsidy increased private long-term care insurance coverage rates by only 2.7 percentage points • Tax incentives would not be offset by Medicaid savings • Wiener, Illston, and Hanley (1994) found that Medicaid savings would not offset the lost revenue • Goda (2010) found that a dollar of state tax expenditure produces approximately $0.84 in Medicaid savings, half of which would result in savings to federal government. State tax incentive would be 100% state funded • Wiener, Illston, and Hanley (1994) found that tax incentives are likely to be regressive, flowing mostly to well-to-do and upper middle income people

  9. Partnership for Long-Term Care • Allows people who purchase state-approved private long-term care insurance to become Medicaid eligible, while keeping more of their assets than usually allowed • Life-time asset protection without having to buy a lifetime policy • Not succeed in increasing long-term care insurance penetration—about 3.2 percent of 65+ in 4 states with longest experience (California Partnership for LTC, 2010; Guttchen, 2011; Indiana Long-Term Care Insurance Program, 2010; New York Partnership for Long-Term Care, 2010, U.S. Census Bureau, 2011).

  10. Partnership for LTC (cont.) • Shorter periods of coverage still expensive; 2 year coverage at age 60 with compound inflation was $2,400 in 2010 (Federal Long-Term Care Insurance Program) • Partnership purchasers have higher income and higher assets. Majority of purchasers of Partnership policies in California, Connecticut, and Indiana had more than $350,000 in assets (General Accountability Office, 2005) • Partnerships likely to increase Medicaid expenditures (Sun and Webb, 2013)

  11. People Who Spend Down Have Very Modest Amounts of Income and Assets

  12. People Who Spend Down Did Not Have Much Income and Assets Prior to Spending Down • Medicaid spend down is not a rare occurrence: 10% of non-Medicaid population over age 50 spent down over 10-12 year period (Wiener et al., 2013) • Because of the high cost of nursing home care, most analysts focus on nursing home care: • Among the Medicaid nursing home population: 66% to 75% spend down • 46% of people who spend down not use LTSS

  13. Medicaid Spend Down (cont.) • People who spend down have much lower income and assets than average • In 1996, only about 15% of spend down population had total assets (including the house) greater than $112,000 vs. 56% of people who did not spend down • Nearly 60 percent of the spend down population using LTSS had income in the lowest quartile of the total 50 and older population in 1996

  14. Medicaid Spend Down (cont.) • Medicaid spend down is not just an issue of LTSS. Part of broader issue of retirement income security. • Substantial number of people experience significant reduction in income and assets as they age, especially people who start out as somewhat economically vulnerable. • Few people who spend down are likely to be able to afford private insurance without large subsidy • Thus, private long-term care insurance is unlikely to result in substantial Medicaid savings

  15. Transfer of Assets is a Small Problem

  16. Transfer of Assets a Small Problem • Claim by some that large number of people transfer assets to appear artificially poor to qualify for Medicaid • Transfer of assets is relatively infrequent and usually involves quite small amounts of funds when it occurs (Bassett, 2004; Lee, Kim and Tannenbaum, 2006; O’Brien, 2005; Norton, 1995; Sloan and Shayne, 1993, Waidmann and Liu, 2006) • Recent analysis of 1996 Health and Retirement Study found that transfer of assets rate for people who spend down half the rate of people who do not spend down (Wiener et al., 2013) • Best estimate is that the maximum amount of asset transfer is about 1 percent of Medicaid nursing home expenditures (Bassett, 2004; Waidmann and Liu, 2006)

  17. Conclusion • Cannot serve twice as many people within the same financing envelope: Will have to spend more • Private sector initiatives unlikely to play a significant role in financing • Need to focus on expanding public programs—even Conservative government in UK came to that conclusion • More research (and research funding) is required • But solving long-term care financing problem is not finding a cure for poverty or racism; matter of political will • Remember long-term care is not them, it is us and our parents

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