Financing Long-Term Care
By LaRhae Grindal Knatterud, MN Department of Human Services
The number of people 85 and older in Minnesota has been growing steadily over the past 30 years, and that growth will accelerate in the next 30 years as baby boomers age. As this demographic shift occurs, providing long-term care for this large group of older people will become one of the state’s most critical issues.
We define long-term care as assistance given over a sustained period to people who are experiencing long-term inability or difficulty in functioning because of a disability. Individuals can receive long-term care in a variety of settings, not just in nursing homes, and family members provide most long-term care—over 90 percent—in the home of the individual who needs assistance.
The primary payers for long-term care are federal and state governments. In 2008, the estimated cost of long-term care in Minnesota for the elderly, 65 and older, was $2.5 billion. Medicaid paid about 40 percent of the total, and therefore, is the largest contributor. Individuals’ out-of-pocket payments covered about 33 percent of the total. Federal payments through Medicare represented about 20 percent and private insurance and other sources provided the other 7 percent of payments.
National experts paint a bleak picture of the ability of individuals to take on more responsibility for payment of long-term care. In 2004, the University of Minnesota projected that 30 percent of Minnesotans born between 1946 and 1964, the baby boomers, will have insufficient income to pay for their health and long-term care. By 2008, these estimates had increased to a disturbing two-thirds of boomers, because of the economic crisis and its effect on already inadequate savings.
At the heart of the issue surrounding the financing of long-term care is the concern that more people than ever will turn to Medicaid to finance their long-term care by 2030. Because both federal and state monies finance Medicaid, governments worry that the increased demand on Medicaid could overwhelm states’ budgets. In addition, the current structure of Medicaid provides perverse incentives to transfer the assets of the elderly using legal mechanisms to impoverish them voluntarily. This transfer of assets makes them eligible for assistance but often impoverishes a surviving spouse as well.
One preventive strategy that Minnesota has pursued is to provide incentives for individuals to purchase or use options for private financing. Some examples of these options include private long-term care insurance, reverse mortgages, and life insurance that also pays for long-term care.
Since 2005, the state has taken the following steps:
- Established the Long-Term Care Partnership program.
- Approved accelerated death benefits within life-insurance policies.
- Proposed ways to create incentives for individuals to use proceeds from reverse mortgages for long-term care costs.
These actions have done little to increase the use of these options, and it has become clear that a growing proportion of the population is unable to self-fund long-term care costs.
Many experts now feel that the country needs new models of long-term care financing that achieves these goals:
- Restructures public and personal roles.
- Clarifies what individuals’ responsibilities are and what the public sector will provide.
- Offers an alternative to the perverse incentives that can drive the elderly to impoverish themselves voluntarily.
The current federal proposals for healthcare reform include a new approach to financing long-term care that does restructure public and personal responsibility. This proposal, the CLASS Act, establishes a national, voluntary long-term care insurance plan that requires monthly premiums, provides a five-year vesting period, and pays an average daily benefit of $75 per day to those eligible.
In Minnesota, the Citizens League is sponsoring a study group. This group is working to design a financing model that reshapes public and personal responsibility for long-term care payments. Minnesota could implement this model to work in concert with the federal CLASS Act if congress enacts it.
Other strategies that could help meet the challenges of long-term care include:
- Improve individuals’ preparation for retirement and old age.
- Intensify efforts to support family caregivers.
- Prevent disability that leads to long-term care.
- Increase the number of Communities for a Lifetime that offer supports to older people as they age in place.