Catastrophic Insurance for Long-Term Services & Supports?
In early June, the Urban Institute released a brief that examines whether Catastrophic Insurance Improve Financing for Long-Term Services and Supports. The abstract explains
A catastrophic insurance program could improve the way long-term services and supports are financed. The program would require enrollees who need care to wait a few years before they could collect benefits, but then it would provide those benefits as long as necessary. Our modeling results show that such a program could reduce Medicaid spending and provide financial relief to hard-pressed states. It could also reduce out-of-pocket spending for families facing catastrophic costs and fund new services and supports. By setting aside funds to cover future spending, a catastrophic insurance program could also raise national saving.
As we well know, paying for long-term care is a challenge for many. As the authors note, “[c]urrently, most people with LTSS needs rely mostly on unpaid family caregivers for assistance. If they need more help, they generally pay out of pocket until they exhaust their financial resources and then turn to Medicaid. New financing approaches could combine public insurance for catastrophic LTSS costs with initiatives to promote private long-term care coverage for other expenses. Our projections suggest that these options could significantly reduce Medicaid spending and provide better financial protection for older people who develop LTSS needs.”
Looking at the ways long-term care is financed by many, the authors consider whether an insurance model might be the answer
New LTSS insurance programs could provide better financial protection to people with disabilities; improve the care they receive; and reduce Medicaid costs, which are creating financial problems for many state governments. By setting aside funds today to cover future LTSS spending, new insurance programs could raise national saving. And they could provide families with stronger incentives to save by reducing reliance on Medicaid, which discourages saving because it only pays benefits to people with virtually no wealth outside of their home. The effectiveness of any new insurance program, of course, depends on its particular features, such as eligibility requirements, the size of the daily benefit, and the financing mechanism.
The authors examine a few models to gauge their workability and conclude
An LTSS catastrophic insurance program that requires enrollees with LTSS needs to wait a few years before collecting benefits but then extends those benefits as long as necessary could substantially improve the way LTSS needs are financed in the United States. Such a program could reduce Medicaid spending, providing financial relief to hard-pressed states. It would also reduce out-of-pocket spending for families facing catastrophic costs and fund new services for older adults with LTSS needs, although these impacts would be somewhat smaller than those from a similar-sized program that provided front-end, but time-limited, benefits. By setting aside funds today to cover future LTSS spending, a new catastrophic insurance program could raise national saving. And it could provide families with stronger incentives to save by reducing reliance on Medicaid, which discourages saving because it only pays benefits to people with virtually no wealth outside of their home.
Program details need further analysis. We modeled only a few options, and alternative designs could have different effects. For example, a new insurance program could provide larger daily benefits, which would reduce Medicaid and out-of-pocket spending more than the plan we modeled but would also require more funding. Or new programs could require enrollees to wait even longer to receive benefits than the program we modeled, which would offset less Medicaid and out-of-pocket spending but cost less. Our research is only the first step in the analysis required to design new LTSS financing programs, but it illustrates the potential power of our simulation tool in demonstrating how new options can interact with existing programs.