Long-Term Care . . . the other elephant in the room

[Welcome Wall Street Journal readers!]

The U.K is studying the problem of long term care (nursing homes) and one proposal is for mandatory, private long-term care insurance. I think this is a creative idea that is worthy of discussion and debate – not only in the U.K but here, too.

One very constructive concept in the linked article is that mandatory, private long term care insurance would be “primary” to NHS. This means that the cost of nursing home care for insured persons would first be paid by each person's insurance company, up to the policy limit, thus reducing the expenses of nursing home care to NHS, i.e., the public treasury.

Problems with the idea? oh yeah, sure, the same problems as with mandatory insurance of any kind. But it's my hope that won’t be used as an excuse to ignore the need for policy debate here, on LTC.

In the U.S., long-term care is not covered at all by Medicare or private medical insurance. Only a few fortunate people have the resources to pay for nursing home care themselves – which can easily cost $75,000 per year, or more depending on where you live. So in the U.S., most people who need nursing home care also need significant financial aid and the most common source of aid is Medicaid.

To qualify for nursing home benefits under Medicaid, one must “spend-down” one’s assets to essentially zero – in other words, one must be, or become, impoverished to qualify.

While private LTC policies have been available for many years, relatively few people buy them. Going without LTC insurance can mean assuming a very substantial risk because in the event one needs nursing home care, the only practical option may be to spend down your life’s savings, apply to Medicaid – and live in poverty.

Statistics suggest the odds of needing nursing home care at some point in one’s life are over 50%. This means that, for the average person over age 65, the question of confinement in a nursing home is more a matter of “when” not “if”. Note in the linked article a health minister states these chances are one in ten; that may be the case in the U.K., but in the U.S. the risk seems to be much higher. That's why you should care about LTC.

Medicaid now pays for more than 50% of all nursing home expenses with the result that almost 33% of Medicaid spending goes to nursing home care. The oldest baby-boomers are now beyond age 60 and many more are coming behind them like a wave. If a more effective means cannot be devised to cover long-term care expenses, I think we will witness:

(1) much higher Medicaid expenses which will devastate federal and state budgets, and result in higher taxes or reduced benefits or both.

(2) increasing numbers of people who impoverish themselves to obtain nursing home care.

There needs to be public policy debate about long term care and the debate should start right here and right now.

The U.K appears to be engaging this problem. The U.S. should, too.