LTC Bullet:  New Report Preview

Friday, July 29, 2016


LTC Comment:  I’ve spent the past several months re-reading four decades of research on long-term care financing by economists, policy analysts, and lawyers.  Our new report due out this fall will tell all, but here’s a preview after the ***news.***

*** OMINOUS PARALLELS:  LTC Clippings subscribers received this item from us today.  Artificially low interest rates forced on the economy by the Federal Reserve are doing to Social Security what they’ve already done to LTC insurance.  To learn more about or subscribe to LTC Clippings, contact Damon at 206-283-7036 or ***

7/28/2016, “Low interest rates a growing threat to Social Security,” by Harvard Zhang, MarketWatch

Quote:  “Record-low yields on U.S. Treasurys endanger the long-run solvency of Social Security and the future retirement benefits for younger generations of Americans, economists say.  Newer Treasury bonds held by the trust fund have been earning less for years, the consequence of sluggish economic growth and persistently low interest rates. The Federal Reserve has kept its benchmark short-term rate at or near zero for more than seven years in an effort to stimulate the economy.  Even with the Fed’s extended easy-money approach, the U.S. economy has not grown fast enough to generate the necessary tax income to help fund all its responsibilities, including Social Security for current and future retirees.”

LTC Comment:  The Fed’s artificially low interest rates hurt LTCI by forcing premium increases so that reserves would suffice to pay future claims.  This article offers a rare observation that the Social Security trust fund faces the same problem, inadequate reserves with too little investment return.  So too Medicare and all the other many government trust funds.  A reckoning looms and when it comes, we’ll all pay higher “premiums,” i.e., taxes, because of government’s reckless monetary and fiscal policy. ***

*** OTHER NEWS:  LTC Clippings this week also addressed “The Mega-List of Caregiver Support Resources,” “7 (relatively) easy insurer ideas for saving long-term care insurance,” “Trying to find adequate elder care is a bureaucratic nightmare,” “When Aging Parents Need Help With Financial Tasks,” “How to solve California's housing shortage?  Build 'granny flats' in homeowners' backyards,” “Senior surprise: Getting switched with little warning into Medicare Advantage,” “Lawmakers want answers to long-term care premium hikes,” “Dementia diagnosis has 'silver lining' for many,” and other important stories.  Let us screen the voluminous media coverage of aging issues and send you the most important stories, reports and data with brief analysis to help it all make sense.  Subscribe to LTC Clippings. ***


LTC Comment:  I’m almost one week into writing the draft of our new report.  Following are the “Abstract” and the “Introduction” as they stand right now.  Although they may change, this preview should give you a pretty good idea of where the report is headed.  We may offer more draft excerpts in future weeks.  Your feedback, whether complimentary or critical, is always welcome.


Abstract:  The age wave and fiscal constraints challenge America’s long-term care financing system.  Decades of study commissions, white papers and legislative initiatives have failed to achieve a better way.  But consensus is finally forming around a public policy approach advocated by three similar papers published in February 2016.  That approach is to establish a new, mandatory, publicly financed, long-term care insurance program to cover the catastrophic, back-end long-term care financing risk.  The primary rationale for this new program is that the current system, based on Medicaid, forces people into impoverishment and has failed.  In fact, Medicaid does not require impoverishment and the draconian program blamed for the long-term care financing system’s dysfunctions has never existed.  This paper will explain how Medicaid long-term care financing actually works and why much of the contrary analysis by economists and health policy experts, based on survey data, simulations and modeling, is mistaken, misleading and misguided.  The paper concludes with recommendations to improve long-term care financing for the poor, middle-class and affluent based on free-market principles and individual responsibility without adding another layer of compulsory government involvement. 


After decades of struggling unsuccessfully to find a better way to finance long-term care, researchers, industry experts and public policy makers are starting to agree on a general direction for reform.  A consensus is forming around the idea of a mandatory, government-financed program to cover the back-end, catastrophic long-term care risk.  Three reports published in February of this year by Leading Age, the Bipartisan Policy Center and the ad hoc LTC Collaborative offered variations of this plan.[1]  All three relied on research conducted by the Urban Institute (UI) and the actuarial firm Milliman as described in a November 2015 Health Affairs article titled “Financing Long-Term Services and Supports:  Options Reflect Trade- Offs for Older Americans and Federal Spending.”[2]

The Health Affairs article stated that “half of older Americans” will require “a prolonged period” of paid “long-term services and supports,” half of which assistance they will fund “out of pocket,” but because “few people purchase private long-term care insurance” or save sufficiently, “many will eventually turn to Medicaid for help.”  The article concluded and the three reports agreed that among the front-end or back-end, voluntary or mandatory, capped or uncapped financing alternatives considered, “the mandatory options would be more successful than the voluntary versions” and “the comprehensive and back-end mandatory options would be most beneficial.”  A payroll tax like Medicare’s, not subject to a wage cap, should fund a new mandatory public long-term care program based on these principles.  This is the consensus around which a growing number of policy analysts, policy makers, and interest groups are coalescing.

It behooves everyone concerned about long-term care financing to identify and question the assumptions, data, and reasoning behind this growing programmatic consensus.  When we unpack these components, we find several common propositions underpinning them that warrant critical analysis.  For example, does the fact that many people eventually turn to Medicaid for help with long-term care mean they have been forced to spend down into impoverishment by the welfare program’s allegedly draconian income and asset restrictions?  Is it true that half of what people spend for long-term care comes out of their own pockets?  Do too few people buy private long-term care insurance because the product costs too much and delivers too little?  Does it follow from rising long-term care expenditures incurred by a rapidly aging population that the best way to pay for care is through a new, compulsory government program?  America already has a number of centrally planned entitlement programs with high and growing unfunded liabilities.  We should not contemplate adding another without first scrutinizing these and other similar questions.


LTC Comment:  “Scrutinizing these and other similar questions” is what the remainder of our report will do in detail.  Stay tuned for more.