LTC Bullet: To Fix Long-Term Care, Redefine the Problem

Friday, September 27, 2019


LTC Comment: Recent research suggests long-term care is not the gargantuan crisis previously thought. So, private sector solutions, including LTC insurance, may be far more effective than commonly believed. Details after the ***news.***

*** TODAY'S LTC BULLET is sponsored by Claude Thau, whose revolutionary “Range of Exposure” tool projects clients’ likelihood (joint for a couple) of spending $100,000; $250K; $500K or over $1,000,000 on LTC, based on their personal characteristics, and estimates how much of their cost in each range would be covered by various traditional or linked insurance designs. He also offers other ways to educate and help clients make informed final decisions in 15-20 minutes! Change work-site LTCi from a series of proposal deliveries to an interactive consultation! Claude is the lead author of Milliman’s annual Broker World LTCi Survey & a past Chair of the Center for Long-Term Care Financing. You can reach him at 913-403-5824 or ***


Albert Einstein said “We can't solve problems by using the same kind of thinking we used when we created them.” The kind of thinking that created the long-term care problem is that markets cannot provide the services people need without massive compulsory government regulation and financing. No other way of thinking about the problem has been seriously considered heretofore. But some recent research suggests how we might re-conceptualize the quandary we are in so that it is not such a huge challenge and may in fact be amenable to a market-based solution.

What’s the evidence long-term care may not be the titanic crisis it has been assumed to be? In February 2016, the Department of Health and Human Services Assistant Secretary for Planning and Evaluation (ASPE) reported this:

Using microsimulation modeling, we estimate that about half (52%) of Americans turning 65 today will develop a disability serious enough to require LTSS, although most will need assistance for less than two years. About one in seven adults, however, will have a disability for more than five years. On average, an American turning 65 today will incur $138,000 in future LTSS costs, which could be financed by setting aside $70,000 today. (Favreault and Dey, 2016, p. 1)

That does not sound so daunting, especially if you consider these authors believe half the cost of long-term care will be covered by other payers, including Medicaid. Where would the average person come up with $70,000 today so that it would appreciate from that present discounted value to the $138,000 he or she might need to cover long-term care costs in the future?

The extractable home equity of 19.4 million senior households (age 65 plus) at a conservative Combined Loan to Value (CLTV) of 75 percent was $3.1 trillion in 2015, averaging $160,000 per household (Kaul and Goodman, 2017, pp. 2-3 and Tables 1 and 2). If Medicaid did not exempt a minimum of $585,000, more than triple the average extractable home equity amount, a way could be found to earmark enough of it to cover the total cost of long-term care for most older homeowners. By diverting people with sufficient home equity from Medicaid dependency to financing their own care privately, the fiscal burden on Medicaid could be substantially reduced and the program’s dismal access and quality improved.

There is more good news. In June 2019, Johnson and Wang “simulated the financial burden of paid home care for a nationally representative sample of non-Medicaid community-dwelling adults ages sixty-five and older.” They “found that 74 percent could fund at least two years of a moderate amount of paid home care if they liquidated all of their assets, and 58 percent could fund at least two years of an extensive amount of paid home care” (Johnson and Wang, 2019, p. 994). Furthermore: “Nearly nine in ten older adults have enough resources, including income and wealth, to cover assisted living expenses for two years” (Ibid., p. 1000). So, the problem is much more manageable than we thought. All we have to do is persuade people to liquidate all their assets.

Obviously, there is no incentive for them to do that as long as Medicaid long-term care financial eligibility works the way it does. But if Medicaid’s perverse incentives were changed to encourage responsible long-term care planning and private payment, how would people respond? Home equity conversion could handle much of the financial burden for the majority of home-owning elders. Reverse mortgages would free up cash flow to cover home care expenses or, for people who plan ahead as many more would, the extra revenue could be used to fund long-term care insurance premiums.

Most analysts, however, have written off private long-term care insurance as unlikely ever to penetrate enough of the middle market to become a significant payment source. But they have always assumed that people would need much more coverage at too great a cost to attract enough buyers to make a big difference. That assumption may be wrong. The National Investment Center (NIC) recently reported that reducing the annual cost of seniors housing by $15,000, from $60,000 to $45,000 per year, would expand the middle market for seniors housing by 3.6 million individuals enabling 71 percent of middle-income seniors to afford the product (NIC, 2019).

Where could consumers find that extra $15,000 to bring the cost of seniors housing into reach? The premium for an annual long-term care insurance benefit of $15,000 would only cost a small fraction of the premium required for the full coverage that consumers find so financially daunting now. Unfortunately, insurance regulations forbid carriers from offering coverage with a benefit of less than $18,000 per year. Once again, well-intentioned regulation stands in the way of sensible long-term care policy and planning.

Then there is this. A Cato Institute Policy Analysis reports that “Improved estimates of poverty show that only about 2 percent of today’s population lives in poverty, well below the 11 percent to 15 percent that has been reported during the past five decades” (Early, 2018, p. 1). How can that be? “By design, the official estimates of income inequality and poverty omit significant government transfer payments to low-income households; they also ignore taxes paid by households.” (Ibid., p. 2) What is the bottom line? “The net effect is that pretax data overstate the true income of upper-income households by as much as 50 percent, and missing transfers understate the true income of lower-income households by a factor of two or more.” (Ibid., p. 4) The rich are poorer and the poor, richer than we thought. “More than 50 years after the United States declared the War on Poverty, poverty is almost entirely gone. … Public policy debate should begin with the realization that only about 2 percent of the population—not 13.5 percent—live in poverty.” (Ibid., p. 21)

Former Democratic presidential candidate New York Mayor Bill de Blasio is correct when he says “There's plenty of money in this country.” He’s mistaken when he adds “it’s just in the wrong hands.” It’s in exactly the right hands, those of the people with personal resources or home equity sufficient to fund their own long-term care and stay off Medicaid. All they need is positive public policy incentives to get them to use it.


Early, John F. 2018. Reassessing the Facts about Inequality, Poverty, and Redistribution. Cato Institute Policy Analysis No. 839. April 24.

Favreault, Melissa and Judith Dey. 2016. “Long-Term Services and Supports for Older Americans: Risks and Financing.” USDHHS Assistant Secretary for Planning and Evaluation (ASPE) Issue Brief. Revised February.

Johnson, Richard W. and Claire Xiaozhi Wang. 2019. “The Financial Burden Of Paid Home Care On Older Adults: Oldest And Sickest Are Least Likely To Have Enough Income.” Health Affairs. 38 (6)

Kaul, Karan and Laurie Goodman. 2017. Seniors’ Access to Home Equity Identifying Existing Mechanisms and Impediments to Broader Adoption. Urban Institute Housing Finance Policy Center.

National Investment Center (NIC). 2019. “Middle Market Seniors Housing Study: Executive Summary.” April.