Long –Term Care Financing Reform What Role For States?
Hunter McKay
US Department of Health and Human ServicesOffice of Assistant Secretary for Planning And Evaluation
Contact Information: 202-205-8999
Long Term Care Financing
• The Status Quo: The current financing system allows retirees and pre-retirees to remain blissfully ignorant of how long term care is financed until it is too late for anything but draconian measures.
impoverishment – welfare – loss of control
• The Problem Ahead: The size and characteristics of the soon to be retiring baby boom generation makes this approach unworkable – unaffordable – perhaps even unnecessary.
Sources and Types of Funding
• Three public sources of financing:Medicaid Medicare pay as you go – no pre-
fundingVeterans
• Multiple Private SourcesOut-of-Pocket pay as you go + some pre-
funding InsuranceAnnuity pre-fundingHome equity conversion
An Alternative Perspective
• Long term care financing reform is not just a Medicaid problem.
• Future Medicaid long term care users are not strangers.
• States have a vested interest in helping residents to: 1) understand their risk, and 2) meet the financing challenge.
• No silver bullet – a multi-faceted approach has the best chance for success.
• Increasing pre-funding must happen now.• States Are Key
Why Worry About Pre-Funding Now?
• Oldest baby boomer is aged 58 and the youngest is 39.
• Opportunities for pre-funding diminish as boomers retire.
• Among those boomers are an indeterminate number of “tweeners”; those for whom planning for long term care would make difference between using and not using Medicaid.
What Can States Do?
1. Change The Culture/ExpectationsNo longer should pre-retirees and early
retirees remain unaware of their risk and their options.
2. Expand Financing OptionsConsumers should have a number of different
ways to finance their own long-term care using a variety of different financial instruments.
3. Focus on MedicaidStates must know who is on Medicaid for long
term care and how they got there.
Change The Culture/Expectations
• Goal: Increase awareness of long term care risk and options for planning ahead.
• Mechanisms:1. Public awareness campaign, (PSAs, mailings, press
events);2. Aging agencies offer to assist boomers in planning;3. SHIP program offers assistance in buying insurance;4. Recruit corporate partners to carry message;5. Publish state guide to LTC insurance plans sold in
state.
• Bottom Line: State conveys a consistent message on personal responsibility for financing long term care.
Expand Financing Options
• Goal: Increase options for consumers to pre-fund long term care.
• Mechanisms: 1. Tax incentives consumers;2. Tax incentives for businesses;3. LTC insurance for state employees;4. Partnership For Long-Term Care;5. Housing agency offers reverse mortgage;6. Single purpose loans - family loan
programs.
• Bottom Line: Consumers need more options to meet this challenge.
Medicaid
• Goal: Clarify expectations for the role that Medicaid plays in financing care.
• Mechanisms:1. Review up front eligibility screens – make
excessive transfer of assets difficult;2. Review estate recovery programs to
ensure follow-through and fairness;3. Research: Who is spending down, Medicaid
qualifying trusts, Medicaid friendly annuities;
• Bottom Line: Consistent and fair determination of Medicaid eligibility that provides incentives for planning.
A Systems Approach
• Significant state innovation already exists in isolated program areas.
• What works for some states will not work for others.
• Long term care financing likely to remain a shared public-private responsibility.
• A systems approach uses multiple components to align consumer incentives, coordinate with public benefits and present a consistent message.
• Innovation within the context of fully developed strategy.
State Examples
• Minnesota Statewide educational
campaign State tax credit LTC insurance for
state employees Transfer of assets
waiver Milbank/EBRI project Expanded planning
process Family loan program* Partnership for long
term care*
• Connecticut LTC insurance for
state employees Statewide educational
campaign Partnership for long
term care Home equity
conversion program Transfer of assets
waiver
Summary
• States play a key role in changing the way retirees and pre-retirees plan for long term care.
• State leadership is critical is the following areas: Awareness among pre-retirees and society in general New financing options designed to maximize flexibility
and consumer control A clear sense of how public and private funding will be
coordinated to align incentives and preserve Medicaid.
• The best chance for success is through a complementary set of strategies tailored for state characteristics, and oriented toward the long term.