Financing long-term care: a practical mix of public and private

Congress is considering proposals to improve its financing of long-term care. The key issue is whether it should support a social insurance program or a program targeted to a population group defined by income and assets. Social insurance is expensive, costing between $15 and $20 billion. For the most part, it provides benefits--primarily asset protection--to middle- and upper-income individuals. An improved Medicaid program, costing about $8 billion, benefits lower-income individuals but does not protect those with higher incomes. These two options cannot be viewed independently from trends in the private market. Sales of private long-term care policies have grown and between 30 percent and 40 percent of the elderly can be considered potential buyers. If private alternatives are available for those individuals who need asset protection, the case for a more targeted public approach--along with reliance on the private sector--becomes more compelling. Congress should consider a program that enhances Medicaid; improves consumer education; assists states in regulating long-term care policies, so as to enhance consumer protection and confidence; and clarifies taxes on long-term care insurance to encourage workers and the elderly to protect themselves against catastrophic expenses.