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Why We Need Eldercare

October 08, 2012 By Aaron Sinner, Policy Associate

As our state grays, more and more Minnesotans will find their autonomy limited by the effects of age, whether their needs take the form of a nursing home stay or simply help with bathing or dressing. They are in for sticker shock.

The average annual cost for a private room at a nursing home is $87,000 nationwide and $75,000 in Minnesota. While 30% of 65-year-olds won’t require any long-term care, a couple turning 65 faces a 5% chance their long-term care costs will exceed $260,000, and on average costs will come to $63,000.

Yet in our current safety net, long-term care is an afterthought. Medicare only covers long-term care for up to 100 days. Medicaid covers long-term care, but only for low-income individuals, requiring everyone else to spend down their assets to be eligible. As Lee Goldberg puts it, Medicaid is “like having an insurance policy with a deductible that is all your wealth.”

To date, private long-term care insurance isn’t making up the difference. Only 8 million Americans have the insurance, and purchases have fallen 70% since their peak ten years ago. The average purchase age is 59, though even then the insurance is prohibitively expensive: A typical plan for a 60-year-old couple costs $3,335 per year. And while purchasing insurance at a younger age lowers the monthly premium, doing so carries risk. As NPR explains, “[s]ome people pay their premiums for years, and then get hit with rate hikes they can’t afford. They then face the tough decision of dropping their policies—and losing any chance of collecting benefits—or trying to struggle on, paying higher rates or accepting lower benefits.”

Baby boomers retirements only exacerbate the problem. While the country moves from 13% 65 and older to 20% who are 65+ in 2050, Minnesota will move from 13% to 21.2%. The nation will grow from 1.8% age 85+ to 4.3%, while Minnesota moves from 2.0% to 5.3%. Demographics demand we find a way to fund care for our elderly.

Our state has demonstrated forward thinking on this use. Minnesota currently offers The Minnesota Long Term Care Partnership, which allows individuals with long-term care insurance to protect some assets, should their insurance coverage run out and they need Medicaid. Last week, the Governor’s office announced “Own Your Future,” a full-court press public awareness campaign to encourage Minnesotans to plan for long-term care expenses. But there’s only so much states alone can do. Long-term care funding is best handled at the federal level.

The Affordable Care Act included a CLASS provision, which set up a public long-term care insurance program, but it's already been repealed due to its unsustainability. As a voluntary program, it created a self-selection bias.

The long-term care insurance landscape would benefit greatly from an intentional, sustainable government role, beyond the last resort funding Medicaid provides. The public sector currently pays for over 70 percent of long-term care, primarily through forcing individuals to spend everything they have until they’re poor enough to qualify for Medicaid. This spending detracts from Medicaid’s purpose of insuring those who are already low-income by eating up one-third of the program’s budget. The problem is even worse in Minnesota, where 47% of Medicaid dollars go to long-term care, significantly impacting our state’s budget woes.

We can create a program like Germany's—call it “Eldercare.” It could be funded through a payroll tax, with exemptions for individuals who purchase private, comprehensive long-term care insurance. Germany’s plan currently taxes employers and employees at 0.975% each on wages up to $51,882, and covers about half the costs of long-term care for citizens of all ages throughout the nation. For comparison, Social Security taxes employers and employees at 6.2% each on wages up to $106,800, and Medicare taxes at 1.45% each without a cap. With an Eldercare cap closer to Social Security’s, the U.S. could offer more robust benefits, and private insurance plans could make up the difference, similar to Medigap coverage—Eldergap plans, if you will.

This isn't the best climate to implement a new tax, but consider the alternative: forfeiting your entire life's earnings to get care otherwise.

Other factors indicate the individual costs for Eldercare would be much lower in the U.S. than in Germany. We have a larger population across which to spread risk (315 million compared to 82 million), and our demographic trends are in much better shape, as Mary Jo Gibson explains: “The proportion of people age 65 or older in the US will not reach that in Germany… today until 2050. Moreover, by 2050, the share of persons age 80 or older in the US will still be only about half that in Germany.” The greater proportion of young people living on U.S. shores means a public long-term care insurance program would be much less expensive to finance per person.

Whether the U.S. chooses to go the Eldercare route or not, something must be done to address our looming long-term care costs. And while Minnesota’s “Own Your Future” program is a wise step forward, it’s doubtful to be enough to handle the problem alone. The long-term care problem demands a social insurance program or other large-scale national action.

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