Risk and Reform of Long-Term Care

By Allison Hoffman
[Cross-posted from Health Affairs Blog]

The 50th Anniversary of Medicare and Medicaid offers an opportunity to reflect on how U.S. social policy has conceived of the problem of long-term care.

Social insurance programs aim to create greater security—typically financial security—for American families (See Note 1). Programs for long-term care, however, have had mixed results. The most recent attempt at reform, which Ted Kennedy ushered through as a part of the Patient Protection and Affordable Care Act (ACA), called the CLASS Act, was actuarially unsound and later repealed. Medicare and especially Medicaid, the two primary government programs to address long-term care needs, are criticized for failing to meet the needs of people with a disability or illness, who need long-term services or supports. These critiques are valid.

Even more troublesome, however, long-term care policy, especially in its most recent evolution toward home-based care, has intensified a second type of insecurity for Americans. This insecurity arises when someone becomes responsible for the long-term care of a loved one. In a longer forthcoming article, I argue that this insecurity—which I call “next-friend risk”—poses a serious threat to Americans and needs to be addressed. (I borrow the phrase next friend from a legal term for a person who in litigation represents someone with a disability who is otherwise unable to represent him or herself. Although not a legal guardian, the next friend protects the interests of an incompetent person.)

Current long-term care social policy ensures heavy reliance on family and friends. Following various approaches to meet long-term care needs over the 20th Century, Medicaid emerged, largely by default, as the primary payer for long-term care. Because Medicaid is means tested, all but the poorest Americans have no social insurance for long-term care (a small number do have private insurance). In turn, most Americans have two choices: “spend down” money on long-term care until they qualify for Medicaid or, more often, rely on family and friends to help.

Even those eligible for Medicaid services increasingly rely on friends and family for supplemental help. Over the past few decades, Medicaid’s bias toward institutional care has been yielding to what are called “home and community-based services,” which in most cases just means long-term care at home. This trend was amplified by incentives in the Deficit Reduction Act of 2005 and the ACA to move people from institutional care to home care.

This trend offers considerable benefits. People with illness and disability can stay in their homes and live as independently as possible. The stories of lives transformed when people are successfully transferred from nursing homes into home care are undeniable successes. In addition, some believe—although the evidence is mixed on this front—that it saves states money.

On the other hand, Medicaid’s evolving approach amplifies burdens on family and friends of people who need care. Especially because supporters of home-based care favor it as a way to save money, programs tend to be underfunded and many have long waiting lists for services. Without the economies of scale that enabled 24-hour care in nursing homes, it is difficult to finance the wraparound care that people might need in a home setting. Furthermore, coverage of non-medical care, such as bathing or getting dressed, is an optional Medicaid benefit; that is, states might choose not to cover it at all. Family and friends often step in to fill these gaps.

But family and friends can no longer fill these gaps without risking their own financial stability, emotional stability, health, and general wellbeing. The world has changed in ways that make de facto reliance on families and friends increasingly untenable. The number of single-parent families (see Table 1337) and two wage-earner households has increased significantly over the past several decades, leaving little cushion to absorb caregiving. Families have dispersed geographically. And the ratio of people needing care to those who might provide it is increasing, as people live longer and have fewer kids.

As a result, the average informal caregiver faces losses—forgone income, pensions, benefits, and retirement savings, including Social Security—between $200,000 and $300,000. Considering that the median household net worth in the U.S. was just under $70,000 in 2011, loss at this level is devastating for all but the wealthiest households. More than one-third of people caring for aging parents leave the workforce or reduce working hours, and women are more likely to leave the workforce altogether. Family caregivers face significant non-economic costs, including health and psychosocial harm. For example, studies report 40 to 70 percent of people caring for older adults have symptoms of depression and 25 to 50 percent meet diagnostic criteria for major depression (see Note 2), far outpacing the rates in the general population. These costs are, in effect, the invisible copayment of long-term care policy.

These costs threaten Americans’ financial, emotional, and physical wellbeing as seriously as any of the other phenomena that have motivated the creation of social insurance programs, including unemployment, outliving one’s savings, and medical spending in retirement. As we think of the next era of reform efforts, we should consider next-friend risk as an equally troubling social problem. Doing so would have at least four implications for long-term care policy:

  1. The Scale of the Problem. Current policy hides costs borne by next friends. By one estimate, the total costs of informal caregiving in the United States in 2009, if hours were compensated at average care work wages, was $450 billion. Accounting for this invisible copayment would require funding at double or triple current levels. Such funding is admittedly unlikely, but that number could anchor policymakers on more realistic funding needs for long-term care. Plus, seeing the problem from the next-friend perspective could make it more relatable for voters and policymakers and possibly generate support for increased funding.
  2. Insurance? Most of us could end up responsible for the long-term care for another, even if not all of us will. This universality—plus the failure of the private insurance market—makes social insurance an apt tool to spread this risk. More so, most Americans’ inability to manage this risk well implies the wisdom of a universal social insurance program approach, more like Medicare or Social Security, rather than a means-tested program like Medicaid.
  3. Flexibility. Whether with additional funding or not, long-term care policies could be designed more flexibly to better mitigate next-friend risk. When someone becomes responsible for another, she can provide care herself or pay for care (or some combination). If insurance were designed to enable a next friend to toggle more freely between these two choices, she could use benefits to minimize her own long-term harm, however she might define it. Current policy is focused so narrowly on care-recipient risk that it does not even see the need for this toggle and often allows only one approach. Even programs with a toggle in theory, such as the In-Home Supportive Services program in California or the long-term care voucher system in Germany, create biases for family to provide care because of the nuances of policy design and administration. Small changes to policy design could reduce these biases and help people better mitigate next-friend risk for little or no cost.
  4. Tradeoffs. Finally, taking next-friend risk seriously forces the (admittedly uncomfortable) question of whether social policy should more intentionally balance the needs of care recipients and next friends, even if it means a solution in some cases that is second best for the care recipient. For example, if an elderly widower has a stroke, the goal of current long-term care law and policy is to ensure him adequate care supports in a way that best respects his autonomy, in the least restrictive setting appropriate. If his daughter moves him into her home, as Medicaid policies increasingly encourage, his needs could be fully met at the lowest possible public cost. But his daughter may have to reduce working hours or leave a secure job with benefits, threatening her family’s long-term finances and possibly health and wellbeing. Such results, where each generation sacrifices its security for the last one, are simply not sustainable.

Long-term care is an elusive problem, both because of its high cost and because these costs can be hidden by relying on next friends. Understanding long-term care risk from the perspective of next friends makes it a harder problem to solve but offers a more realistic picture of the problem. The next era of social insurance policy must grapple with all of the risks attendant on long-term care needs or the policy will, even if creating security for some, undermine it for others.

Note 1: Michael A Graetz & Jerry L. Mashaw, True Security (1999); Theodore R. Marmor et al., Social Insurance: America’s Neglected Heritage and Contested Future (2014).

Note 2: Steven H. Zarit, Assessment of Family Caregivers: A Research Perspective 12, 14, in Caregiver Assessment: Voices and Views from the Field: Report from a National Consensus Development Conference, Vol. II, (2006) (Family Caregiver Alliance, ed).

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