At more than $2,500 a month, on average, the cost for even a short stay in a nursing home exceeds most Americans' incomes. At a national average cost exceeding $60 per visit, extensive home care is not far behind. Families exhaust themselves and their resources to provide care at home; long stays in a nursing home consume the savings of a lifetime. As the population ages and technology extends life for young and old disabled Americans alike, these burdens will only increase.

Who Needs Long-Term Care?

Two-thirds of the long-term care population are elderly; the rest are under 65.

The vast majority of people of all ages who need long-term care live in the community (see Figure 4). More than 5 million disabled elderly and over 3 million disabled younger people live at home (or in nonnursing residences). Nearly 2 million people live in nursing homes-1.5 million elderly and 0.2 million people under 65.

During their lifetimes, 36 percent to 45 percent of persons reaching age 65 in 1990 are expected to spend time in a nursing home before they die. A minority of 65-year-olds (about one in five) can expect to receive a year or more of nursing home care. But many nursing home users do not end their days in nursing homes after long stays. Between 26 percent and 45 percent of nursing home stays last fewer than three months, and half these "short stayers" are able to return to their homes.

How People Get and Pay for Care

In 1988, the nation spent $53 billion on long-term care. Only 18 percent of these expenditures went to home care-despite that fact that four out of five disabled and almost three out of five severely disabled live at home. Most home care is provided by relatives and friends. And when people do buy home care, they get little help from public programs.

Public spending on nursing home care, by contrast, is substantial. Almost all of the private share is paid for, without the benefit of insurance, by the individuals and families who need the care. Public support for nursing home care is largely available only after people experience financial catastrophe. Consequently, most people who need nursing home care face enormous financial risk.

Caring for People at Home-Almost three-quarters of severely disabled elderly-and two-thirds of the

people who need long-term care do not need skilled services, so Medicare is of little help. And few states rely on Medicaid to provide substantial long-term care to disabled people living at home. As with other Medicaid benefits, states control service and spending by limiting amount, duration, and scope of services; payment rates for providers; and eligibility. And the special waiver programs serve very few.

Two other major federal programs-the Social Services Block Grant program under Title XX of the Social Security Act and the Older Americans Actdo not carry stringent restrictions on eligibility, but provide only limited funding for in-home and community-based care. They are fixed-dollar allotments that states can use for many purposes besides long-term

care.

A few states are investing substantial resources of their own in designing innovative in-home and community services programs. These initiatives provide models for broader coverage of care for disabled people at home. They are, however, the exception rather than the norm in the nation's effort to provide home and community-based care. Unless frail elderly and disabled Americans need skilled care and qualify for Medicare, or are poor and in a generous state, they must depend on their own resources and on relatives and friends to provide care.

Nursing Home Care-Despite the enormous efforts of disabled persons and their families to manage at home, nursing home care sometimes becomes inevitable. At this point, they face both emotional and financial devastation. Among elderly people with at least $3,000 in out-of-pocket spending annually, 83 percent of that spending goes for nursing home care. This fact reflects not only the absence until recently of private long-term care insurance (described below), but also the limits to public programs.

Medicare covers nursing home care only as a limited extension of its health care coverage. It does not cover the extended personal care that is the bulk of nursing home service.

Medicaid, on the other hand, provides almost 90 percent of the public financing for nursing home care and more than 40 percent of all nursing home revenues. But people receive Medicaid nursing. home benefits only if they are, or have become, virtually destitute. In addition, Medicaid payment rates are so low in many areas that Medicaid patients-particularly those needing extensive care-may have problems finding care at all.

The Emergence of Private Long-Term Care Insurance

Private insurance to protect against financial losses from long-term care has only recently become available. Private insurers historically have been reluctant to offer such policies since it is so hard to predict the number of policyholders who will make claims and the cost of the services they will use. Although general health insurance entails similar risks, they are greater with long-term care. Services are harder to define, and there may be no need for care until decades after the policy is purchased.

Insurers have nevertheless begun to offer long-term care policies, and their availability has grown rapidly. The number of policies sold since 1987 has more than doubled. This does not mean that insurers no longer face risks, but that they have designed and marketed policies to limit their financial liability, thereby protecting their solvency.

Protection for insurers limits benefits to consumers. Insurers do not sell policies to people who are already disabled. Policies that provide some coverage may still leave consumers at risk of substantial expense when they need care.

Creativity and competition among insurers, along with regulatory requirements, have expanded benefits policies offer. But even in most improved policies, benefit levels do not keep pace with increases in service costs. Insurers can raise premiums or cancel policies, even after policyholders have paid substantial premiums.

And decent protection is expensive. The Health Insurance Association of America reports that for a 65year-old, a relatively comprehensive policy costs about $1,400 in 1990; for a 79-year-old, the price is $4,000.

Some argue that more and more elderly will purchase long-term care policies, reducing the need for government protection. The fact is, only about 3 percent to 5 percent of the elderly currently own long-term care insurance. And for many elderly, the financial burden of these policies is patently prohibitive. Only about 6 percent of today's elderly could purchase the relatively comprehensive long-term care policy for as little as 5 percent of their annual income.

The emergence of job-based long-term care insurance, combined with anticipated increases in the elderly's income, makes some observers optimistic that private insurance will fill a considerable part of

the need by the year 2020. But even if private insurance protection grows substantially, critical questions will remain:

• How to protect the currently disabled population as private insurance expands,

• How to ensure that the privately insured receive adequate protection and value for the dollar, and • How to protect the population that private insurance will inevitably leave out.

Prospects for the Future

Growth in the numbers of people likely to need long-term care makes improvements in the nation's financing of this care imperative for the well-being of all Americans. If disability rates remain what they are today, the number of elderly persons needing help with basic tasks is expected to double between 1990 and 2030-increasing from about 7 million to almost 14 million. The number of elderly requiring nursing home care will more than triple-rising from about 1.5 million to over 5 million (see Figure 5). And the use of high-technology and new medical breakthroughs may continue to extend the lives of disabled people of all ages.

It is highly unlikely that service availability will keep up with these growing needs. Demographic trends predict that fewer family members will be available to care for their disabled relatives. The private marketplace seems unable to develop an adequate home care delivery system even for those who can pay. The two major public programs-Medicare and Medicaid-have structural limitations that prevent them from meeting the projected need.

Without a change in public policy, more and more Americans will have difficulty getting the care they need in nursing homes as well as at home.

BLUEPRINT FOR LONG-TERM CARE REFORM

The Commission concludes that federal action is essential to change the nation's fundamentally flawed approach to long-term care financing, and that such action should follow an insurance strategy (public or private or both). The Commission rejects the alternative of encouraging private savings to cover long-term care costs. Depending on private savings concentrates the financial burden of severe impairment-an expensive and largely unpredictable event

on the unlucky few who experience it, rather than spreading it among the many who are at risk of impairment. Failure to reform the system on an insurance basis is not only to abandon today's elderly and disabled but also to condemn growing numbers of Americans to inadequate access to care in the future. To prevent this outcome, the Commission unanimously adopted the following goal:

The Pepper Commission is committed to the development of recommendations for public policies that give Americans of all ages access to coverage that provides them necessary longterm care and adequate financial protection; that will assure quality care and choice of setting and will control costs; that will provide the financing required to assure access; and that will support research to prevent the need for long-term

care.

The Commission explored a range of possible strategies to achieve this objective. One strategy would be to enhance government protection for the low-income population and promote adequate private insurance protection for the better-off. The Commission believes, however, that to build such a two-tiered system would be to repeat the nation's unfortunate experience in health care. Too many people would continue to face impoverishment or find themselves dependent on a welfare-based system, a system unable to ensure access to quality care.

Another strategy would be to develop a comprehensive public insurance program for all long-term care services. The Commission believes that public or social insurance has considerable merit in guarantee

ing adequate protection to all Americans, regardless of income. However, the Commission is concerned that applying this strategy to all nursing home care, as well as to home care, has disadvantages. Namely, it would require substantial public resources and would provide unlimited protection of assets for people who could well afford to protect themselves through private insurance.

To target public resources most effectively, guarantee Americans of all incomes adequate protection, and achieve an appropriate balance between public and private insurance, the Commission recommends a limited social insurance approach. The Commission believes that federal social insurance for home- and community-based care is essential to ensure the development of an adequate and efficient delivery system for these services and that priority in the use of public resources should go to disabled people at home or able to come home after short nursing home stays. People in nursing homes should be guaranteed an ample floor of protection, ensuring that no one-regardless of length of stay in the nursing home-will become impoverished. All but the poorest should contribute to the costs of their care.

Building a Long-Term Care System

Based on these principles, the Commission recommends developing an integrated public program that would meet the diverse needs of severely disabled people and support private insurance for those seeking broader protection. The blueprint has nine parts.

1. The Commission recommends social insurance for home and community-based care and for the first three months of nursing home care, for all Americans, regardless of income. Individuals would be required to contribute to the costs of care, with subsidies for people with low incomes. This protection would sustain resources and standard of living when people need long-term care, just as Medicare or private health insurance does when they need physician or hospital services.

2. For people with long nursing home stays, few of whom return home, the Commission recommends a floor of protection against impoverishment-protection of $30,000 in assets (excluding homes) for individuals and $60,000 for couples-and protection of income for spouses, home maintenance, and a decent allowance for personal needs. Protected assets are approximately equal to the life savings of three out of five elderly people. People whose assets exceed the floor would not receive benefits until their unprotected assets were depleted. Income above protected amounts would be applied toward the cost of nursing home

care.