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44. This discussion of the Medicaid eligibility

process draws on Medicaid Source Book, 356– 366.

45. Eligibility can be denied for a period of time to

people who have transferred their assets for less than fair market value within the 30-month period prior to application for benefits.

cited as Friedland, “Facing the Costs of LongTerm Care.”]; Alice Rivlin and Joshua M. Wiener, Caring for the Disabled Elderly: Who Will Pay? (Washington, D.C.: The Brookings Institution, 1988), Chapter 4 (Hereinafter cited as Rivlin and Wiener, Caring for the Disabled Elderly); William Scanlon, "A Perspective on Long-Term Care for the Elderly," Health Care Financing Review (1988 Annual Supplement): 715; Stanley Wallack, "Recent Trends in Financing Long-Term Care,” Health Care Financing Review (1988 Annual Supplement): 97-102; U.S. Department of Health and Human Services, Report to the Secretary on Private Financing of Long-Term Care for the Elderly, report prepared by the Technical Work Groupon Private Financing of Long-Term Care for the Elderly (Washington, D.C., November 1986). (Hereinafter cited as U.S. DHHS, Report to the Secretary.]

46. Unpublished data from the 1987 National Medi

cal Expenditures Survey.

47. Denise Spence and Joshua M. Wiener, "Estimat

ing the Extent of Medicaid Spend-down in Nursing Homes," Journal of Health, Politics, Policy and Law (in press). These estimates are based on nursing home discharges.

48. Ibid.

49. Institute of Medicine, Improving the Quality of

Care in Nursing Homes (Washington, D.C.: National Academy Press, 1986).

58. Rivlin and Wiener, Caring for the Disabled El

derly: Chapter 4; Friedland, Facing the Costs of Long-Term Care, Chapter 6.

50. John Holahan and Joel Cohen, “Nursing Home

Reimbursement: Implications for Cost Containment, Access and Quality,” The Milbank Quarterly 65 (1) (1987): 112.

51. Medicaid Source Book, 472-483; Brookings/ICF

Long-Term Care Financing Model.

52. William J. Scanlon, “A Theory of the Nursing

Home Market,” Inquiry 17 (Spring 1980): 25;
Medicaid Source Book: 472-482.

59. These policies are sold, like universal or whole

life insurance, on an entry age basis. That is, the price for the life of the policy is based on the age at purchase. If purchased at age 50, for example, the price remains at the age 50 level. Premiums will only increase if the price for all those 50 years of age is increased. However, if after 10 years the policy is dropped and a new policy is purchased, the price is based on the applicant's advanced age of 60. The premiums paid over the 10 years included the risk of needing long-term care during those 10 years, plus a portion saved to keep the premiums the same over the life of the policy holder. This "prefunding" of future insurance premiums is therefore lost when the policy is dropped.

53. Medicaid Source Book, 473.

54. Robert B. Friedland, “Issues Concerning the Fi

nancing and Delivery of Long-Term Care," EBRI Issue Brief 86 (January 1989): 16.

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65. These estimates represent the average costs of a

premium for a policy sold by the 15 leading companies marketing private long-term care inThese estimates were

ascertained through personal communication with Diane Johnson of the Health Insurance Association of America.

surance.

80. Zedlewski et al., The Needs of the Elderly, Table

4.1.

66. Pepper Commission, Assessing the Affordability of

Private Long-Term Care Insurance, testimony of
Stanley S. Wallack, 101st Cong, 1st Sess., 1989,
S. Hrg. 101-656, 56.

81. The policy modeled for this analysis covers 4

years of nursing home care at $50 per day (after a 100 day deductible) and offers limited inflation protection and limited home care. Those with access to an employer plan will be able to purchase coverage for as little as $189 a year if they initially purchase before age 55. At age 65 the policy would cost $466 and at age 75 the price is $1,004. For those without access to an ployer-sponsored plan the annual premiums at these three age groups are $236 before age 55, $583 at age 65, and $1,255 at age 75.

67. Wiener and Harris, Myths and Realities; and Health Insurance

Association of America, “Highlights."

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82. The Brookings/ICF Long-Term Care Financing

Model assumed that the decision to purchase long-term care insurance depended on age;

income; whether or not one had access to an employer sponsored long-term care insurance policy; and in the case of the elderly, assets. Among those with access to an employer sponsored policy, the likelihood of a purchase was not considered unless premiums were 2 percent or less of an individual's income, if they were under the age of 50; 3 percent or less of an individual's income, if they were age 50 to 59; and 4 percent or less of income, if they were age 60 to 64. The probability of a purchase ranged from 5 percent to 25 percent, depending on age and the relative size of the premium. For those under the age of 50, the probability of a purchase was assumed to increase from 5 percent to 10 percent if premiums were less than 1.5 percent of the individual's income. For premiums less than 1 percent, the probability was assumed to increase to 15 percent. For those age 50 to 59, the probability of purchasing long-term care insurance was 20 percent when premiums were less than 1 percent of an individual's income and for those age 60-64, the probability was assumed to increase to 25 percent.

73. Friedland, Facing the Costs, 220.

74. Health Insurance Association of America, High

lights.

75. See Chapter 1, Figure 1-6.

76. Joseph S. Piacentini and Timothy J. Cerino,

FBRI Databook on Employee Benefits (Washington, D.C.: Employee Benefit Research Institute, forthcoming).

77. U.S. DHHS, Report to the Secretary, Appendix.

simulation, unless their income should drop considerably so that premiums now exceeded a new threshold as a percent of their income. These new thresholds increased with the age of the policy holder. For those under the age of 50, policies were dropped if the premiums were to exceed 4 percent of their income; for those age 50 to 59, policies were dropped if premiums were to rise to 5 percent of their income; 6 percent was assumed to be the threshold for those age 60 to 64; 7 percent for those age 65 to 69; and 8 percent of those age 70 or older.

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For the elderly, the Brooking/ICF Long-Term Care Financing Model assumed that individual long-term care insurance would not be considered if premiums were in excess of 5 percent of individual income for those individuals whose family did not have more than $10,000 in assets. All other elderly were likely to buy based on the following probabilities, based on the individual's income: 2 percent, if premiums were between 4 and 5 percent of an individual's income; 3 percent, if premiums were between 3 and 4 percent of their income; 4 percent, if premiums were between 2 and 3 percent of their income; 5 percent if premiums were less than 2 percent of their income. Employer involvement in making long-term care insurance available to employees is assumed to grow during the simulation period. The simulation assumes that employers will gradually sponsor plans for employees and their dependents to participate. Specifically, each year an additional 2.5 percent of employers who offer pension plans will offer long-term care insurance to their employees and dependents, so that by 2008, half of all employers providing pensions will offer access to long-term care insurance. In addition, 20 percent of the employer-sponsored plans were assumed to subsidize half of the long-term care insurance premium. The variation in the proportion of elderly with long-term care insurance policies is heavily affected by employer participation rates that are greater or less than this assumed rate of growth. Since the Brookings/ICF Long-Term Care Financing Model is a microsimulation model, the decision to purchase is made each year of the simulation. That is, assuming an individual did not purchase the policy in the first simulated year did not preclude them from making the purchase in a subsequent simulation year. Therefore, the probability of purchasing a policy over the lifetime of the simulation depends on the initial age of the individual and the number of years simulated. Once the decision to purchase was made, it was assumed that the individual held onto that policy for the remainder of the

86. General Accounting Office, AIDS: Delivery and

Financing Health Services in Five Communities (Washington, D.C.: GAO/HRD 89-120, September 1989).

87. Stone and Kemper, "Spouses and Children,"

485.

88. Rivlin and Wiener, Caring for the Disabled El

derly, 11-12.

89. Private insurance is estimated to reduce Medi

caid spending by one to five percent below levels that would be reached in its absence, assuming people spend no more than five percent of their income in purchasing care. More generous assumptions about purchasing behavior have a bigger impact on public costs. For example, if all people who buy Medigap policies, many of whom have low incomes, were to buy long-term care policies, public costs would be 15 percent lower than otherwise. See Rivlin and Wiener, Caring for the Disabled Elderly, Chapter 4.

90. Rivlin and Wiener, Caring for the Disabled El

derly, Chapter 2.

Chapter 4

Blueprint for Long-Term Care Coverage for All Americans

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