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policies to limit their financial liability, thereby protecting their solvency.

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.

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.

During the early 1960s it was considered intolerable that only half of the elderly had some form of acute care insurance. Based on our work, private long-term care insurance will be lucky to reach that level of market penetration."

- Joshua M. Wiener, senior fellow,

The Brookings Institution

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By 2030, the number of elderly people requiring nursing home care will more than triple.

Figure 5 Number of Elderly Needing

Long-Term Care, 1990 and 2030 14

13.8

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.

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BLUEPRINT FOR LONG-TERM CARE REFORM

Millions of People

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1990 2030

1990 2030 People Needing Help Nursing Home Users with Activities of

Daily Living *Projected SOURCE: For 1990, Lewin/ICF estimates using the Brookings/ICF Long-Term Care Financing Model; for 2030, Shelia Zedlewski, et al., The Needs of the Elderly in the 21st Century (Washington, D.C.: The Urban Institute, 1990).

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 eventon 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.

ance protection grows substantially, critical questions will remain:

To prevent this outcome, the Commission unanimously adopted the following goal:

• 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 insur

ance will inevitably leave out.

Prospects for the Future

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.

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.

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.

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.

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 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.

$30,000 in assets (excluding homes) for individuals and $60,000 for couplesand 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.

Today . . . we are faced, really, with two choices. We could moan, we can groan about the costs, say it's too difficult a problem to even begin to address. Or we can ... work toward developing a cost-effective, creative, responsive, and caring program to better address the problems of our chronically ill."

- Senator David Pryor

3. Recognizing that many people will want additional protection for assets and income above levels protected for long stays—as well as for cost sharing obligations associated with other benefits-the Commission recommends measures to promote private long-term care insurance, subject to federal and state oversight. Promotion would involve clarifying the tax code to give long-term care insurance the same preferential tax treatment health insurance now receives. Oversight would entail standards for insurance policies, consumer counseling to evaluate policies, and penalties on insurers for failure to comply.

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.

4. The Commission believes that all severely disabled persons-regardless of age, underlying disease or disabling condition—be eligible for public benefits, at home or in a nursing home. To qualify for longterm care benefits at home or in a nursing home, the Commission recommends that individuals meet at least one of the three following disability criteria: (a) need hands-on or supervisory assistance with three out of five activities of daily living; (b) need constant supervision because of cognitive impairment that impedes ability to function; or (c) need constant supervision because of behaviors that are dangerous, disruptive, or difficult to manage. Individuals assessed as severely disabled would be directed to a case manager for help in obtaining home care or assisted in obtaining a nursing home placement.

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.

5. To ensure that home care services support but do not replace family caregiving and are managed in a fiscally responsible manner, the Commission recommends relying on case managers to develop and oversee individual care plans. Within a federally determined budget, case managers would be free to allocate a broad array of services, tailored to people's needs and preferences. The Commission recommends that benefits include personal care, homemaker/chore services, shopping and other support services, day care (for disabled adults and children), respite services, and training for family caregivers, as well as skilled nursing and rehabilitative care.

2. For people with long nursing home stays, few of whom return home, the Commission recommends a floor

6. Under the recommended plan, both federal and state governments would be responsible for financing and administering public benefits. The Commission recommends that the social insurance portions of the public program be fully financed by the federal government. The federal government and the states would share financial responsibility for long nursing home stays.

8. The Commission recognizes both the urgent needs of the currently disabled and their families for public support and the time it will take to build a long-term care system. The Commission therefore recommends that the plan be put into place a step at a time over a four-year period. The program would begin with limited home care benefits to relieve the burdens on family caregivers. Benefits would be expanded over the next four years, until full coverage is reached. Nursing home coverage would begin in year two. Payment rates would be increased gradually over the subsequent two years to ensure adequate supply and quality of service.

In administering benefits, the Commission seeks a balance between ensuring equal and adequate protection for all severely disabled, regardless of the state in which they live, and allowing flexibility to tailor services to diverse populations and communities. The Commission therefore recommends that the federal government contract with the states to administer the plan. The federal government would be responsible for setting guidelines and adequate standards for this administration. The federal government would certify assessment agencies and develop standardized assessment criteria, set guidelines for certifying case managers and establish their budgets (described below), set guidelines for quality assurance and appeals procedures, and determine provider payment rates. Within federal guidelines, states would develop and certify case management and delivery systems, certify providers, establish review and appeals procedures, and enforce quality standards.

9. In establishing a long-term care system, the Commission believes it essential to assess the effectiveness of treatment, delivery, and management of services, and to explore means to prevent the need for longterm care services.

The Commission recommends that the federal government move aggressively to contain costs and mitigate human suffering by funding a research and development program aimed at preventing, delaying, and dealing with long-term illnesses and disabilities.

Research should encompass special problems of minorities; the development of outcome measures and practice guidelines; and evaluation and innovation in assessment, quality assurance, and service delivery mechanisms, especially in care at home.

7. The Commission recognizes that financial support for long-term care can be effective only if it promotes and ensures quality of care. Furthermore, to be sustainable over the long term, a program must be designed in a way that controls expenditures. The recommended plan therefore includes several measures to ensure quality and control costs.

Beneficiaries and Costs of the Commission's Long-Term Care Recommendations

The recently enacted nursing home requirements would apply to the recommended nursing home coverage, and standards would be developed for care in the home.

Alongside these standards, the Commission believes that case management, an integral part of its recommended home care benefits, plays a critical role in ensuring quality and managing costs. The Commission recommends that case managers allocate services and monitor service delivery within a budget set by the federal government. This approach would ensure fiscal constraint and the capacity to tailor services to individual needs and preferences.

The Commission's recommendations provide a blueprint for developing a national long-term care system. Home and community-based care would be available and affordable. People who need nursing home care for short periods would have their resources preserved intact to return home. And no one would have to fear impoverishment if they end their lives in a nursing home. People would contribute to the costs of care for all services subject to their ability to pay. They would also have broader access to private insurance to cover these costs. All Americans would benefit from the new public program, for it provides everyone peace of mind in the face of longterm care needs.

The Commission further recommends that the federal government establish provider payment mechanisms and determine appropriate rates. Prospective payment systems can be used to ensure access to quality care, efficiently delivered, and to control spending for care.

But long-term care is expensive-averaging more than $2,500 per month for nursing home care and over $60 a visit for in-home support. We cannot build a system that ensures adequate service to people who need it merely by shifting around the dollars we spend today. New expenditures are required.

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nursing home care under the Commission's program, nursing home use is also expected to increase. Under the recommended program, about 1.2 million people a year are expected to enter nursing homes. All would receive some public support. People who would have used the nursing home at their own expense or spent down to Medicaid in the absence of the new program would save $6.9 billion in out-of-pocket expenses, or about $3,000 per user. Under the recommended new public program, all 1.2 million nursing home entrants would receive coverage for the first three months of nursing home care. For almost half of all entrants, or 528,000 people, the three-month social insurance benefit would cover their entire nursing home stay. The majority of "long stayers" (425,000 entrants) would have their assets fully protected. A minority (79,000 people) would acquire asset protection during their stay (see Figure 6).

Although people would no longer be expected to devote all their resources to long-term care before they could receive public support, all but the poorest would be expected to contribute to the costs of care. Under the Commission's recommendations, individuals could be responsible for cost sharing equivalent to as much as $12 per home care visit or—for short stays—$15 per nursing home day. For long nursing home stays, they would contribute assets and income above protected levels. The Commission recommendations would facilitate the purchase of private insurance to cover these expenses, through both assistance and oversight to ensure adequate policies and favorable tax treatment for policies purchased.

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For the severely disabled elderly, new federal spending would be split almost evenly between home care and nursing home care ($15 billion and $16.8 billion, respectively). For nursing home care, the floor of protection against impoverishment would cost about $11.3 billion; broader protection for short stays would cost another $5.5 billion. For younger severely disabled, most of whom live in the community, almost all new spending ($9 billion out of a total $11 billion) would go to home and community-based care.

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Thousands of Admissions per Year

The new program would serve some 2 million severely disabled elderly people at home every year, doubling the number who now receive paid support. For the 1 million people who would have purchased their own care in the absence of the public program, out-of-pocket savings in 1990 are estimated to be $900 million-about $1,000 per user.

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SOURCE: Commission staff analysis based on Brookings/ICF
Long-Term Care Financing Model.

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