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Long-Term Care Financing in the Twenty-First Century: The Public and Private Roles

As policymakers consider potential options to finance long-term care services and programs for the baby boom generation, Mark Merlis, of the Institute for Health Policy Solutions, explores the benefits and drawbacks of a number of private and public financing strategies. In his Commonwealth Fund-sponsored report Financing Long-Term Care in the 21st Century: The Public and Private Roles, Merlis focuses first on Medicaid, which serves as a safety net not only for the poor but also for middle-income people facing catastrophic long-term care costs.

The author notes that different states will see widely disparate increases in their elderly populations and in demand for long-term care services. One consequence, he predicts, may be pressure to federalize the Medicaid program or otherwise redistribute the long-term care burden among states.

Another option Merlis describes is pooling long-term care risks through greater reliance on private insurance. He explains, however, that most people are unlikely to buy long-term care insurance when they are younger and can most afford it, and that private coverage would not make a substantial dent in future public costs anyway. In addition, premiums do not vary by income-if growth of private coverage meant that fewer middle-income seniors relied on Medicaid, the result might be a dual system of care, with diminished quality for the population left relying on Medicaid.

An alternative, he suggests, might be a social insurance program, under which every American could make a fair contribution to a universal pool. This type of program could promote uniform quality standards and improved coordination between acute and long-term care services. One barrier to such a program, however, is cost. Given current concerns about Social Security and Medicare, policymakers might be reluctant to create another open-ended entitlement program.

Merlis suggests that a private sector role could be preserved under a system similar to Medicare, whereby beneficiaries choose between the public fee-for-service program and various private health plan options. Similar options could be made available under a social insurance system for long-term care, or Medicare plans themselves could administer the long-term care benefits. As in the current Medicare program, however, private long-term care plans under this model would not, like long-term care insurers, accumulate over time the funds ultimately used to pay benefits. Instead, they would receive government payments for furnishing and managing services.

Facts and Figures

  • Approximately 80 percent of elderly people receiving long-term care live in the community. The vast majority are cared for by family members or by friends or neighbors.

  • To qualify for Medicaid, the medically needy must first ""spend down"" their assets by paying for their long-term care until their assets have been reduced to the state's limit, usually $2,000.

  • Thirty-six percent of people age 45 living in the community in 1995 can expect to enter a nursing home at some point in their lives.

Publication Details



Long-Term Care Financing in the Twenty-First Century: The Public and Private Roles, Mark Merlis, Institute for Health Policy Solutions, The Commonwealth Fund, September 1999