Long Term Care Is Becoming a Crisis In The U.S.

Long Term Care Is Becoming a Crisis In The U.S.

Last year the Kaiser Family Foundation (KFF) surveyed about 1,500 adults regarding their financial preparedness for Long Term Care (LTC). The results were sobering. Less than 40% of the respondents were prepared to cover the cost of help with the various activities of daily living (dressing, bathing, eating, etc.) if needed. And only 28% of those over age 50 have set aside enough money for LTC. There was also confusion about government support for LTC costs with over 40% of seniors incorrectly expecting Medicare to cover them.

A primary reason is that the U.S. spends a smaller share of gross domestic product (GDP) on LTC (1%) than do all other developed countries except Spain & Italy (source: Organization for Economic Cooperation and Development). While affluent and middle-class citizens in all countries are expected to bear a substantial portion of the costs, in the U.S. the bulk of the funding is provided solely by private insurance. And it’s voluntary, making it difficult for the industry to achieve economies of scale over coverage costs.

How is LTC supported elsewhere? Jordan Rau at KFF Health News reported on the different approaches taken in several countries:

In Japan half the funding for LTC comes from tax revenues and half from insurance, which is mandatory for all citizens age 40 and over. Older adults contribute up to 30% of the cost of services, depending on income, and insurance picks up the rest. The government also assigns a care manager to every individual requiring LTC help. Total spending amounts to about 2% of GDP.

In the Netherlands LTC has been a part of the universal health care system since 1968. There is no private LTC insurance. Different public insurance programs cover different LTC delivery options (e.g. one for nursing homes and another for home care). Taxpayers are required to contribute 10% of their income toward insurance premiums, while out-of-pocket payments for LTC are as low as 7% of the cost of institutional care. The Dutch spend more than 4% of their GDP on LTC.

LTC in Canada and in the U.K. is funded through provinces and municipalities via local tax revenues rather than by the federal government (although some federal funding is provided in the U.K.). Both countries’ programs are means-based, with much of the subsidies targeted to lower-income citizens similar to the way Medicaid works in this country. Unlike here, subsidies are paid directly to citizens rather than to the healthcare providers. The British additionally allow taxpayers to shield much more of their wealth before qualifying for government support as compared to the U.S. Both countries spend almost 80% more on LTC than the U.S. does.

While no country seems to have come up with the ideal model, there’s no question that LTC represents a major financial risk for American seniors. Genworth, once one of the largest LTC insurers in the country, recently lost a lawsuit brought by policyholders for failing to communicate in advance huge premium increases – in some cases over 50% – which the insurer ultimately imposed after purchases were made. As a result Genworth has stopped offering LTC insurance in many states (including California). And they’ve warned current policyholders that premiums could double or triple in the coming years.

Some state governments are trying to address the problem by introducing their own form of LTC insurance. If the Washington state program is any indication, success is likely to be elusive. But until someone comes up with a viable alternative (or fixes the current system), many Americans remain at greater risk of financial catastrophe in the wake of an LTC event than most of the citizenry in the rest of the developed world.

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