The long-term care insurance market is a disaster. Can Washington state offer a better path forward?
(Photo by Joe Raedle/Getty Images)
A year from this summer, the state of Washington will launch the country’s first fully fleshed out public insurance program for long-term care, the missing component in complete coverage for its residents’ health care needs. It will be a very big deal. Paying for long-term care has always been a challenge for families, and over the years a few states have tinkered with such programs. None have succeeded in providing and funding one. Meanwhile, the once-lauded private market solution of long-term care insurance has encountered insurmountable problems: Most Americans can’t afford it, with premiums now running several thousand dollars a year.
Dr. Benjamin Veghte, who heads Washington’s new long-term care program called WA Cares, says that as of 2019 roughly 3% of working-age Washingtonians and only 7% of all Americans nationwide have long-term care insurance. That’s compared to the 70% of the state’s residents over 65 who will need long-term care at some point, according to the program. The rich can afford to buy it, and the poor qualify for Medicaid, so “the policy problem has been how to cover the broad middle class against this risk,” Veghte said.
State policymakers now think they have a solution. Beginning in July 2023, almost all Washingtonians would be enrolled in WA Cares, a social insurance program like Medicare and Social Security that is funded over time by those who eventually become eligible for the $36,500 lifetime benefit, adjusted for inflation. Families can use the money for any kind of long-term care expense, though Veghte says most people will use it for home or other community-based care, which is what people typically prefer. Some families, he says, may even be able to stretch that benefit over 12 to 18 months. “It’s a modest but critical benefit because it prevents a crisis and gives a family time to catch their breath,” Veghte said. “That gives them time to consider all their options," he added. “Ninety percent of people who need care get home care or care in the community. Most don’t go to a nursing home.” Cathleen MacCaul, AARP’s advocacy director in Washington state, told me, “We have an incredible system of home and community-based care, and we had the option to expand those services.”
It’s also easy to see why that’s a good idea when you consider the cost difference between institutional care and care at home. The median annual cost of a nursing home stay for a semi-private room in 2021 was $93,600, or $106,920 for a private room. By contrast the median cost of a home health aide was $27 an hour. Many people don’t require round-the-clock home care and can manage with some in-home support, which keeps them out of nursing homes (an option that lost popularity, particularly during COVID-19).
Washington residents will be eligible for the program’s full benefit after paying premiums for 10 years, but the law will allow people who are nearing retirement and born before 1968 to access a pro-rated benefit based on each year they worked.
(The premium, which is set at 58 cents per $100 of income, is paid like Social Security taxes, but unlike Social Security, there’s no employer match.) The median earnings in Washington in 2019 were $52,000, meaning a person with those earnings and covered by the plan would pay about $302 a year, a relative bargain considering how much long-term-care insurance costs. Said Veghte, “when you compare an annual premium of $302 to $2,706, the average cost of a long-term care policy in 2020, obviously this is more affordable.”
“It’s a modest but critical benefit because it prevents a crisis and gives a family time to catch their breath.” — Dr. Benjamin Veghte, director of WA Cares
The state allows a few groups of people to opt out of WA Cares: people who live out of state but work in Washington; some farmworkers; military spouses; and some disabled veterans. Anyone who had long-term care-insurance before November 2021 can also opt out, but eventually virtually everyone will be covered and eligible for a benefit. One challenge going forward is portability — how do you pay benefits when someone moves to another state? That issue is being studied, Veghte says. Another hurdle for the state is a legal challenge alleging that the program violates ERISA, the 48-year old law designed to regulate employer-sponsored pensions and other benefits such as medical plans.
Washington’s effort to provide a long-term care benefit for its residents takes on even greater importance to the extent that it could serve as a model for the rest of the country. The long-term care insurance plans offered by private companies have not become the solution that the industry, government officials, and the financial press had initially hoped for. The Robert Wood Johnson Foundation (RWJF), a prominent health philanthropy (and a supporter of Center for Health Journalism’s National Fellowship), tried to jump start the sales of long-term insurance in the 1980s by creating so-called partnership policies initially in four states — California, Connecticut, Indiana, and New York — that had to meet certain criteria and were considered better quality products. If someone with a partnership policy becomes eligible for Medicaid after using insurance benefits, they could avoid having to spend down other assets to pay for care (the person must still be eligible for Medicaid under the income requirements of their state). Later more states joined, and some like Connecticut and Indiana are still selling policies, although in Connecticut only two companies out of the 25 or so that once sold policies remain.
In short, the partnership did not succeed in blanketing the country with high quality insurance products. “Plans were costly and there was no marketing behind them other than a few articles, so there was no awareness,” said Jesse Slome, executive director of the American Association for Long-Term Care Insurance. RWJF’s senior policy adviser Katherine Hempstead told me by the time she got to the foundation in 2012, “we were done with nursing homes and long-term care stuff. … I don’t think anyone thinks that long-term care insurance can be part of the solution. It’s not a healthy line of business and not able to make a meaningful contribution to the unmet need for long-term care services and supports.”
It’s a story I know well. I wrote three stories about long-term care insurance for Consumer Reports, in 1988, 1991, and 1997. Those stories offered stark warnings about what could happen for people in those policies, many of which we determined were underpriced. In 1991, Consumer Reports cautioned “against buying a policy only because the premium is affordable” noting that such policies may offer “inferior coverage and its premiums may increase when you can least afford to pay more.” In 1997, the magazine reported “we believe that some insurers will be forced into significant price increases” and warned consumers to make sure their budgets could “accommodate increases of at least 50%.” That’s what’s happening today. Policies were underpriced, companies’ investment income has been lower than expected, people are staying in nursing facilities for longer periods, and those who bought in years ago are hanging on to their policies as they age. “Obviously this kind of insurance is a failure if the companies have to keep coming back and say they need more money and raise their premiums, which happens at the worst times in policyholders’ lives,” said Bonnie Burns, a training and policy specialist with the Medicare counseling nonprofit California Health Advocates who has watched the evolution of these insurance products for more than 40 years.
To understand the magnitude of today’s rate increases, I checked in with the Indiana Department of Insurance. Recall that Indiana was one of the states offering the partnership long-term care policies. The increases carriers were requesting in 2021 are staggering, as much as 401% for a Continental General policy; 281.8% for a Trans America Life policy, and 237.5% for one of Metropolitan Life’s contracts. Jeff Johnston, managing director at the National Association of Insurance Commissioners, told me some state regulators are inclined to grant such large rate increases, but others are not. “Everyone recognizes more premium dollars are needed to pay future long-term care benefits,” said Johnston. “To the extent that’s not achieved, that puts pressure on the companies.” That can lead to insolvencies, which produce other headaches for policyholders.
This broader market failure draws us back to the state of Washington. “The private market has suffered failure by all standards,” said Dr. Marc Cohen, co-director of the LeadingAge LTSS Center at the University of Massachusetts Boston. “The reason states are looking into this is the growing burden of Medicaid on their budgets.” Still, Cohen is realistic about the challenges of adopting any new social insurance program. He told me, “When the costs of doing nothing are perceived to be greater than the cost of doing something, then something will happen.” Something promising is clearly happening in Washington state. We’ll have a better sense of how well it’s working by next year. But for aging adults elsewhere, the question is: How much longer will they be willing to wait?
Clarification: This post has been edited to make clear that 3% of working-age Washington state residents had long-term care insurance in 2019 — the figure has since increased.
Veteran health care journalist Trudy Lieberman is a contributing editor at the Center for Health Journalism Digital and a regular contributor to the Remaking Health Care column.