John Cutler
Senior Policy Analyst, US Office of Personnel Management, The views expressed are my own and not in any official capacity

Bruce Chernof, Chair
Mark Warshawsky Co-Chair

September 2013

Dear Bruce and Mark and Members of the Commission:

Congratulations on an outstanding job in a short amount of time.  I’m one of those people who think it will work out well in the end since I’m not sure more time would allow you to solve the political difficulties of getting to consensus in the current environment.  Only when Congress views it as necessary to “own” this issue will there be substantial movement even though many things can be done by the Administration on its own if shown the way.

Having said that, there are many ideas you can throw out to them to hopefully get some small efforts moving forward.

Perhaps because I come at these long term care (long term services and support) issues from a financing perspective I will over-emphasize the need to concentrate attention on those sorts of solutions.  However, I also believe that if you could get a couple more dollars an hour to direct service workers the shortage there would be ameliorated.  And higher reimbursement rates for Medicaid facilities would help the quality and access issues there.

Rather than write a long letter reciting all the things everyone knows, let me jump into ideas that might help shape the issues.

First off, there is a lot of money in Medicare, Medicaid and various other programs as well as private resources (including insurance).  Realigning that might solve a number of issues.  And it is not that this is not happening.  The dual eligible initiatives coming out of CMS are steps in the right direction, and all done administratively.  In the previous Administration there was Money Follows the Person and the efforts to align disability and aging services. We may be missing the fact that reforms are underway even as we worry no one is addressing these issues.  But it is piecemeal so a more ordered approach would be better.

Second, people DO plan.  They may not plan by buying long term care insurance but they do plan by buying life insurance, putting their money into IRAs and 401Ks and even scrimping so they can buy a house.  Given that only a small number of people specifically plan for long term care needs the obvious solution here is to allow people to better tap these other resources.  You may have heard that in a number of states the Medicaid agencies encourage the sale of life insurance policies.  The life industry opposes this because they have factored in certain assumptions about lapsation.  An obvious regulatory solution would be that life policies be sold with the assumption they will be used for long term care (including Medicaid). That would avoid rate increases that we have seen on the long term care insurance industry.

Add in IRAs and 401K plans; these can be tapped now without penalty in the case of a permanent disability.  The law should be changed so that the HIPAA triggers for long term care are also an acceptable reason to access these products without the tax penalty.

I’ll leave it to others to address how housing equity can be brought to bear easier but those assets are available now without any making a long term care plan.  They can and should be made an explicit part of the solution.

To summarize: products that exist today in the private universe have not been made fully accessible from a public policy standpoint.  Life insurance and retirement accounts (as well as housing) can be better structured so they can be tapped at the point people need them, thus solving the need for people to explicitly plan for long term care.

Third, long term care insurance.  As one of the architects of the Federal Long Term Care Insurance Program (but speaking only for myself and not in any official capacity), I endorse the varied efforts to make it easier for people to buy LTC insurance (for instance standardized plans or a national long term care insurance program).  I do so not just because it is people taking money voluntarily out of their own pocket to protect themselves.  But it is also that these products move money across time, from the present when the person has the resources to the future when they need to tap them.  By contrast, government programs mostly operate like health insurance in that they cover a set of risks over the course of a year and then adjust rates the next year, usually higher.  The value of these programs supposedly lies in the pooling of risk.  However, that by itself does nothing to stem cost increases.

But long term care insurance – and similar products such as life insurance — incorporates the concept of the time value of money.  One of the most powerful ideas is the ability to put aside a little money over a long period of time and have it yield large returns.  There is no reason social insurance programs such as Medicare and Social Security could not do this.  (In fact most people think they do.)  But it would require higher taxes now to pre-fund a program restructuring like that and we have not been willing to do this in government programs.  But private insurance routinely does just that.

Fourth, there is room to propose new ideas; big ticket ideas.  Without ideas there will be no progress in addressing long term care needs. There is room for more integration of public and private programs both within themselves as well as across products.  I believe continuing to field ideas in those arenas will ultimately yield results.


John Cutler

Posted on: September 5, 2013

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