Long term services and support (LTSS) primarily refers to personal care services that include home help, care in nursing homes and assisted living, as well as day care.
Of the 13 million Americans that need long-term care, only 13 per cent have received help in paying for these services. The situation is set to become even more challenging, as the proportion of Americans over the age of 65 is expected to double from 2008 to 2050, and the proportion of over 85s is likely to triple.
‘The development of a private insurance market is slow, only providing cover for barely 12 per cent of elderly, generally higher income and educated Americans’
Most European countries (excluding Germany, Belgium and the Netherlands, where a social insurance format is in place) have limited public (and almost non-existent private) insurance entitlement to pre-fund such care needs.
But even in market linen countries such as the US, the development of a private insurance market is slow, only providing cover for barely 12 per cent of elderly, generally higher income and educated Americans, who are aware of the costs of long-term care later in life.
The largest share (43 per cent) of the costs is paid by Medicaid, a means-tested and tax-funded scheme to pay for long-term care of the poorest Americans.
So, the US is not that different from Europe in the funding of long-term care. In the UK, taxes pay for the public after needs and means tests. In some European countries, such as Spain, a partnership of both regional and central government provides only needs-tested support (only covering severe dependency).
Other examples of tax funded care systems can be found in Scandinavian countries where universal local taxes and are the main source of funding, though with income dependent user charges.
Nonetheless, together with government, the main funder and provider of long-term care both in the US and in Europe is the family. Yet their ability to continue providing care is limited given the extent of family mobility – it is not uncommon for children to live in a different state to their parents.
The Congressional Budget Office estimates that the cost of informal care to the elderly exceeds the Medicaid long term services spending budget; and the percentage of individuals aged 70 or over receiving informal care has actually grown over the past decade.
In addition to informal care, there is vast self-insurance in the form of housing assets (to be downsized in the event of needing long-term care) as well as savings and other investments.
However, the uncertainty about the future costs of long term care makes self-insurance a very imperfect source of funding given that Americans are saving too little. Based on a average wealth of $200,000 per US household, chances are that most Americans cannot self-insure when old age dependency hits a couple for more than one year.
The latter is especially the case for catastrophic long-term care spending (more than three years of nursing home care), which affects 5 per cent of the population who incur annual costs of $260,000 or more (bear in mind that average annual costs of institutional long-term care ranges from $40,000 for assisted living, $80,000 for a nursing home, $18,000 for day care and $30,000 for home help).
So what have we learned so far?
- Given that most wealth is in housing assets and housing, wealth from 2007-9 has declined by 17 per cent. Only the top 20 per cent of the population can realistically absorb the costs of old age dependency.
- Private insurance for long-term care will continue to play a modest role, mostly catering for relatively affluent population cohorts.
- In the absence of people having enough private savings, government means-tested bailout through Medicaid becomes of central importance, despite it having been designed to only have a residual role. Yet, pressures to keep state balanced budgets tight are likely to set a limit to its growth (otherwise education and other pressing social policy monies will have to be sacrificed).
In the meantime, evidence suggests that without reform, the US health system will continue to exhibit spells of inefficiency due to the proliferation of avoidable hospital readmissions of those without access to affordable care. We can therefore conclude that there is an urgent need for reform.
The CLASS programme (a provision of the Affordable Care Act) proposed a voluntary social insurance scheme that was deemed financially unworkable on a 75-year timescale in the midst of the Fiscal Cliff Bill. Hence, probably this will be a high priority in the next decade.
The chances are reform is going to be incredibly challenging. There is no taste for another mandate, instead interventions are likely to focus on increasing public awareness in early life and subsidising the uptake of employer-sponsored insurance.
There are examples of community insurance (eg: Minnesota public employee insurance), which exhibit almost twice the insurance coverage of the country’s average. From a process perspective though, it will have to be seen as non-partisan. That said, given the European demographics, long-term care is one area where the US can wait and see how Europe fares.
The Commonwealth Fund’s Harkness Fellowships allow health services researchers and practitioners to conduct original research in the US. The UK Harkness Fellowships are supported by the Nuffield Trust and the National Institute for Health Research. Find out more and apply now. This article also appears on the Nuffield Trust blog.