Gerontology Institute Scholar Outlines Plan for Baby Boomers’ Long-Term Care

By Anne-Marie Kent

Long-term care is something most people would prefer not to think about, acknowledges Yung-Ping Chen, the Frank J. Manning Eminent Scholar’s Chair in Gerontology, in a recent Boston Globe op-ed piece. However, with 76 million aging baby boomers, Chen warns that the subject cannot be avoided for long. Costs are skyrocketing. Nationally, the average annual cost for nursing home care is $55,000, and $27,000 for home health care, each cost having risen at rates higher than inflation for many years.

The Massachusetts Legislature has passed a budget for fiscal year 2003 that reduces Medicaid spending by about 20 percent and eliminates coverage for about 50,000 long-term unemployed residents. Even without these cuts, writes Chen, costs for long-term care would be prohibitive. Heavy reliance on Medicaid, already the second-largest budget item in most states, is not viable.

“If government and the private sector would design better ways to pay for chronic care, more Americans might be inclined to plan for it,” writes Chen.

Chen points out that because only a small proportion of the elder population needs such care at any one time, this contingency is best protected by insurance. An insurance policy, he points out, enables the insured to accept a small but certain cost, or premium payment, as a means to avert a much larger loss. Currently, however, the role of insurance in funding long-term care is limited. Instead, personal out-of-pocket payments and Medicaid pay about 70 percent of the cost. “This system is unstable and unsustainable. New ways to provide funding must be found,” writes Chen.

Some propose expanding Medicare to include long-term care or creating a new social insurance program to pay for it. But, given the huge amount of resources needed to ensure continued solvency of Social Security and Medicare, it is doubtful, writes Chen, that there would be new tax revenue to pay for either option. Others promote private long-term care insurance. As an incentive, premiums for some of these policies are already tax deductible, but few people buy them.

“Alone, neither social nor private insurance will solve the problem. A new funding model is needed,” writes Chen.

“The government could create a social insurance plan to cover basic long-term care, to be supplemented by private insurance and out-of-pocket payments.” When these three sources fail to provide for some individuals, Chen explains, Medicaid would pick up the cost.

These are the same funding sources presently in use, but Chen’s model would deploy them differently. Chen advances the concept of tradable benefits in using existing resources. He explains that this type of trading already exists under the “cafeteria” or “flexible benefit” plan, a type of employee benefits program that allows workers some choice in selecting different types or levels of benefits within a fixed amount of employer dollars.

Chen proposes that the government could create a social insurance program for covering basic long-term care by using a small portion of Social Security benefits, exempting low-income individuals from the trade-off. “Exchanging income protection for long-term care protection would strengthen a person’s total economic security,” writes Chen. “In the private sector, industry could encourage more purchasing of long-term care insurance by linking it to life insurance or annuities, using the trade-off principle. For example, a person could buy a combination policy that pays long-term care benefits, if needed, by commensurately reducing life insurance benefits.”

Image: Yung-Ping Chen, the Frank J. Manning Eminent Scholar’s Chair in Gerontology, argues that insurance is the key to funding long-term care for aging baby boomers. (Photo by Harry Brett)

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