Long-Term Care: What Direction for Public Policy?
CRS Report for Congress
Long-Term Care: What Direction for
Carol O’Shaughnessy and Bob Lyke
Specialists in Social Legislation
Domestic Social Policy Division
Options to improve the financing and delivery of long-term care have been a
concern for Congress for some time. National spending for long-term care was almost
$160 billion in 2002, representing about 12% of all personal health care expenditures.
Almost half of this spending was from the federal-state Medicaid program, primarily for
care in institutions, while 20% came from families and individuals. Some people face
large expenses for which public assistance is unavoidable. The need for long-term care
is expected to grow substantially in the future. While the magnitude cannot be predicted
with certainty, total public and private spending for long-term care for the elderly alone
could double from 2000 to 2025, even assuming no expansion of public benefits. How
these added costs would be financed is unclear.
Issues for Congress include: how to pay for these escalating expenses; how to
apportion costs among individuals and families and the public sector; how to help
people get the services they want and can afford; and whether there are effective private
sector options for financing care. Although Congress at times has considered broad-
scale reform, it has primarily made incremental changes to current programs. Policy
directions suggested in the past range from additional incentives for private insurance
to broader social insurance protection, as well as expansion of home and community-
based services and assistance to caregivers.
A Growing Need
The need for long-term care — supportive and health services for persons who have
diminished capacity for self-care — is expected to grow significantly in coming decades.1
Almost two-thirds of the people receiving long-term care are over 65, an age group
expected to double by 2030. Even faster growth rates are anticipated for people over 85,
1 The need for long-term care is measured principally by assessing the assistance others must
provide with respect to activities of daily living (ADLs). ADLs usually include bathing, dressing,
eating, toileting, continence, and transferring from a bed or a chair.
Congressional Research Service ˜ The Library of Congress
the age group most likely to need care. Demand for long-term care is expected to grow
substantially in the future due to increases in longevity, the aging of the baby boom
population, and legal actions requiring states to expand home and community-based
services to persons currently waiting for publically funded services.
Figure 1. Long-Term Care Spending 2002,
Source: CRS calculations based on data from CMS, Office of the Actuary. Does not
include spending for hospital-based home health or nursing home care; does not
include value of informal care.
Long-term care is already costly. In 2002, $157 billion was spent on long-term
care services for persons of all ages, with almost one-half expended through the
federal-state Medicaid program. (Fig. 1). One-fifth of spending was paid by
individuals and families out of their own pockets; Medicare and private health
insurance paid for about 16% and 9%, respectively. The $157 billion does not include
the cost of informal caregiving provided by families.
While the need for care will climb in the future, whether it will grow as
rapidly as the number of elderly is less certain. The prevalence of disability among the
elderly has been declining over the last 20 years.2 If this trend continues, the elderly of
the future may be healthier, which may reduce their need for care. Even so,
improvements in the age-specific disability rates need to be sufficiently large to offset
projected large increases of persons who are older. Whatever the rate of growth,
increases in aggregate demand will likely drive up prices for care, though it might also
result in more efficient ways of providing services. While future need is difficult to
predict, total public and private spending for long-term care for the elderly could
double from 2000 to 2025, even assuming no expansion of public benefits.3
How these added costs will be financed is unclear. If economic productivity
steadily increases, the nation may have additional resources to spend on long-term
care, at least in the aggregate. However, because the population aged 65 and older is
growing faster than younger population, the ability of families to provide care and of
workers to finance it will be lessened. The shrinking worker/retiree ratio will make it
difficult to maintain Social Security and Medicare benefits at current levels, let alone
expand other programs for the elderly.
This dilemma — looming costs but uncertain financing — is not news to
policymakers. The demographic trends have been apparent for some time, as evident
in the long debate over the future of Social Security and Medicare. While their import
for long-term care has received less attention, reports of the congressionally-mandated
Pepper Commission (the U.S. Bipartisan Commission on Comprehensive Health Care,
Public support for long-term care occurs through a number of programs and
policies. Medicaid pays the largest amount, about $83.8 billion in FY2003 (from both
federal and state sources), over two-thirds of which was for services in institutions and
the balance for services in home and community-based settings. Medicaid spending
for long-term care almost doubled from FY1993 to FY2003. Medicaid has strict
financial eligibility tests, but people can qualify for assistance after depleting their
income and assets paying for nursing home care. Medicare financed $24.3 billion in
2002 for medically necessary, part-time skilled nursing and rehabilitation therapy
services at home, and for up to 100 days of skilled nursing facility care following
hospitalizations for individuals who need full-time skilled nursing care. Other federal
programs such as the Older Americans Act and the Social Services Block Grant
support home and community-based services.
Congress has also adopted a number of incremental changes that provide
additional forms of assistance and protections for people needing care:
2 Kenneth G. Manton, and XiLiang Gu. Changes in the Prevalence of Chronic Disability in the
United States, Black and Nonblack Population above 65 from 1982 to 1999. Proceedings of the
National Academy of Sciences, May 22, 2001.
3 The Lewin Group, Inc., The Long-Term Care Financing Model, for Dept. of Health and Human
!Home and community-based care. In 1981, Congress gave
authority to the Secretary of the Department of Health and
Human Services (DHHS) to waive certain provisions of
Medicaid law allowing states to provide a wide range of home
and community-based services for persons with disabilities of all
ages. In 2003, Medicaid spent $18.6 billion for these services,
primarily for people with mental retardation and developmental
!Services to family caregivers. In 2000, Congress authorized a
new state grant program under the Older Americans Act to assist
family caregivers. The program is funded at $163 million for
!Long-term care insurance. In 1996, Congress clarified the tax
treatment of long-term care insurance and allowed taxpayers
who itemize a limited deduction for premiums. In 2000, it
established a voluntary long-term care insurance program for
federal employees, retirees, and family members as an example
for other employers.
Advocates for people needing care express a number of concerns about current
federal policy. Medicaid eligibility and services depend in part on state policies and
financial support, resulting in disparate service patterns and eligibility criteria across
the Nation. While most people needing long-term care receive services in their homes
or community based settings, most Medicaid funding goes for institutional care.
While nursing home residents typically need more services than people receiving care
at home, many advocates argue that federal Medicaid policies have an institutional
bias. Some states have made significant strides to develop home and community-
based care, but service availability across and within states is uneven. In addition,
states are concerned about their ability to continue support for Medicaid long-term
care services as the population ages. Other programs administered by states, such as
the Older Americans Act and the SSBG, vary widely in scope. Long-term care
insurance helps only those who elect coverage.
Most long-term care is provided by families who receive little or no public
assistance. Almost 60% of persons age 65 and older receiving care at home or in the
community rely exclusively on unpaid caregivers, primarily spouses and children; only
who provide care frequently experience enormous strain.
Finally, advocates point to persistent quality problems, most evident in nursing
homes. Problems may also occur in smaller assisted-living facilities, group homes
and home care. Quality problems are partly attributable to shortages of trained
What Future Direction?
The growing need for long-term care and concerns about current policy raise
important questions about how services might be organized and financed in the future.
What role should the federal and state governments play? To what extent should
individuals and families pay for care? When should they pay — only when care is
needed, or through lifetime saving or payments for insurance? Are there effective
private sector options for financing care? Should families providing care receive tax
relief or grant assistance? Who should provide care, and in what settings? What
standards are desirable, and how can these be assured?
As it considers these questions, Congress might continue making incremental
policy changes like those of the past two decades. On the other hand, incremental
changes may not be sufficient to prepare for the large increase in future needs.
Demand for care may rise so sharply that programs currently in place will not be
adequately financed. Larger, more comprehensive change may be needed.
Whether small or large steps are taken, Congress might consider the different
directions described below in developing long-term care policy. None of these
directions need be exclusive, and all might be combined to some degree. But the
approaches differ in objectives, as well as in degree and type of government
Assistance to families. Long-term care is expensive, particularly for
prolonged periods, and few families can afford to pay costs out of current income. On
average, a year’s nursing home charges can range from $60,000 to $70,000. Some
families are forced to spend down assets quickly, becoming eligible for Medicaid. If
families could save more over their lifetimes, these problems might be alleviated, at
least for those with the means to save. Policies to encourage saving might include
encouraging use of recently authorized Health Savings Accounts or permitting more
flexible, tax-advantaged withdrawals from pensions and individual retirement
arrangements. However, savings accounts typically do little to help taxpayers with
lower incomes, and their effectiveness in encouraging new savings has been
questioned in some economic studies.
Long-term care insurance might be the better solution for some families. The
number of policies sold increased during the last decade, reflecting growing consumer
interest and more governmental oversight. However, long-term care insurance can be
expensive if purchased at or near retirement (premiums generally are based upon the
age when policies are acquired), and many find it a difficult product to evaluate. More
families might obtain the insurance if taxpayers were allowed to deduct premium costs
(whether or not they itemize), as some have proposed. Some argue that the cost of the
tax deduction to the federal treasury would be offset by future Medicaid savings, but
such offsets are speculative.
Encouraging families to finance more of their own long-term care through tax
incentives is appealing to those who prefer not to expand government programs. It
would likely save some public costs as well, though some object that public subsidies
to encourage savings or insurance may largely help families preserve assets, not pay
for care. The principal issue with this approach is whether families will actually
anticipate the costs they might incur and save enough to cover them or purchase
insurance. Some families, particularly those with lower incomes, may be unable to
save enough even for short periods of care. Many believe that consumers should be
educated about the need to plan for long-term care as they age.
Expanded home and community-based care. Most long-term care is
provided informally in the home or the community, not in institutions. Moreover, the
home is where most people want to stay, even if they have significant physical
limitations. However, home care can be burdensome for family caregivers if needed
for a prolonged period of time for highly impaired individuals. There also are
significant economic costs to caregivers who must curtail their own employment.
Proposals to recognize these burdens and costs in the tax code have included giving
caregiving families a tax credit or an additional personal exemption.
Some argue that home and community-based care merits increased public
program assistance. One option would be to give this care the same access to
Medicaid funding as nursing homes now have. Nursing home care is an entitlement
under Medicaid for persons who meet state financial and functional eligibility criteria
while home and community-based care is primarily supported through Medicaid
waivers of granted by DHHS. Another option might be to establish a new grant
program to states or add funding for existing grant programs. However, these
approaches might result in more people receiving public support than at present, thus
increasing federal costs.
Broaden social insurance. Current policy provides limited social
insurance for some long-term care services. Some argue that a new social insurance
program is needed to cover long-term care expenses. Models include systems adopted
in Germany in 1995 and Japan in 2000. One advantage of social insurance dedicated
to long-term care would be that coverage could be universal (at least for those who
met a basic eligibility test, such as that for Medicare). On the other hand, if insurance
were funded through a payroll tax, the trust fund could be inadequate to provide
benefits to those already near old age. Another concern might be that social insurance
would reduce the likelihood that families would save or buy private insurance.
One advocacy group, Citizens for Long-Term Care, argues that need for long-
term care is insurable and should be considered as part of reforms in Social Security
and Medicare financing.4 Even if long-term care benefits were not expanded under
these programs, policymakers might take into account how both programs affect
people who need long-term care. Medicare payments for health care, for example,
have significant indirect effects on families’ ability to pay for long-term care; without
health care coverage individuals would have less income and assets to pay for long-
term care. Similarly, long-term care costs affect perceptions of the adequacy of Social
Medicaid’s coverage of long-term care might be expanded by extending
coverage to people who have higher income or more assets than current tests allow and
requiring persons to pay premiums and cost-sharing (as is the case in certain state
optional Medicaid programs, such as for working persons with disabilities under the
Ticket to Work program). However, policymakers may be more concerned about
containing, rather than expanding, long-term care benefits. Medicaid expansion may
be limited by sharply rising health care costs and the fiscal constraints state
4 Citizens for Long-Term Care, Defining Common Ground: Long Term Care Financing Reform
in 2001. Washington, D.C.
governments face. Medicare expansion may be limited because of rising health care
costs and the recently authorized prescription drug coverage.
Hybrid strategies. Some observers argue that long-term care policy should
include a mixture of the approaches outlined above, combining some aspects of
incentives for private financing as well as public financing. Hybrid strategies might
build on current programs and initiatives, expanding some and strengthening others.
One rationale for hybrid strategies is that they can better respond to the diverse needs
and circumstances of people who need care — for example, those with varying income
and assets and impairment levels, and those with and without informal caregivers.
Another rationale is that it may be easier to reach consensus for a combination of
strategies than for one approach. However, hybrid strategies may have internal
conflicts — incentives for one program may be undermined by incentives for others,
and coordination of programs may be a continual problem.
One hybrid strategy proposed by the 1990 Pepper Commission was to combine
an expanded federal commitment for nursing home and home and community-based
care with cost-sharing by individuals and incentives for private insurance. Social
insurance would cover home and community-based care and the first three months of
nursing home care, with cost-sharing from individuals based on ability to pay. For
longer nursing home stays, the Commission recommended a floor of asset protection
($30,000 for individuals and $60,000 for couples, excluding homes, in 1990 dollars).
Persons wanting additional asset and income protection could purchase private long-
term care insurance.