AARP's answer to long-term care insurance.

Advocates for significant expansion of private long-term care insurance may have a problem on their hands: an organization representing some 34 million older Americans says they don't want it. As this issue of NURSING HOMES went to press, the American Association of Retired Persons was putting the finishing touches on a "social insurance-type" health care plan aimed at covering all Americans through either an expanded Medicare program or matching employer-based plans. There would be broadened benefits (including long-term care), modest coinsurance and deductibles, and a not insignificant price tag in new taxes. And, says AARP, its members apparently support it in overwhelming numbers. AARP is so committed to this that its brochure states, "Although AARP derives considerable revenue from providing health insurance to members, the Association will gladly forego every penny of it in exchange for a national health care system that guarantees universal access to quality care, real cost containment, and a way to pay for care that is broad-based and fair." Recently, Editor Richard L. Peck asked AARP's top lobbyist, John Rother, and legislative representative Howard Bedlin to explain their "social insurance" approach to long-term care coverage -- the plan that they contend has a chance of becoming reality in 1993.

Peck: Would you bring us up to date on the status of your plan, Health Care America, today?

Rother: As of now <late January> it has gone through an very extensive number of briefings for our members and an unprecedented polling of their opinions. The response has been amazingly favorable -- and 8 to 1 majority in favor, representing a randomly-selected group of members of all ages. Because of the sampling technique, we think that this is representative of our 34 million members, with a few points margin of error either way. This kind of response was surprising, considering that we spelled out in specific detail the coverages, limitations, and new taxes needed. But our findings are that people are willing to see their own taxes increase, provided that the benefits package is a meaningful one (including long-term care) and that the tax burden is spread equitably.

The tax options that we offered were a 3% increase in the income tax (exempting the first $15,000 for individuals and the first $20,000 for couples) or a 5% value added tax on purchases other than food, housing or health care, with rebates for low income. Each would raise about $90 billion in new revenues.

There is a caveat, of course: Our members were surveyed with the plan in front of them and no one standing at their shoulders trying to tear it down. It stands to reason that the favorable majority would be reduced somewhat in the context of a national debate. But we still find a very high level of receptivity to new revenues for health care if they are dedicated, broadly-based, and deliver the benefits that people really want.

Peck: What is your view of the private long-term care insurance approach?

Rother: We think that the best approach is one that covers everyone, is cost-effective with low administrative overhead, and can fit into a budgeted health care system. Private long-term care insurance is incapable of any of this. Even its champions admit that it won't cover everyone, primarily because of affordability. Also, it is far more expensive to market coverage on an individual basis as opposed to covering everyone, as with Medicare or Social Security. There is inherently a tremendous savings here in overhead. You don't have to build up tremendous reserves, you don't have to price the coverage anywhere nearly as high, you don't have agents' commissions accounting for 10 to 60% of the first year's premium. These are unnecessary and wasteful expenses -- the kind of thing we're trying to get rid of on the acute care side, and we don't want to see them emerge on the long-term care side.

Peck: Does private insurance have any role, in your view?

Rother: Our proposal for long-term care continues personal responsibility for room and board, adjusted for income and capped at $932 a month. There may well be people who will want to insure for this. But this would be optional, a supplement to our social insurance-based approach.

Peck: What is your view of Medicaid-sponsored long-term care, especially with the enormous pressure that it is putting on state budgets throughout the country?

Rother: We have to remember that it is not only long-term care that is generating this pressure. There has been a steady growth in the unemployed, the number of people unable to afford private insurance, and the number of people who have spent down to Medicaid eligibility.

Peck: And of wealthy people transferring assets?

Rother: I'll defer to Howard Bedlin on this.

Bedlin: Yes, there's been a lot of press on this issue, but to date it's been almost purely anecdotal. There are no good data as yet demonstrating whether this is a significant problem. We do know that the vast majority of nursing home residents were low-income to begin with or have spent down to that level. The General Accounting Office is conducting an analysis of "Medicaid planning" that we hope will, by the end of the year anyway, shed some light on what's really happening with this.

Peck: Have you seen intense pressure from the states on Congress to do something about long-term care?

Rother: It would be difficult to say that the states have been very effective as yet in bringing this to the attention of Congress. We would like to see the states become more aggressive in pushing for a Federal solution, but as of now there hasn't been the kind of effort one might expect on this. Maybe the states have been traumatized from the last few years when it was clear that there was no relief coming. But their only solution, in our opinion, is a more rationally structured program -- a social insurance approach.

Peck: Why do you find the social insurance approach preferable?

Rother: For the reasons we've discussed--everyone is covered, it's affordable, there is minimal overhead for marketing, it can assure continuity of care...

Bedlin: ...and insurance companies are trying to minimize their risks. People with prior conditions are uninsurable, people over 85 are uninsurable, people in their 70s have to pay very high premiums.

Peck: What about middle-aged and younger people?

Rother: Private insurance is more affordable for them, but they have other, more pressing concerns, such as buying a house or putting their kids through college. Maybe, if we were all rational economic actors, we'd all have life insurance, disability insurance and maybe even long-term care insurance. But the studies I've seen indicate that only a small percentage of middle-aged and younger people would even consider purchasing private long-term care insurance.

Bedlin: The average purchaser's age is still around 70, so there hasn't been much market penetration beyond that as yet.

Peck: There is the argument that if such policies were more publicized and promoted and if certain legal problems were solved, private policies would be viewed more favorably.

Rother: And that might get you from 1% to 5% of the population purchasing coverage. But our concern is with the other 95%. Remember, too, that about one-third of the population requiring long-term care is under age 65, and includes children. I don't think private policies will ever be the answer for people with traumatic head injuries, developmental disabilities, and so forth.

Peck: Let's take up a few more arguments from opponents as to why a social insurance approach "will never happen." The budget deficit.

Rother: You need money for health care, whether it's premiums or taxes. It's funny to hear people say that we can't bear any more taxes, but they want to sell you a policy costing over $1,000 a year. We've already discussed the receptivity of our membership to new taxes if they purchase real value and are fairly based. We have estimated that it will take $112 billion in new taxes to provide comprehensive health and long-term care to everyone, but this will be significantly offset by reduced out-of-pocket expenses for insurance premiums, coinsurance, deductibles, and other costs. The true added cost would be about $22 billion the first year, with savings achieved in following years due to a budgeted approach.

Peck: What about the competing demands of acute care, with 36 million uninsured, and that "needing to be fixed first"?

Rother: There are 250 million who are uninsured for long-term care and that needs attention, too. President Clinton is on record as favoring improved long-term care coverage, particularly expansion of home and community-based services, and we have been working closely with some of his advisors to turn his campaign pledges into law as part of a comprehensive health reform bill.

Peck: If action is taken first on home and community-based services, doesn't that mean that nursing homes will have to wait for something positive to happen?

Rother: I think a workable health plan needs to encompass the full continuum of care. However, given that Medicaid long-term care coverage is so heavily biased toward nursing homes, with virtually no support for home and community-based care in many states, I think most people's preference is to build up capacity on that side to begin with. It's a matter of balancing the scales.

Under our plan, though, there would be a much more adequate level of reimbursement for nursing homes, because we're not talking about a welfare program anymore, or about a system in which some residents have to be charged more to make up for shortfalls with others. This is a universal program, with everyone receiving reimbursement sufficient to provide quality care. Nursing homes would be much better off with this than with a welfare program like Medicaid.

Peck: Some would say that "social insurance" is somehow un-American in concept. Your thoughts?

Rother: That's just wrong. The most popular program in this country is Social Security, and that's a social insurance program. The second most popular program is Medicare, and that's social insurance. Most people think that social insurance embodies the values that we share as Americans, in that it involves benefits based on earned contributions, self-funding, universal participation, and sensitivity to low-wage earners who need greater returns on their contributions. I don't think anyone today could say with a straight face that Social Security is un-American. We went through that debate in the 1930s.

Peck: Back to 1993, do you see anything happening with health care reform this year?

Rother: It's our top legislative priority. We want comprehensive health care reform enacted in 1993, and we want it to include long-term care. And, we know from our polling that this is what the American people want, too.