The power of seven well-chosen words.

Those in quest of meaningful long-term care legislation at the federal level take note: Sen. Larry Craig (R-Idaho), chairman of the Senate Special Committee on Aging, has proposed enacting a major reform in how Americans pay for long-term care--and he would do it using only seven words. He proposes, specifically, to amend two brief clauses in the OBRA legislation. The name of his bill--the Long-Term Care Insurance Partnership Program Act of 2004--is longer than the number of words he proposes to change.

Craig's bill, also known as S 2077, would change two clauses of Section 1917(b)(1)(C) of the Social Security Act. In one clause, it would substitute the word "shall" for "may." In the next clause, it would delete the reference to a specific date in the phrase, "State plan amendment approved as of May 14, 1993."

These apparently obscure word changes would restore the power of states to enter into long-term care partnerships with private insurance companies. The purpose of these partnerships is to encourage more consumers to purchase private long-term care insurance to cover their obligations before state Medicaid funding kicks in. Under the terms of the partnerships, states agree to pay for long-term care expenses after a private insurance benefit has been fully spent. The state also promises to protect from spend-down an amount of patient assets equal to the amount of the benefit.

Operation of such a partnership is less complicated than it would appear. Consider a retiree with $150,000 in savings and disposable assets, who has purchased a long-term care insurance policy that provides $110,000 in benefits for two years of care. Under the terms of state partnerships, when the retiree requires SNF care or assisted living care (if Medicaid eligible), the first two years would be paid for by the retiree's private insurance, with additional expenses paid for by the state. The retiree (or his/her estate) would be allowed to protect $110,000 of the assets; the remaining $40,000 will be subject to spend-down requirements for Medicaid eligibility.

Advocates of long-term care partnerships are certain that they represent a win-win solution for all of the stakeholders. The Robert Wood Johnson Foundation--a charitable foundation devoted solely to healthcare research--proposed such partnerships more than 15 years ago to encourage a shift from public--to private-sector funding of long-term care. According to Hyrum Ericson and Jeff Schrade, staff members of the Senate Special Committee on Aging, states could save millions in Medicaid funds with this approach. Consumers win because they can protect assets from spend-down and, typically, have available a wider variety of insurance products. That's because insurers can create more affordable products with one or two years of long-term care coverage, compared to typical LTC policies outside of partnerships that have higher premiums for longer coverage.

John Greene, legislative director for federal and regulatory affairs for the National Association of Health Underwriters, also believes that partnerships benefit the quality of care in SNFs and in home healthcare. By increasing the percentage of residents who pay for care with private assets rather than government reimbursement, long-term care providers will achieve more freedom from arbitrary reductions in reimbursement levels. Also, more Medicaid dollars will be available for those who really need the support, encouraging states to provide more adequate funding for those nursing home residents.

Despite these potential benefits, California, Connecticut, Indiana, and New York are the only states that have long-term care partnerships in force. The OBRA legislation adopted in 1993 explicitly prohibits such partnerships, except for the four states that had already enacted such arrangements by May 1993.

It's unclear why the staff of Rep. Henry Waxman (D-Calif.) was so adamantly opposed to extending long-term care insurance partnerships back then. There may have been some confusion about whether wealthy enrollees would have sufficient protection from spend-down under these arrangements. Another historical factor is suggested by Hunter McKay, a senior policy analyst in the U.S. Department of Health and Human Services, who maintains that the insurance industry was partially at fault in those early years by earning a deserved reputation for offering poor coverage in its fledgling policies. According to McKay, members of Waxman's staff denounced the long-term care partnerships as a rip off. It is also worth remembering that, in 1993, there was a touching faith that President Clinton's doomed healthcare financing reform plan would address long-term care.

The seven-word change in the OBRA legislation proposed by Craig would effectively repeal the 1993 prohibition and allow more states to enact partnerships. Sen. Evan Bayh (D-Ind.), who served as governor when his state established its long-term care partnership, is a cosponsor of Craig's reform. The Bush administration has endorsed the partnership concept, and the bipartisan National Governors Association has gone on record in support of extending the partnerships to more states. In fact, Greene's research indicates that nearly one-third of all state legislatures have already taken steps to enact such partnerships in hope that the ban will be lifted.

Greene estimates that 160,000 long-term care eligible policies are in force in the four states that currently are allowed to offer partnership-based asset protection. This means, in effect, that less than 1% of the more than 62 million residents of the four states are covered by eligible policies. Some supporters of partnerships believe that this unimpressive record of performance results from narrow marketing of long-term care policies by the insurance industry to high-income consumers, especially in New York State. Consumer ignorance of the need for private coverage is still another highly plausible factor. Analysts also admit that middle-class parents often face a choice between paying for college expenses for their children versus investing in their own future, including long-term care insurance and, as any good parents would, opt for the kids.

McKay, who was involved in research on the first long-term care partnerships, takes a longer-term view of the potential of Craig's seven-word reform. He explains, "The part-nership plans as they are structured now are not the end of the road for financing long-term care. The hard thing with the OBRA ban is that it shut down the dialogue." In his vision, repeal of the ban will remove a barrier to learning what is truly needed to make long-term care affordable to consumers and taxpayers. Whether Congress will even go that far on any healthcare legislation in an election year was, at press time, unknowable.

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