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SECTION III STUDY APPROACH The overall goal of the study is to illuminate policy choices that could lead to the development of a more accessible system of appropriate and effective long-term care services financed equitably and affordable. To achieve this goal, the study will focus on six . ~ ~ ~ speclI 1C areas or concern: 1) the major dimensions of the long-term care problem 2) the desirable components of a long-term care system, what is now in place, and what is known from research and experience that could be applied to narrow the gap between the actual and the desirable 3) the feasibility of a broad range of options for financing long-term care 4) gatekeeping mechanisms that hold promise for keeping the system of long-term care affordable 5) analysis of the arrangements for long-term care in other advanced industrial countries with the aim of shedding new light on the policy choices facing this nation 6) the implications for the nonelderly disabled of policy options to improve the accessibility and quality of long-term care services for the elderly. The following pages expand on these areas of concern. (1) Defining the Problem Long-term care services are widely perceived to be difficult to obtain, especially in community settings; they are of uneven quality and often of considerable expense. As a result, many who need services do not receive them. Families with a functionally disabled member are often overburdened by their personal and financial demands, and many are faced with poignant and difficult choices. Ultimately, a large proportion of individuals requiring extensive long-term care services deplete their incomes and assets, and become dependent on welfare programs, particularly Medicaid. What are the underlying dimensions of the long-term care problem that result in these negative outcomes? Why have they persisted so -15-

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long? Why have they elicited so little public or private response? The study will examine these questions in depth. Long-term care is a paradox of sorts. It is widely perceived to be deficient in numerous ways, yet the lack of political pressure in the public sector for a solution suggests that the issue is not yet a salient one to most Americans. The private sector has also displayed surprisingly little entrepreneurial interest in long-term care beyond investments in nursing homes and the more profitable portion of the home care market, despite demographic forecasts suggesting substantial needs. Recent surveys conducted by the American Association of Retired Persons indicate a widespread misunderstanding about the nature of insurance coverage under Medicare and private "Medigap" policies. The majority of those surveyed wrongly believed that long-term care services were covered under their existing insurance policies. In reality, most elderly Americans have very limited, if any, coverage for extended long-term care services. As a result, most American families are exposed to the risk of catastrophic resource depletion if a family member experiences a long-term disabling illness. Although the risk is faced by all, only a minority will actually experience the need for long-term care. To date, few estimates have been made of the lifetime risk faced by individuals and families of experiencing a disabling illness in old age. The proposed study will review the adequacy of existing estimates of this risk, and, if necessary, attempt to refine the estimates through analyses of existing data sources. The ASPE long-term care survey (discussed in Exhibit C-2) will provide a valuable new source of data for this purpose. This survey of the elderly is one of the few sources of longitudinal data on health care needs, services utilization, and informal care-giving. For similar problems, where many face the risk but few will actually incur the costs, a common and effective solution has been to spread the risk through insurance. In the case of long-term care, however, insurance has been slow to develop and this study proposes to examine why. The desire of the elderly and their families for protection against financial ruin from sickness in old age was the major motivation for the establishment of Medicare 20 years ago. Individually purchased private health insurance policies were beyond the financial means of most of the elderly, and private group policies were not widely available. Ultimately enough pressure was exerted to lead to a public solution, Medicare. The lack of similar widespread public ferment over long-term care appears to be attributable to several factors. First, the need for extensive long-term care services occurs less frequently than the need for acute medical care, so only a relatively small portion of the population actually experiences the deficiencies of the existing system. This can be expected to change over the next two decades, however, as growing numbers of elderly people live longer and an increasing number of middle-aged Americans witness the plight of their parents. -16-

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Second, the cost of existing private individual long-term care health insurance is high relative to the perceived risk of needing the coverage. Group insurance would reduce premiums, but is only now beginning to be sold on a very limited scale. Third, the availability of Medicaid to pay for nursing home care for the poor, and for middle income elderly people who have exhausted their incomes and assets, also serves to dampen the demand for a more equitable plan for financing long-term care. The first step in the proposed study is a full examination of these and other dimensions of the long-term care problems. Only then will it be possible to systematically identify and assess potential solutions. (2) Narrowing the Gap Between the Desirable and the Actual The proposed study will identify public policy options and private initiatives that could produce a long-term care system, which balances the interests of individuals needing care, their families, health care providers, and the larger society. The study will use the framework discussed on pages 15 and 16 as the basis for assessing the gaps between the system currently in place and the desirable outcomes of an optimal long-term care system. In other words, this portion of the study will focus on the questions: what ought to be, what do we have, and where do we fall short? Quality of Care The quality of long-term care is widely perceived to be deficient or at least uneven. The study will attempt to determine the reasons and remedies for poor quality care. Some of the factors to be explored include: the impact of variations in organizational arrangements the relationship between provider payment mechanisms and payment rates on quality the impact of the uncertainty of the knowledge base guiding clinical interventions the ability to incorporate suitable definitions and measures of quality into regulation and reimbursement. This part of the study will be able to build on the recent TOM study of the quality of care in nursing homes. As part of a comprehensive study of quality, we intend to investigate the functions of nonprofessional providers in the long-term care sector. It is this group who have considerable contact with patients, often in settings where direct professional supervision is difficult. One of the major challenges in long-term care, in order to maintain an affordable cost per unit of services, is to amass a group of providers who are neither underskilled nor overskilled for the required tasks. We plan to explore ways in which organizational arrangements and provider payment can be varied to create more dependable and knowledgeable nonprofessionals. -17-

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This part of the study will also consider how to achieve effective participation in and supervision of the care by health professionals, including physicians and nurses. Fragmentation and Access Poor outcomes of long-term care are often attributed to fragmentation of services. Evidence suggests that governance mechanisms and program structure are important in reducing fragmentation.16 Thus, we propose a full examination of the available evaluation research on model programs to determine the impact of various governance structures on program outcomes. Specifically, we will wish to find model programs that are most successful in bundling medical and social services in useful ways for clients. Some emphasize case management as a strategy to integrate services within a fragmented system; others integrate medical and social services structurally and depend 1ess on case management. The Long-Term Care Channeling Project is an example of a case management model, while life-care communities are an example of an integrated structure.17 As part of this effort, we propose a special emphasis on housing options for the elderly. Over the past 30 years, the proportion of elderly who live alone has increased dramatically, because Social Security has enabled the present generation of elderly to exercise more choice about their living arrangements. However, for the frail and functionally dependent elderly, living alone creates problems of access to informal care, and increases the cost of providing formal in-home long-term care services.18 The study will examine, using existing data sources, effective ways to integrate supportive and health services for the impaired elderly in the full range of housing options, such as retirement communities, congregate housing arrangements, and board and care facilities. Cost-Effectiveness Long-term care models and innovations will be studied to gain a better understanding of how well they work, from the differing perspectives of patients and their families and health care providers. As part of the study, we will describe the components of successful models and try to determine which components might be substitutable without changing outcomes. Model components of special interest include governance, organizational structure, quality assurance (including achievement of appropriate participation by health professionals in long-term care), manpower utilization, provider payment, and sources of financing. This research will ultimately lead to a better understanding of how to incorporate incentives into the long-term care system that encourage the adoption of cost-effective behavior. (3) Financing Long-Term Care No single question is more crucial to the future development of long-term care than the source of the money to pay for the services. A major portion of the proposed study will be devoted to examining the strengths and weaknesses of current financing arrangements, and evaluating new possibilities, particularly pooled-risk approaches. -18-

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thrust of the proposed study is to test risk-spreading against or in combination with other options. Several groups are currently working on financing options for long-term care, and this study intends to build on, not duplicate, their efforts. Approaches to ensuring maximum use of these ongoing efforts would include the commissioning of papers and subcontracts for direct collaboration. The Institute's study is not, however, solely a study of financing. Its intent is to examine how new financing mechanisms could be designed so as to promote the development of a more appropriate system of long-term care. Thus, while some of the background work on financing options overlaps other studies, the planning committee was not able to identify any other effort with the scope and goals of the proposed Institute study. The financing study will be organized into three components: private options for risk-spreading; public options for risk-spreading; and strategies other than risk-pooling used alone and in combination with pooled-risk options. A. Private Options for Risk-Spreading After a long period of relative inertia, private insurers have recently become more active in marketing an array of products and concepts in long-term care insurance. We propose to examine the reasons underlying both the inertia and the accelerated interest, the benefit structures and premiums for the products now being offered, changing demand patterns that might offer insights into the viability of a stronger private insurance market in the future, and the feasibility of enacting various incentives to strengthen the potential market. Life-care communities grill be evaluated as one form of private risk-pooling. Attention will also be given to develop social/health maintenance organizations that provide a broad range of prepaid social and health services. Adverse selection is of major concern in the development of any new insurance program. The study will examine what is known about adverse selection, particularly within existing long-term care insurance programs. It will also evaluate various strategies that could be employed to minimize adverse selection in an expanded insurance program, such as purchasing insurance while young and the development of group policies. Group insurance purchased through the work place has been an effective mechanism to provide acute medical care insurance coverage for a large proportion of the population. The feasibility of extending group policies to cover long-term care costs will be explored. Such a study will require actuarial estimates of group-based premiums for insurance purchased at different ages. Most existing actuarial estimates have been calculated for the 50 and over age groups using very limited data. To assess the feasibility of widespread work-site related group insurance, improved actuarial estimates of premiums for the entire working age population would be required. - 1 9 -

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A comprehensive analysis of current employer-provided health insurance benefits for retired employees will be undertaken. Retiree benefits are reportedly costing employers billions of dollars annually, but comparatively little is known about the nature of coverage or how many retirees are covered. Several projects are underway on employer-provided retiree benefits and should provide sufficient information to undertake the study without the need for primary data collection. One objective of the study would be to determine the feasibility of restructuring existing employer-provided retiree health benefits to include more long-term care and perhaps less acute "Medigap" type of coverage. B. Public Options for Long-Term Care Finance The primary source of public financing for long-term care, Medicaid, is not an insurance program at all, because it provides services only to those already poor or those made poor by the catastrophe of long-term care expenses. However, an exploration of the feasibility of developing public options for long-term care insurance would necessarily consider the potential interface with Medicaid and with Medicare. The study will undertake an analysis of the cost and feasibility of a range of public options for financing long-term care from modest incremental changes in current broad programs to more substantial modifications. Varying roles of the public sector will be considered in combination with private options. The study will take into account Social Security, including cash retirement benefits as well as Medicare. Options for restructuring the financing and benefit structure of Social Security to encompass long-term care benefits will be examined. C. Strategies Other than Risk-Pooling A number of strategies that do not directly involve risk-pooling have been suggested to increase the availability of personal resources for use in securing long-term care services. Targeted medical IRAs, home equity conversion, residential options, and various tax incentives including incentives to promote greater voluntary care-giving from families are among the possibilities that the study will examine. These options will be evaluated against risk-pooling as primary approaches to financing long-term care. For example, the potential of medical IRAs will be compared with risk-pooling strategies for the purposes of gaining a better understanding of the extent to which one strategy can be substituted for the other. The study also will examine the potential merits of combining different types of options. For example, neither individual Medical IRAs or home equity conversion seem likely to eliminate, for most families, the risk of impoverishment from a long-term disabling illness. However, both of these options would increase the disposable income available to the elderly to enable them to purchase private long-term care insurance, and to pay the co-insurance and deductible that would help keep insurance costs affordable. Moreover, a recent proposal suggests the pooling of partial funds within Medical IRAs to -20-

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achieve both the objectives of increasing disposable income and providing insurance benefits for long-term care. (4) Making Long-Term Care Affordable The single greatest deterrent to the development of an expanded system of long-term care is the concern that costs will be uncontrollable because of induced demand created by improved financing. This concern is well founded because the great majority of people living to very old age require some level of assistance in carrying out activities of daily living. Hence, any new financing strategy for long-term care, to be feasible, must include gatekeeping mechanisms and/or cost-sharing controls to minimize inappropriate utilization. The committee proposes that the the major study include a comprehensive review and synthesis of research on the effectiveness, as well as potential adverse impacts, of various gatekeeping mechanisms. A number of national demonstrations have recently been completed to provide a rich source of information on gatekeeping. These include the Long-Term Care Channelling Demonstration, The Robert Wood Johnson Foundation's Health-Impaired Elderly Program, evaluations of prescreening programs for nursing home admissions, the Rochester Access Program, and many others. The proposed analysis should cover the following points: functional assessment for service eligibility case management with and without financial incentives capitation and prospective payment systems cost-sharing (coinsurance and deductible) research on the substitution effects of expanded use of noninstitutional care for nursing home utilization. (~) Cross-national Comparisons: Lessons for the U.S. Compared with many western European countries, the U.S. population is young. The United Kingdom, Sweden, Denmark, Netherlands, France, and West Germany all have higher proportions of residents over 65 than the U.S. In Sweden, for example, in 1980, 16.2 percent of the population was 65 years of age or older compared with 11.3 percent for the U.S. The U.S. is not projected to have as high a percent of elderly as Sweden has now until 201S. It is likely that countries with a higher proportion of elderly already have had to make policy choices that are still pending for this country. Japan does have a higher proportion of elderly but will not be included because living arrangements and other social factors differ substantially from the U.S. Canada, while having a population younger on average than the U.S., has implemented a system of long-term care that many experts believe is superior to that of the U.S. and thus would be included in the study.l9 The committee proposes a study of the policies and arrangements in Western Europe and Canada. It is recognized in proposing such a study -21-

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that Western European countries have quite different income support policies than the U.S. These and other differences will affect the application in the U.S. of ideas that have been successful in other countries. Nevertheless, we believe that cross-national comparisons might reveal some useful ideas. The proposed study would synthesize and build upon a number of recent studies involving cross-national comparisons. Where necessary, secondary analyses of international data sources will be undertaken. The following represent questions on which cross-national comparisons might better inform policy choices in this country: Is there evidence that increased availability of noninstitutional services results in greater substitution for institutional care? What mechanisms are in place in other countries to control utilization of long-term care services (gatekeeping), and do these mechanisms, where found, appear to affect overall use rates and the differential use of inpatient and noninstitutional services? Does voluntary care-giving appear to differ substantially among countries? If so, what contributes to the differences? Do countries differ in their economic investment policies toward the elderly in terms of investing resources in the elderly population as a whole or do they target resources on the sick, frail elderly? If policies differ, how are they operationalized, and what are their apparent consequences? Do some housing policies or effective models of housing for the frail elderly reduce the need for institutional care in medically-oriented facilities? (6) Implications for the Nonelderly Disabled The committee believes that it is essential to consider throughout the study the extent to which specific policy options designed to benefit the elderly could directly or indirectly affect the availability, quality, and cost of long-term care services for other groups. This attention would be paid specifically to the chronically mentally ill, other functionally disabled adults, and the developmentally disabled of all ages, including the mentally retarded. General Issues Six specific areas of concern have been identified for emphasis by the study, but the project actually would proceed in an interactive process, working back and forth between the general design of the long-term care system and the design of financing options. Clearly, to know how much a system will cost, and therefore to have the variables to use in designing financing options, requires that the shape of the long-term care system be specified, including the desirable mix of community and institutional care and of formal and informal care. At the same time, decisions about the configuration of the long-term care -22-

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system will have to take into account costs-and the feasibility of various financing strategies. Resource needs, both services and personnel, will be considered throughout the study. A specific study projecting manpower needs and institutional bed requirements is not suggested at this time because good projections already exist assuming current utilization patterns. However, the study will examine the impact of potential policy choices on the need for new or additional service~settings and more or different kinds of health providers. The study will also consider how to assure the appropriate involvement of health professionals in long-term care. It is anticipated in the overall study that no new primary data collection will be required. Much of the effort will be devoted to synthesizing a large and sometimes disparate research literature, to undertaking secondary analyses of existing data bases, and in weighing and debating the trade-offs inherent in the policies evaluated. The breadth and scope of the study suggest the utility of the Institute of Medicine model, which employs a study committee composed of experts from various disciplines who hold a range of different perspectives. The committee would assume overall responsibility and accountability for the conduct of the study, the quality of the research, and the content of the final report. A study director with expertise in long-term care policy would be employed to carry out the study under the guidance of the committee and to supervise study personnel on a day to day-basis. The study as currently designed has a number of discrete components. Some will be undertaken by the staff director and the core study team. Others will be more efficiently and effectively conducted through commissioned papers or subcontracts when substantial secondary data analysis is required. The value of the final report, however, will depend upon the effective integration and synthesis of the discrete study components into a set of fully documented policy options. The study committee will play a key role in this final step, working closely with the study director and a small core professional staff. Anticipated Study Outcomes The motivation behind this project is a desire to help inform both the public and their designated policymakers about the dimensions of the problem this nation is confronting in providing humane assistance to its disabled elderly citizens, and in doing so, to provide objective assessments of the feasibility of a range of possible national responses. The study outcomes should also be useful to care providers. The intent of the effort is to produce a set of products that will be of practical, scientifically sound value to policymakers in the public sector and to leaders and, entrepreneurs, and care providers in the private sector. We intend to involve both of these groups in the process of the study, providing interim briefings, -23-

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eliciting their responses, and consulting with them on the format of the final products and the strategies for dissemination of findings. The following primary outcomes are anticipated from the proposed study: 1. An assessment of the feasibility of pooled-risk approaches for financing long-term care. 2. A comparative evaluation of public policy options that would provide-incentives for the evolution of a system of long-term care that balances the goals of access, quality, personal choice, equity, and affordability. 3. ~ ,~ A proposed plan for constructing a transition from existing to new programs. 4. An analysis of the potential impact on the nonelderly disabled of options to improve the availability of long-term care to the elderly. 5. Delineation of a long-term care research agenda for the future. The proposed timetable for the study is two years. It is anticipated that, if the study gets underway in 1986, its findings would be available in late 1988 or early 1989. A new administration would be taking office in Washington at that time. In establishing its domestic agenda, it is reasonable to assume that there would be an interest in a feasibility study on long-term care policy options. The White House Conference on Aging, if held on schedule in 1991, would also provide a forum for discussion and dissemination. -24-