The workshop’s third panel explored one of the biggest challenges to supporting community living: How to finance the programs. The three speakers addressed the current status of community living financing, the various approaches and challenges to providing financial support for people with disabilities, and the possibility of new models for financing long-term services and supports (LTSS).
Richard G. Frank
Assistant Secretary for Planning and Evaluation,
U.S. Department of Health and Human Services
LTSS financing fits into the larger framework of preparing for aging, explained Richard Frank of the U.S. Department of Health and Human Services. It includes having savings to maintain quality of life as earnings decline; having savings, insurance, and other means of risk protection against ill health and disability; and preparing a built environment that accommodates changes in lifestyle as physical abilities change.
Frank discussed the results of recent work conducted by the Office of the Assistant Secretary for Planning and Evaluation (ASPE) that focused on risk and the need for risk protection from disability. According to ASPE’s results, approximately half of people who turn 65 in the near future will at some point in their lives need LTSS as a result of having
limitations in two activities of daily living (ADLs) or severe cognitive impairment, and the need for LTSS will last an average of 2 years. This is a population average that hides a lot of individual variation and heterogeneity. For example, women are more likely to need care than men, and women on average will need care for a longer period of time than men. The data also show that need for LTSS can differ as a function of income, marital status, or health status before age 65. Furthermore, some Americans turning 65 in the near future will need LTSS for more than 5 years, and some will have LTSS expenses exceeding $250,000. Frank said that from his perspective as an economist, the important implication of these data is that, on average, needs are relatively moderate but with a fairly substantial and significant tail to the financial risk distribution. On one hand, this makes for an insurable risk, but, on the other hand, it makes insuring for LTSS very challenging. Medicaid LTSS users are in the very lowest income brackets, while LTSS users who incur these costs out of pocket are typically in the highest income brackets. While Frank said this is not surprising, it does explain some of the patterns of insurance purchasing observed today.
Frank said that when consumers consider purchasing LTSS insurance, they have a tendency to be myopic and to underestimate risks because those risks are a long time away. In addition, consumers do not have a good grasp of what the costs of LTSS could be. Respondents to a recent ASPE study found, for example, that Americans do not understand the coverage they already have; they do not understand the role of Medicaid; and they overestimate the role that Medicare plays in providing financial support and protection in the case of long-term disability. Taken together, there is a relatively small group of people who are at risk of a substantial financial impact and substantial long-term disability. There is a lack of appreciation for who these people are, what the risks entail, and how much of those risks they actually face, Frank said. The result is an undervaluing of financial protection of all kinds in this sphere, which explains in part both the pattern of insurance purchasing and savings decisions that Americans are making and also the political behavior for supporting programs that offer this kind of protection.
Turning to the subject of policy goals, Frank said that the first goal an economist would think about is risk mitigation. That is, how should the risk be spread out in a way that most clearly protects people and is affordable? This question poses difficult policy choices between voluntary and mandatory programs. A second goal should be to promote autonomy, that is, making sure that individuals receive the care they need in the setting of their choice, regardless of what that setting might be. A third goal should be to promote personal responsibility, that is, that individuals should pay their own way to the extent they can afford to do so. A fourth goal should
be to have flexibility so that once individuals either purchase or enroll in a program that offers this kind of protection, they can choose the array of services that best meets their needs.
Frank talked about several aims that should be addressed by new models for financing community living. One aim should be to spread the risk so that both adequate risk protection is offered and upfront costs are minimized. The theory of insurance, he explained, holds that the most valuable forms of risk protection are those that protect against high costs. Another aim should be to cause as little disruption as possible and reinforce the aspects of the current system that work well. For example, family support and informal care should be promoted to the extent that they work for individuals. New financing models should also reflect Medicaid’s existence and the fact that private long-term care insurance in its current form works for some people in some circumstances. The third aim should be that payment systems not favor one residential setting over another. The final aim Frank offered was that new models of delivery and their associated payment models should support opportunities to innovate in the areas of assistive technologies and ways of integrating housing and supports. It is also important to recognize that there is an existing safety net program for lower-income individuals that provides meaningful levels of support for some services, Frank added. It is important to recognize, too, that much of the nation’s resources for supporting community living lies in individuals’ relationships with their family members, friends, and social networks.
One lesson learned over the years, Frank said, is that if the goal is to protect average risk and cover the largest number of people in the middle who are at risk of significant declines in financial well-being because of the risk of disability, then one approach is to offer an upfront payment system that provides 2 to 4 years of modest daily support. Alternatively, if the goal is to protect against catastrophic risks, coverage that does not start until 2.5 or 3 years after disability first occurs would be affordable. Frank said that mandating either type of coverage could be done relatively inexpensively in terms of per person, per payer, per month costs and be deficit-neutral in the long term. Using a voluntary approach, however, can be challenging, particularly if the goal is to avoid underwriting practices, which, he noted, has been tried. In that case, a complex set of entry criteria would be needed to guarantee that insurance will be viable from a risk standpoint. Thus, a voluntary approach will likely only be able to cover a relatively small portion of those who are at risk and will not address the problem on a large scale.
As a final note, Frank mentioned that there are a variety of incremental Medicaid reforms that could also help expand coverage to more
individuals. However, as with voluntary programs, this only “nips away at the margins of the problem as opposed to getting to the heart of it.”
Policy Director and Practice Leader, Foley Hoag
Constance Garner of Foley Hoag began her presentation by noting what she described as a disturbing emerging trend: the growing disconnect between advocates in the aging and disability communities. She said that when the Community Living Assistance Services and Supports (CLASS)1 Act was in development, these two communities collaborated and were committed to the act’s goals. However, when the CLASS Act was repealed at the beginning of 2013, the two communities began to move apart, even though they are equally important and both need to be considered. She went on to recount that on April 15, 2013, she and Richard G. Frank were speaking at a conference on why the United States needs to invest in a financial safety net to provide LTSS for every American. During their presentations, the Boston Marathon bombing occurred. To her, she said, that tragic event highlighted the point that nobody knows how they will be 24 hours later or when they are going to need this type of safety net. In particular, she said, that event made her think of the young adults who would not have worked enough to qualify for the Social Security Disability Insurance benefit should they be injured by such a tragic event. In those cases, many young adults might have to rely on their family members for financial support. That, she said, is why all Americans, whether they are older or younger than 65 years, should care about the issue of financing LTSS for those with disabilities.
Another reason why the nation should figure out how to finance LTSS for all Americans with disabilities is to protect the huge investment it is making in providing special education for children. The children with disabilities who are receiving special education will one day grow up to be 65 years old and receive the benefits that come with that age, but long before they are 65, they will be 21, Garner noted. The nation is spending
1 The Patient Protection and Affordable Care Act established the Community Living Assistance Services and Supports (CLASS) program—a federally administered, voluntary insurance program to help workers age 18 years and older pay for long-term services and supports in the event of a disability. The CLASS Act (and program) was repealed on January 2, 2013.
money to educate them so that they will have productive lives in the community and be able to contribute.
There are tens of millions of Americans with various disabilities, Garner said. One of the challenges in crafting policy and creating programs for the population that is less than 65 years old is the lack of data about the nature of the disabilities that occur in this age group. Diagnostic data and Medicaid data can be misleading, she said. For example, there are many people with a diagnosis of having a disability who do not need to visit a health care provider and do not have chronic health care problems, and yet they are flagged as being high risk because of their disability diagnosis. In addition, some Medicaid data show only patient–physician encounters—that is, when a patient visits a health care provider and the visit is paid for—and do not provide further information about the nature of the patient population. Garner’s hope is that electronic health records will eventually be able to house data that can provide this more in-depth picture of individuals with disabilities, although she said that, in her opinion, these useful data are more likely to come in the near term from the insurance industry than from the federal government. Relatedly, one of the challenges of developing the CLASS Act was that the assumptions about individuals with disabilities kept changing. For example, the Congressional Budget Office thought about insuring a stay-at-home spouse by assuming that anyone staying at home had a disability, Garner said. The real problem, she said, was there were no data to show what percentage of people not employed had a disability and what percentage were healthy.
Although the nation spends a great deal of money helping those with disabilities be the best individuals they can be, the Americans with Disabilities Act (ADA) only promises to provide access and employment supports; it does not guarantee the services and supports to enable individuals with disabilities to execute those rights of access and employment protection, Garner said. She predicted, however, that there will be policies coming over the next few years to address this issue. Garner also stressed the need to think about the issue of providing LTSS to those with disabilities from a life span perspective, not from the silos of younger and older adult age groups.
Garner said that employer groups have a strong desire to see programs developed for the under-65 age group because they are their employees. She and her colleagues have developed two models—she emphasized that she was not endorsing either one—to address employer concerns about disability insurance, which is related to the concern that Frank raised about spreading risk, including whether to make programs mandatory or voluntary and whether there should be government assistance. One model proposes disability insurance that provides for more
than just income replacement; it gives an employee the ability to return to work. The policy questions, she explained, are whether it is possible to develop a product that is a hybrid of disability insurance and LTSS insurance, and it leaves open the question of what happens when an employee retires. There is not much support for treating this as something akin to a Medicare Advantage-type insurance product, but there is support for creating a disability savings account.
The second model builds off the Patient Protection and Affordable Care Act (ACA) mandatory insurance model and would require everyone to have coverage to spread the risk. The policy question here is whether this is the appropriate time to propose such a program, and if so, what would such a program look like. Some of the discussions she has had with employers have considered the possibilities of having a capped dollar amount for a few years on the front end combined with private insurance, or else having a short, multi-year product that would be purchased separately. For both models, the discussions have been about how to protect the health status of individuals before they reach the age of 65 so that if they have a disability, regardless of cause, they can remain in the workforce.
In conclusion, Garner discussed lessons learned from Australia as a case study of what is possible in the area of financing LTSS. Australia, which has national health insurance, held a public inquiry on how to pay for LTSS. The result of this process was a disability insurance model to cover people ages 65 and under, although the country is now extending it to the over-65 population. Australia appropriated several billion dollars in 1 year to create a self-directed disability insurance program that provides an annual capped dollar amount for LTSS. The individual determines what services are needed, and there is an option to pay a premium for additional coverage. This program puts the onus on the individual to take responsibility. The program is still in its infancy, but Garner said that Australia was able to enact this program because it has a legislature that agreed it was time to act and a public that supported the idea as demonstrated by the responses received in the public inquiry. In summary, Garner said that not everyone needs the same services and supports, “but all boats should rise . . . in terms of functional limitations and helping people.”
Anne Tumlinson Innovations
Enormous amounts of research and work are needed in the United States to create a culture of caring for everyone who faces the risk of one day needing supports and services, said Anne Tumlinson of Anne Tumlinson Innovations. She said that while most of her remarks would concern financing the nation’s service systems for older adults, much of what she would say applies to anyone who faces the risk of needing LTSS. “Our services systems are completely . . . unprepared to meet the needs and desires of an aging population and their families,” she said. Family caregivers and older adults in the LTSS system face the kinds of challenges that nobody should have to face.
The question to ask, Tumlinson said, is how to create financing systems that support the kinds of delivery systems the nation needs. She suggested two strategies that the nation could employ. The first is to use existing money already in Medicare, Medicaid, and the health care system more efficiently and effectively to improve the delivery system. This is an approach that the nation is already taking, for example, at the Centers for Medicare & Medicaid Services with health care delivery payment system reform. It is proving to be incredibly challenging for businesses, payers, and states to implement the changes with the necessary speed. The second strategy is to build on the first strategy of using money more wisely and then carefully add new money into the system.
One challenge to using existing financial resources more effectively and efficiently lies in the observation that the vast majority of people who have a high level of need are living in the community. According to data from the National Health and Aging Trends Study, 60 percent of people who live in the community and have need at a high enough level that they receive paid care report adverse consequences associated with unmet needs (Freedman and Spillman, 2014). In contrast, only 36 percent of the population living in and paying for residential care experience adverse consequences as a result of unmet needs. Therefore, the challenge, she said, is that it is dangerous for people to live in the community (as opposed to residential care) when they have a high level of need because they are more likely to experience adverse consequences due to unmet needs.
Medicare spending data can provide another marker of how a delivery system is performing. For example, Medicare spending data from 2006 showed that older adults with functional impairment have much
higher per capita spending than older adults without functional impairment, even when controlled for a number of chronic conditions. However, Medicare spends more money on people with moderate or severe disability who live in the community than on those with moderate or severe disability who live in a residential care setting or nursing home.
To provide a concrete example, Tumlinson recounted how a hospitalist at the Cleveland Clinic told her about a woman in her 80s who came to the hospital emergency department with gastrointestinal distress multiple times over a period of several months. She was discharged each time. Finally, the hospitalist visited this woman at her home to figure out why she was repeatedly getting sick. When the woman greeted the hospitalist at the door to her home, she did not recognize him even though he had treated her multiple times in the hospital. The hospitalist discovered she was living alone with severe cognitive impairment and eating spoiled food that was causing her gastrointestinal distress; she did not have an underlying chronic condition. Tumlinson said that she believes this type of scenario is what is happening in the health care side of the care delivery system and that it is being driven by a lack of services on the long-term care side of the delivery system. Tumlinson said she sees these types of events as an indicator that families are taking on a great deal of unmet need, not just in providing hands-on ADL care, but also in managing the intersection between the health care system and the LTSS system. She emphasized that this is not just an issue of services and supports; it requires input from leadership in the health care system, including hospitals, the American Medical Association, and leaders from all areas that touch families and their loved ones who need care. This is the ultimate problem of integration of care to meet need.
Given these data, Tumlinson said, it would appear that there is an enormous opportunity to save money on the health care side of the delivery system if the nation addresses LTSS needs. It would appear that managed care payers, hospitals, and health systems that are now faced with incentives, accountable care organizations, bundled payments, re-hospitalization penalties, and other new financing structures should be delighted to learn that if they went out into their communities and provided some assistance with medications and meals, they would save money. In fact, some health care organizations are doing just that, Tumlinson said, but not on the scale needed to make a difference for all Americans. She suggested that every hospital have an emergency department urgent care program dedicated to frail older adults or people with serious functional limitations. “When you talk about what does it take to actually support somebody in the community in a position of independence and autonomy,” she said, “I would say one of the very first things
you need to do is change . . . our urgent care system for people who have functional need.”
Turning to the second approach of supporting delivery systems by adding money to the system in addition to using existing money more efficiently, Tumlinson said that even if every health care system was to invest in LTSS, it is unlikely that they would achieve such a large return on their investment that it would fund all the services the nation needs. Therefore, a new financing stream is needed. According to data from ASPE, out-of-pocket expenditures account for the largest payment source for LTSS (Favreault and Dey, 2015). Medicaid plays an important role in financing LTSS, but it is smaller than the role that families play in financing care. The question, Tumlinson said, is what can be done to change this. Possibilities include shifting the relative involvement of each payment source, adding a new payment source, or eliminating a payment source, among others. She and her colleagues are analyzing various insurance approaches that would add money to the overall system in order to determine what would achieve those different outcomes.
Work from the Urban Institute suggests, Tumlinson said, that if the goal is to reduce the role of Medicaid, insurance programs should focus on insuring the risk of an individual needing care for long periods of time. There are many reasons for reducing the role of Medicaid in financing LTSS, including the burdens that state financing systems are going to face in the future and what families will have to go through to become eligible for Medicaid. However, to have the biggest impact on out-of-pocket spending and addressing unmet need for the most people, the insurance solutions most likely to succeed will cover risk that happens early in illness rather than later in illness.
The LeadingAge Pathways Group, The SCAN Foundation, and AARP are funding a project in which the Urban Institute will analyze how a broad range of insurance options to cover the risk of needing LTSS might affect out-of-pocket spending, Medicaid spending, and coverage. Options include administering the program through a public or federal government system versus a private insurance system; creating a program that is voluntary versus mandatory; or having a model that is cash-based versus services-based. A cash-based model, which puts cash in the hands of consumers to purchase services, could attract private equity firms to invest capital in innovations, services, and supports that people will value. The results of this project will be released in late 2015.2
An open discussion followed the panel’s presentations. Workshop participants were able to ask questions of and offer comments to the speakers. This section summarizes the discussion.
Phillip Bongiorno of the Homecare Association of America asked the panelists if they could comment on the Achieving a Better Life Experience (ABLE) Act of 2014,3 which would amend Section 529 of the Internal Revenue Service Code of 1986 to create tax-exempt savings accounts for individuals with disabilities. In particular, he asked if a similar program could be created for older adults. Garner replied that the ABLE Act was designed to help families save money so that a family member with a disability would have financial resources he or she could use for disability-related expenses without sacrificing Medicaid benefits or other federal entitlements. Garner also noted that the ABLE Act has a limitation that the disability onset has to be before the beneficiary reaches age 26, a limit driven by cost estimates. However, she said, it is a good model with potential to build on in the future to benefit older adults.
Margaret Campbell of the National Institute on Disability, Independent Living, and Rehabilitation Research noted that none of the discussions so far had addressed wellness and preventing exacerbations; since many people by the age of 70 have one or two chronic conditions, it is the exacerbations of those conditions that can create problems requiring care. Thus, she asked whether prevention and wellness services should be included in the package of home- and community-based services (HCBS). Tumlinson agreed that an individual’s ability to live well with multiple chronic conditions is highly dependent on HCBS and that there should be better communication between the health care system and HCBS. Ensuring the ability to live well with multiple chronic conditions also ties in with supporting person-centered care that accounts for an individual’s goals and the supports they need to realize those goals.
Three questions were posed to the workshop participants for short facilitated table discussions (answers not limited to what was covered in panel presentations):
- What are the two or three biggest policy barriers for financing to support community living (going beyond the need for more money)?
3 House Resolution 647 passed in the House of Representatives on December 3, 2014.
- What should be the top three research and policy priorities to inform financing for community living?
- What best practices have been identified?
The reports from the table discussions were delivered by the following individuals, listed alphabetically: Mary Brady, independent consultant; Adam Darkins, Medtronic, Inc.; Thomas Edes, U.S. Department of Veterans Affairs; Robert Hornyak, Administration for Community Living; Rasheda Parks, National Institute on Aging; and Rachel Patterson, Christopher and Dana Reeve Foundation.
The facilitated table discussions produced the following list of policy barriers for financing to support community living, as noted by the table rapporteurs.
- Federal funding of programs to support community living varies between states, and the delivery system allocations of funds within states differ (Parks)
- Medicaid policies require individuals to spend down their savings before they can receive benefits (Parks)
- There are only two choices for long-term care financing—Medicaid or private pay—with the only middle ground being private long-term care insurance, which is unaffordable for many (Hornyak, Patterson)
- Medicare does not address the issue of long-term care (aside from brief provision of care after hospital discharge), although many people mistakenly believe that it does (Hornyak)
- Individuals receiving disability benefits who return to work are penalized, which has negative effects on saving for their later years (Brady, Patterson)
- Community-based LTSS is a waiver, not an entitlement (Edes)
- Federal financial support does not encompass the entire life span but rather bifurcates at age 65 (Edes)
Support for Low-Level Needs
- There is a lack of policies supporting people who are living well with chronic conditions and trying to continue living well in their communities (Brady)
- There is a lack of policies on prevention and intervention to support individuals not needing to be placed in nursing homes (Parks)
- There is a lack of models and political will to integrate the financing of lower-level needs with the financing of catastrophic needs (Edes)
Planning for Future Needs
- Cultural and attitudinal beliefs lead people to think they will not need care in the future (Edes, Patterson)
- There has been a failure to face the issue of dealing with catastrophic illness or disability in an aging population (Darkins)
- It is generally assumed that families will take responsibility for addressing the care needs of their loved ones (Edes)
- Data are lacking on the disabilities affecting Americans under age 65, and there is a lack of policies to address the resulting challenges this population faces (Darkins)
Research and Policy Priorities
The facilitated table discussions produced the following list of research and policy priorities to inform financing for community living, as noted by the table rapporteurs.
Areas for Additional Research
- Study public and political apathy about LTSS financing, particularly generational differences (Parks)
- Develop and run appropriate cost models for long-term care financing (Hornyak)
- Study programs that have been successfully implemented in other countries, such Australia and Philippines (Brady, Patterson)
- Use baseline data to develop better models to estimate which individuals will have higher needs (Brady)
- Study wellness models to identify incentives for staying well (Brady)
- Collect more data on behavior change at any age (Brady)
- Study the role of culture in caring for older adults and people with disabilities and include cultural competence in LTSS training programs (Patterson)
- Study how private insurers are marketing plans and enrolling people in long-term care plans (Patterson)
- Study the complex interplay between health care and social care to identify approaches for combining the two (Darkins)
- Employ robust alternatives to randomized controlled trials in order to evaluate individualized interventions in diverse populations with variable complex conditions (Edes)
- Conduct a campaign to educate the public about what the future may hold for the aging population and the potential financial burden (Hornyak, Parks)
- Enact tax-advantaged savings plan for long-term care (Patterson)
- Fund the development of alternative models for community-based, long-term care (Edes)
- Institute standardized economic analyses that report taxpayer costs and total taxpayer savings associated with LTSS models by sector, including health care and employment outcomes (Edes)
The facilitated table discussions produced the following list of best practices, as noted by the table rapporteurs.
Program at the Federal Level
- The ABLE Act (see Discussion section) (Patterson)
Program at the State Level
- Minnesota’s financing models (Edes)
- Village models and Program of All-Inclusive Care for the Elderly models of financing community living at the local level (Hornyak)
- The Urban Institute’s evaluation of voluntary, mandatory, and cash-based models for financing LTSS (see presentation by Anne Tumlinson) (Edes)
- Cash-and-counseling models and other self-directed models, used both in the United States and internationally (Patterson)
- International models that include public–private partnerships, such as Australia, Denmark, and Philippines have (Brady, Darkins)
- Australia’s model of self-directed, capitated benefits of cash, which could be used to pay for services (Edes)