A New Public-Private Partnership: Catastrophic Public and Front-End Private LTC Insurance

Current U.S. policy toward the financing of long-term services and supports (LTSS) underserves people who need care, overburdens families who care for them, and strains state budgets supporting Medicaid services when personal resources fall short. The fundamental LTSS financing problem is the absence of an effective insurance mechanism to protect people against the costs of extensive LTSS they may require over the course of their lives. Building on the direction of recent bipartisan recommendations, we developed and analyzed a proposal to combine public catastrophic insurance (protection after a waiting period) with gap-filling private LTSS insurance to promote comprehensive insurance protection, focused on middle-income people.

Regardless of waiting period configuration (i.e., income-related versus flat), a public catastrophic program injects significant new dollars into the LTSS system by enhancing benefits for people with impairments of long duration, reducing unmet LTSS needs and mitigating burdens facing family caregivers. In fact, we project a public catastrophic program for older Americans would enhance LTSS spending by 14 percent, reduce out-of-pocket spending by 15 percent, and reduce Medicaid spending by 23 percent, compared to projected spending under ii current law. A program with shorter waiting periods for low- and modest-income people reaches greater numbers of – and devotes more of its spending to – people with low and modest incomes than would a similar benefit with a flat waiting period and could be financed with a 1.0 percentage point addition to the payroll tax beginning at age 40.

The Urban Institute