Long –Term Care Financing Reform What Role For States? Hunter McKay US Department of Health and Human Services Office of Assistant Secretary for Planning And Evaluation Contact Information:

Long Term Care Financing The Status Quo: The current financing system allows retirees and pre-retirees to remain blissfully ignorant of how long term care is financed until it is too late for anything but draconian measures. impoverishment – welfare – loss of control The Problem Ahead: The size and characteristics of the soon to be retiring baby boom generation makes this approach unworkable – unaffordable – perhaps even unnecessary.

Sources and Types of Funding Three public sources of financing: Medicaid Medicare pay as you go – no pre-funding Veterans Multiple Private Sources Out-of-Pocket pay as you go + some pre-funding Insurance Annuity pre-funding Home equity conversion

An Alternative Perspective Long term care financing reform is not just a Medicaid problem. Future Medicaid long term care users are not strangers. States have a vested interest in helping residents to: 1) understand their risk, and 2) meet the financing challenge. No silver bullet – a multi-faceted approach has the best chance for success. Increasing pre-funding must happen now. States Are Key

Why Worry About Pre-Funding Now? Oldest baby boomer is aged 58 and the youngest is 39. Opportunities for pre-funding diminish as boomers retire. Among those boomers are an indeterminate number of “tweeners”; those for whom planning for long term care would make difference between using and not using Medicaid.

What Can States Do? 1.Change The Culture/Expectations No longer should pre-retirees and early retirees remain unaware of their risk and their options. 2.Expand Financing Options Consumers should have a number of different ways to finance their own long-term care using a variety of different financial instruments. 3.Focus on Medicaid States must know who is on Medicaid for long term care and how they got there.

Change The Culture/Expectations Goal: Increase awareness of long term care risk and options for planning ahead. Mechanisms: 1.Public awareness campaign, (PSAs, mailings, press events); 2.Aging agencies offer to assist boomers in planning; 3.SHIP program offers assistance in buying insurance; 4.Recruit corporate partners to carry message; 5.Publish state guide to LTC insurance plans sold in state. Bottom Line: State conveys a consistent message on personal responsibility for financing long term care.

Expand Financing Options Goal: Increase options for consumers to pre-fund long term care. Mechanisms: 1.Tax incentives consumers; 2.Tax incentives for businesses; 3.LTC insurance for state employees; 4.Partnership For Long-Term Care; 5.Housing agency offers reverse mortgage; 6.Single purpose loans - family loan programs. Bottom Line: Consumers need more options to meet this challenge.

Medicaid Goal: Clarify expectations for the role that Medicaid plays in financing care. Mechanisms: 1.Review up front eligibility screens – make excessive transfer of assets difficult; 2. Review estate recovery programs to ensure follow-through and fairness; 3.Research: Who is spending down, Medicaid qualifying trusts, Medicaid friendly annuities; Bottom Line: Consistent and fair determination of Medicaid eligibility that provides incentives for planning.

A Systems Approach Significant state innovation already exists in isolated program areas. What works for some states will not work for others. Long term care financing likely to remain a shared public-private responsibility. A systems approach uses multiple components to align consumer incentives, coordinate with public benefits and present a consistent message. Innovation within the context of fully developed strategy.

State Examples Minnesota Statewide educational campaign State tax credit LTC insurance for state employees Transfer of assets waiver Milbank/EBRI project Expanded planning process Family loan program* Partnership for long term care* Connecticut LTC insurance for state employees Statewide educational campaign Partnership for long term care Home equity conversion program Transfer of assets waiver

Summary States play a key role in changing the way retirees and pre-retirees plan for long term care. State leadership is critical is the following areas: Awareness among pre-retirees and society in general New financing options designed to maximize flexibility and consumer control A clear sense of how public and private funding will be coordinated to align incentives and preserve Medicaid. The best chance for success is through a complementary set of strategies tailored for state characteristics, and oriented toward the long term.