Statement before the Federal Commission on Long-Term Care

Statement of Mark J Warshawsky, Vice Chairman of the Federal Commission on Long-term Care, delivered at the final public meeting of the Federal Long-term Care Commission in the Dirksen Senate Office Building.  The statement focuses on financing the system of long-term services and supports (LTSS). The full pre-publication report can be accessed here.

We have already sung the praises of our Commission report - the purity of the process, the rare brilliance of the recommendations.   What I would like now to address are my views, not as Vice Chairman, but in my personal capacity as a Commission member, on the financing of the system of long-term services and supports (LTSS).  

Although we did reach a consensus at a high level on the need for personal savings and insurance coverage, significant government support for the lower income population, and continued roles for private and public sources of funds, we did not agree on structures or proportions.   Of course, some of that disagreement reflects fundamentally different political and philosophical views on the appropriate roles of social and personal responsibility, the relative efficiencies of the public and private sectors, the ability and capacity of the working population in the middle-income range and above to plan ahead, and on the impact of higher taxes and deficits.  But at least some of the divergence arises from a lack of empirical clarity on several aspects of the problem, which perhaps further time, resources, study and analysis could resolve.  In particular, I am referring to our debates on whether Medicaid is now a program for the middle-income and even higher income households, and if so, how and why, whether there is significant capacity of working age adults with functional limitations to participate in the labor force, and the realistic possibility to improve the functioning of the private insurance market.  Allow me to think out loud about each issue in turn. 

Focusing on the older population, some have expressed the view that Medicaid is a program just for the poor.  But others see that there is significant scope of Medicaid coverage for those who were solidly in the middle-income group and above in their working years and through retirement.  In part, this reflects a fuzziness on what are the levels and distribution of the complete incomes and assets of the elderly, including their housing and retirement assets, before functional limitations hit.  How significant is spend-down?  What about the current law exclusions of significant housing values, term life insurance and, in most states, retirement assets?  What is the true extent of gamesmanship in Medicaid eligibility?  What would additional efforts by the states bring in through estate recovery?   And, how much do the elderly really care about leaving bequests or having expanded care options beyond what Medicaid provides?  We heard some testimonies relevant to these topics, but much more solid and unbiased data is needed to create more knowledge here.  It is important to the design and administration of any public programs, including Medicaid, to the accurate measurement of the financial capacities of the older population, and to understanding their true interest in comprehensive insurance coverage for LTSS risks.  In fact, my proposal to create an optional Medicaid carve-out program was in part motivated by our lack of knowledge  - let's offer the option of sliding-scale subsidized comprehensive and permanent private long-term care insurance, perhaps standardized and sold on exchanges, instead of Medicaid coverage, with overall tightened eligibility rules, and see who and how many take it. 

Turning to the working age population with functional limitations, what little we heard and discussed indicated conflicting views about the extent of the capacity to return or to continue to work if significant supports were to be provided without the Medicaid requirement for impoverishment.   To my understanding, past experience here is not encouraging - even after improvements, the Ticket to Work experiment is a failure, and data indicates current asset accumulations even below the low allowable levels for those on the Medicaid program.  But I supported the Commission's recommendations to create a demonstration project to provide workers with disability coverage for the LTSS they need to remain employed, and assist the states to achieve greater uniformity of eligibility and benefits in state Medicaid buy-in programs for LTSS.  Hopefully, we can learn much from these projects and changes.   But even assuming that the results are positive, it is likely that the indicated changes will be costly.  In my opinion, in light of severe fiscal condition of the Nation, the advocacy community must be willing to agree to cuts elsewhere as pay-fors; my suggestion is to tighten eligibility standards in the burgeoning and nearly bankrupt Social Security Disability Insurance program. 

Finally, there was factual disagreement about the possibility to improve the functioning of the private insurance market.  We all agree that it is currently a mess, but there was lesser consensus on the whys, which, of course, leads to the prescriptions put forward.   We really did not have time to consult with a range of industry experts to learn more.  In my view, the problem is mainly one of inadequate demand arising from the crowd-out from the Medicaid program, and also lack of public understanding.   At the same time, there are problems on the supply side.  I think regulations and law should allow policies with long exclusion periods, so that savings would fill most of the coverage gap, and premiums could be lowered.  Also flexible policies should be allowed, fairly reflecting changing macroeconomic conditions, especially in interest and inflation rates.  Innovative designs, such as the life care annuity, which would lead to lower costs and much less restrictive underwriting, should be offered within the attractive environment of qualified retirement accounts.  Finally, we need serious exploration of whether a government-sponsored catastrophic risk reinsurance program for the industry would, in fact, lead to lower priced and more widely available lifetime benefit policies.

In conclusion, it is amazing how much we accomplished in a short period of time.  Part of that accomplishment lies in uncovering what we, as a community, don't know and need to, which we will leave to those who follow us.

 

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About the Author

 

Mark J.
Warshawsky
  • American Enterprise Institute (AEI) adjunct scholar Mark J. Warshawsky is a former director of retirement research at Towers Watson, a global human capital consulting firm, where he oversaw research on employer-sponsored retirement programs, including analysis of retirement plan funding, investments, payments, and plan design. Warshawsky also studies developments in labor markets and retirement trends, compensation, investment products, retirement distribution strategies, financial planning, and health and long-term care insurance. At AEI, his work focuses on retirement policy and long-term care insurance. He is also president of ReLIAS LLC, a retirement solutions design firm.

    Warshawsky was a member of the Social Security Advisory Board from December 2006 to September 2012. He was vice chairman of the federal Commission on Long-Term Care in 2013. From 2004 to 2006, Warshawsky served as assistant secretary for economic policy at the US Department of the Treasury, playing a key role in the development of the Pension Protection Act of 2006. He has also held senior-level positions at the Federal Reserve Board, the Internal Revenue Service, and TIAA-CREF.

    His books include “Retirement Income: Risks and Strategies” (MIT Press, 2012), “Fundamentals of Private Pensions” (coauthor, Ninth Edition, Oxford University Press, 2010), “The Role of Annuity Markets in Financing Retirement” (coauthor, MIT Press, 2001), and “The Uncertain Promise of Retiree Health Benefits: An Evaluation of Corporate Obligations” (AEI Press, 1992).

    Warshawsky has a B.A. from Northwestern University and a Ph.D. in economics from Harvard University.

  • Phone: 202.828.6024
    Email: [email protected]

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