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Long
Term Care Finance Reform
Summary of The LIFE Plan
The LIFE Plan contains a two-phase approach to reforming our nation's
current long term care financing system. The first establishes incentives
to encourage individuals at all income levels to participate in
a long term care insurance program. For low- to moderate-income
Americans, full or partial assistance is provided through a refundable
tax credit to subsidize the purchase and maintenance of long term
care insurance or other financial products that would pay a "lifetime"
benefit. Additionally, a tax deduction will be available to those
whose income exceed the subsidy levels as an incentive to purchase
long term care coverage. Phase I will lessen general dependence
on Medicaid.
Once public reliance is reduced through the increased availability
and affordability of long term care insurance, the Medicaid program
will undergo reorganization. Under the LIFE Plan, the restructuring
involves eliminating Medicaid long term care, as it exists today.
In its place, the federal government would take financial responsibility
for the health and long term care needs of the elderly and the long
term care needs of the disabled.
The LIFE Plan would eliminate the cost shifting and confusion that
currently prevails between federal and state governments under today's
Medicaid, and permit better coordination of care. The federal government
would recapture some of the savings accruing to the states due to
their reduced responsibilities under Medicaid. This can be done
in a way that would hold individual state budgets harmless.
The LIFE Plan is a voluntary program that provides a "lifetime"
care benefit covering a continuum of services including those offered
in home health, community-based programs, assisted living facilities,
nursing homes and other care settings as may be offered in the future.
Consumer choice and individual assets are protected through LIFE
Plan participation. Individuals who opt not to participate in the
LIFE Plan, but later require government-paid long term care services
would have limited choices and no asset protection.
To ensure that all Americans understand that they face about a 50
percent chance of needing long term care during their lives, the
government will launch an extensive public education campaign designed
to layout the risks individuals face and the resources available
to help them take personal responsibility in their own long term
care.
Granting individuals the power to choose through the LIFE Plan opens
the door to the creation of new coverage benefits from which individuals
can select to meet their needs. The ability for individuals to shop
for their benefits can instill levels of competition that will assure
that care, when needed, meets standards of high quality whether
it is provided at home or in a more formal setting.
The LIFE Plan*
The LIFE Plan will be implemented in two phases:
Phase I - PRIVATE LONG TERM CARE INSURANCE
Enact a refundable tax credit. The purchase of
long term care insurance is encouraged and supported with federally
funded premium subsidies, in the form of refundable tax credits
targeted to elderly and non-elderly, low-income individuals. Individuals
with the lowest incomes and assets (10% of asset value, excluding
home) as well as those disabled prior to age 65 - as determined
by SSI eligibility - would receive 100% premium subsidies and direct
federal funding for long term care services, respectively. There
could be 20 or more federal poverty level (FPL) subsidy category
levels. For illustrative purposes, broad levels might be:
Subsidy level
100% for those at 0-100% of the FPL
50% for those at 101-200% of the FPL
25% for those at 201-300% of the FPL
0% for those exceeding 300% of the FPL (approximately $34,000 for
a family of two)
In addition to long term care insurance, the refundable tax credit
could be applicable to other products that provide a long term care
benefit, such as annuities or life insurance policies with long
term care rider provisions that pay a long term care benefit. The
refundable tax credit, would only apply to that portion of the premium
that can be identified as applicable to the long term care benefit.
Individuals
requiring government assistance in paying the first year premium
costs for insurance may apply directly or through their insurance
companies to receive a subsidy payment.
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To qualify for federal subsidy, LTC policies must:
- Provide
a "lifetime" benefit for long term care services;
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Meet all qualifying product and consumer protection requirements
as defined for long term care insurance by HIPAA (Including
the 2 of 5 ADL and cognitive impairment benefit triggers);
and
- Provide
benefits covering a continuum of services including those
offered in home health, community-based programs, assisted
living facilities, nursing homes and other care settings as
may be offered in the future.
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Tax deduction. A "above-the-line" deduction of
long term care insurance premium costs may also be available to
those exceeding the subsidy levels as an incentive to purchase
a policy. The tax deduction complements the "refundable tax credit"
by providing an additional incentive for those above the poverty
levels to purchase and maintain long term care insurance.
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Prevent lapsing of policy. Individuals who purchase
long term care insurance will be eligible for premium subsidies
if income falls to subsidy levels because of retirement, disability,
unemployment, etc.
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Other individual incentives:
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Individuals purchasing and maintaining "lifetime" long term
care insurance have the benefit of full income and asset protection;
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Consumer choice is protected. Individuals can identify and
purchase long term care insurance policies that best fit their
needs. When care is needed, individuals can select where and
how to receive their care;
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Out of pocket expenditures would be limited to policy deductibles
and/or co-pays;
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The LIFE Plan does not require individuals to purchase insurance.
Participation is voluntary.
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Through aggressive public education, the federal government
will help individuals of all ages understand the long term
care risks they face, what the LIFE Plan provides and how
it will help them plan responsibility for their long term
care needs. Individuals will be strongly encouraged to participate
in the LIFE Plan when enrolling in Medicare if they have not
enrolled and do not have sufficient savings to finance their
long term care needs.
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Supplementation of care for those with insurance would be
allowed.
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3-day stay. Eliminate the 3-day stay rule and
utilize long term care insurance pool to pay for care costs. Savings
to Medicare could be used to support insurance subsidy payments.
Current policy states that after a 3-day stay, Medicare pays rehab
costs at 100% level for 20 days. Individuals pay a $95 co-pay
and Medicare pays the remainder for days 21 to 100. Medicare pays
nothing after 100 days.
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Public education. The federal government will
provide for public education to encourage all citizens to voluntarily
plan for their long term care needs either through savings or
through the purchase of long term care insurance. This education
program will be directed at individuals prior to retirement and
specifically target those signing up for Medicare at age 65. A
key component of this education program must be "full disclosure"
by the Department of Health and Human Services and the Center
for Medicare & Medicaid Services of what is not being provided.
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Medicaid impact. An assessment of the tax incentives
to promote increased utilization of long term care insurance,
as it relates to the easing of the financial burden on the Medicaid
program, will be made by the Secretary of Health and Human Services.
This annual assessment, submitted to Congress from 2001 to 2011,
would determine when to launch a new federal program for long
term care financing.
Once public reliance on Medicaid is reduced through
the increased availability and affordability of long term care
insurance, there would be a restructuring of the Medicaid program,
which is Phase II of the LIFE plan.
Phase
II - A NEW LONG TERM CARE PROGRAM
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Reallocation of financial responsibility. Beginning
in 2011, there is a reallocation of responsibility for those who
would otherwise be in Medicaid due to age or disability. The reallocation
of financial responsibility means that the federal government
takes full financial responsibility for all health and
long term care expenditures for Medicaid eligibles who
are aged and all long term care expenditures
for Medicaid eligibles who are disabled (i.e., on SSI). This will
result in the elimination of long term care coverage for these
populations under Medicaid. Financial responsibility for funding
acute and primary care services for non-elderly Medicaid eligibles
is shared by the states and the federal government through a reduced
federal match rate. Such a reduction in federal matching rates
will be accomplished in such a way as to assure states would be
held harmless.
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Safety net. The federal government responsibilities
for providing long term care for the elderly and disabled will
include a "safety net" component for very low income and uninsurable
individuals. Coverage is provided through a government administered
"high risk" pool. Insurance companies participating in the new
long term care program will participate. Individuals covered by
this pool will receive the same level of benefits, have the same
choices and protections as all others participating in the new
long term care program.
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Voluntary participation. Participation in the
new long term care program will be voluntary, though the federal
government will strongly encourage individuals to save or purchase
long term care insurance at the point when they are applying for
Medicare.
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Failure to participate. Individuals who have
resources at age 65 but fail to purchase long term are insurance
or save adequately for their long term care will face impoverishment
and severely restricted choices when the need arises:
- Restricted
Choices. The "safety net" and back-end service package
will include all currently mandated Medicaid Services and
all services currently covered by Medicare. The package will
also include those optional services provided by at least
60 percent of the state, either under Medicaid state plans
or under Section 1115 demonstration waivers and assisted living.
- Cost
of care. Individuals with resources, who have failed to
plan responsibly, must spend down. There is no income or asset
protection.
The transfer of assets under the new federal program will
not be recognized.
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Public education. The federal government will
continue to provide for public education for all citizens to voluntarily
plan for their long term care needs either through savings for
through the purchase of long term care insurance in the same manner
as outlined in Phase I.
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The LIFE Plan is based upon Abt Associates research: "Development
and Analyses of New Models for Financing Long Term Care" December
31, 2001
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