Order Code RS20784
January 16, 2001
CRS Report for Congress
Received through the CRS Web
Long-Term Care: What Direction for
Public Policy?
Carol O’Shaughnessy, Bob Lyke, and Jim Storey
Specialists in Social Legislation
Domestic Social Policy Division
Summary
The need for long-term care is expected to grow substantially in the future, straining
both public and private financial resources. Many analysts argue that the current system
fails to meet the needs of many people with long-term care needs because of its reliance
on institutional care and on informal caregivers who bear most of the burden of care, as
well as uneven availability of home and community-based services. Currently, federal
programs provide some fragmentary protection against the costs of long-term care.
A myriad of long-term care issues has drawn congressional attention for more than
two decades. These have ranged from debate about large scale reform, such as new or
expanded social insurance, to consideration of incremental changes to existing programs
and tax policies. The 107th Congress may reexamine broad approaches to alter public
and private financing of long-term care. Alternatively, Congress may continue an
incremental approach, without major federal involvement, leaving state governments to
develop strategies within existing federal and state funding constraints. This report will
not be updated.
Introduction
The need for long-term care – supportive and health services for persons who have
lost the capacity for self-care – is expected to grow substantially in the future, straining
both public and private financial resources. About $133.8 billion was spent on long-term
care services for persons of all ages in FY1999, representing 12.7% of total U.S. personal
health care expenditures. Of that total, federal and state governments spent 57.5%, and
consumers paid 24.6% out of their own pockets. Estimates indicate that total spending
for long-term care for the elderly alone could more than double from 2000 to 2025,1 and
could increase still further as a result of the aging of the “baby boom” generation.
1 U.S. Department of Health and Human Services (DHHS), Health Care Financing Administration
(HCFA), 2000, and The Lewin Group, Inc., 2000.
Congressional Research Service ˜ The Library of Congress

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A myriad of long-term care issues has drawn congressional attention for more than
two decades. These have ranged from debate about large scale reform, such as new or
expanded social insurance, to consideration of incremental changes to existing programs
and to tax policies. Many analysts argue that the current system fails to meet the needs
of many people with long-term care needs because of its reliance on institutional care and
the sometimes poor quality of such care; heavy reliance on informal caregivers who bear
most of the burden of care; and uneven availability of home and community-based services
which most people prefer over care in institutions.
Previous Congresses did not reach any consensus on what policy directions to take.
A key element of debate is what, if any, changes should be made in public financing of
long-term care. While federal and state governments spend an enormous amount on long-
term care, spending is primarily for institutional care through the Medicaid program.
Many advocates have championed major expansion of home- and community-based care.
Some believe that the federal government should assume the major role in expanding
access to services through a new or expanded entitlement program. Others believe that
costs of a new entitlement program would be prohibitive and that private sector
approaches through insurance and changes in tax policy should be pursued. Some believe
that a hybrid of public and private sector strategies should take place.
Previous Congresses pursued an incremental strategy to change long-term care
policy. One of the most significant expansions occurred over 20 years ago when Congress
passed legislation to allow waivers of Medicaid law to encourage states to offer a range
of home- and community-based services for persons who would otherwise be
institutionalized. In FY2000, spending on waiver services reached $12 billion. More
recently, the 106th Congress approved legislation to expand services to family caregivers
under the Older Americans Act, and a plan to provide federal civilian personnel with
options to purchase long-term care insurance.
Congressional interest in long-term care is expected to accelerate in the near future
due to concern about the aging of the “baby boom” generation (the first of whom will turn
65 in 2011) and increasing life spans of those who reach old age. Advances in medicine
may allow the survival of people of all ages who experience illness or disability.
Background
Long-term care refers to a wide range of supportive and health services for persons
who have lost the capacity for self-care due to illness, frailty, or a disabling condition.
Need for long-term care services is measured by assessing the need for assistance from
others in performing basic types of daily activities, referred to as activities of daily living
(ADLs) and instrumental activities of daily living (IADLs).2
About 9 million persons over
age 18 receive long-term care assistance. Most of these persons – 3.9 million persons age
65 and older, and 3.4 million persons age 18-64 – receive care in home- and community-
2 ADLs include bathing, dressing, toileting, transferring from a bed or a chair, eating, and getting
around inside the home; IADLs include such things as meal preparation, managing money, taking
medications, grocery shopping, and transportation.

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based settings, not in nursing homes. Only about 1.6 million persons reside in nursing
homes.3
Currently, federal programs provide some fragmentary protection against the costs
of long-term care. Medicare pays for medically necessary, part-time skilled nursing and
rehabilitation therapy services at home; it also pays for up to 100 days of care in a skilled
nursing facility following hospitalization for individuals who need full-time skilled nursing
care. Medicare does not cover long-term care services for persons with chronic care needs
or who require only assistance with ADLs. Medicaid provides coverage for nursing home
care and a wide range of home- and community-based services for persons of all ages who
meet income, asset, and categorical eligibility criteria prescribed by federal and state law.
Many people qualify for Medicaid benefits by depleting most of their assets and income
to pay for care. Other federal programs, such as the Social Services Block Grant (SSBG)
program, the Older Americans Act, and state supplements to Supplemental Security
Income (SSI), authorize a range of home- and community-based services for persons with
long-term care needs. Benefits for these programs, except Medicare, vary widely by state.
While only a small proportion of those receiving long-term care services reside in
nursing homes, public spending for such care, primarily through Medicaid, is
disproportionately high. In 2000, of total Medicaid spending on long-term care ($67.7
billion), 73% was for institutional care; only 27% was for home- and community-based
care which most people prefer. While some states have made significant strides to develop
home- and community-based care,4 service availability across and within states is variable.
Despite substantial public spending for long-term care, families provide the bulk of
long-term care services. Almost 60% of persons age 65 and older receiving long-term
care assistance in the community rely exclusively on unpaid caregivers, primarily spouses
and children; only 7% rely exclusively on paid services. Similarly, over 70% of persons
age 18-64 receiving long-term care assistance in the community rely exclusively on unpaid
caregivers; only 6% rely exclusively on paid services. Research has documented the
enormous strain family members – predominantly women – face in their caregiving
responsibilities.
Persons with long-term care needs face significant uncovered liability for long-term
care. Paying for nursing home care – averaging more than $40,000 per year – can
impoverish most families. Private long-term care insurance coverage, while growing, is
still quite small relative to the potential universe of need.
The aging of the population will increase the demand for long-term care services.
Estimates predict that the number of elderly using home care services will increase by one-
3 1994 National Health Interview Survey, Disability Supplement (NHIS-DS) from Spector,
William, et. al. Characteristics of Long-Term Care Users. Prepared for the Institute of Medicine,
1998.For more information on long-term care data, see Long-Term Care Chart Book: Persons
Served, Payors, and Spending. CRS Congressional Distribution Memo CD00122, May 5, 2000.
4 One study estimated that state spending for home- and community-based services for the elderly
was more than $1.2 billion. American Association of Retired Persons, Taking Care of their Own:
State-Funded Home- and Community-Based Care Programs for Older Persons. Washington,
1997.

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third by 2020; the number using institutional care will increase by an almost equal amount.
The rate of increase is expected to accelerate with the aging of the large “baby boom”
generation.
Broad Policy Directions
The 107th Congress may reexamine broad approaches to alter public and private
financing of long-term care. Alternatively, Congress may continue to pursue an
incremental approach, without major federal involvement, leaving state governments to
develop strategies within existing federal and state funding constraints. Congress may
focus on other specific issues, such as improvement in quality of institutional care and
long-term care labor force issues, among others. Broad policy approaches advanced in the
past have included proposals for social insurance coverage of long-term care costs,
expanded public commitment for home and community-based care, incentives for private
financing, and combinations of these, among others.
Social Insurance Approach. Some analysts argue that access to long-term care
could be made affordable to all persons in need through social insurance. Such an
approach could also resolve issues of uneven coverage of home- and community-based
care that exist under Medicaid and multiple state programs. Social insurance schemes
have been adopted by many nations as a way to offer universal insurance against major
financial risks that all their residents face, but that only a few can afford to insure against
on their own. These systems are usually financed by some combination of contributions
from insured individuals, their employers, and taxpayers generally. Participation is usually
compulsory. Thus, the “contributions” are in actuality taxes – payroll taxes and mandatory
allocations of general government revenue – set at the levels necessary to finance expected
costs.
In the United States, the social insurance concept has been used to protect most
Americans against: loss of income in old age, loss of family income because of the death
of the breadwinner, loss of income because of permanent and total disability, loss of
income while temporarily unemployed, and the costs of health care for hard-to-insure
populations (the aged and disabled). At least two countries have recently begun to finance
long-term care services as part of their social insurance systems. Germany added
mandatory long-term care insurance to its social insurance system in 1995. Japan, with
one of the most rapidly aging populations in the world, instituted broad social insurance
coverage in 2000.
If the United States were to use social insurance to make long-term care services
more affordable, one way would be to expand coverage through Medicare or to create a
new entitlement. While such an approach may address issues of equity across income
groups and provide universal coverage, it would be costly and there could be resistance
to the increased taxes that would be necessary to finance it. Additionally, careful study
would be needed to determine how to mesh a new entitlement program with the private
long-term care insurance market.
Expanded Public Commitment for Home and Community-based Programs.
Because of cost concerns, some have proposed limiting new federal benefits to home- and
community-based care. Options include block grants to states for home care services, or

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amending existing state-administered programs to expand home- and community-based
care. For example, in 1993, President Clinton proposed capped grants to states for home-
and community-based care for severely disabled persons, regardless of age and income.
By FY2003, federal grants to states would have been $38 billion with required state
matching of another $7.3 billion.
Another approach that has received attention in recent Congresses include proposals
to amend the Medicaid program to require states to make certain home care services, such
as personal attendant services, available to eligible persons who would otherwise require
institutional care. The intent of these proposals is to place Medicaid funding for home-
and community-based services on a level playing field with its spending for nursing homes.
Versions of this proposal were introduced in the 105th Congress as H.R. 2020 (Gingrich)
and in the 106th Congress as S.1935 (Harkin)/H.R. 4416 (Danny K. Davis). This approach
is costly in part because of its potential liberalization of Medicaid eligibility; the
Congressional Budget Office (CBO) estimated that the cost of H.R. 2020 could have
reached $10 to $20 billion per year.
Private Financing. Family and other informal caregiving – the predominant care
option – can be burdensome, particularly for prolonged care. However, it allows people
who need care to remain at home or in community settings with their families. The
principal economic cost of family caregiving is the foregone earnings of caregivers who
have to curtail or give up paid employment. Recently there have been proposals to
recognize caregiver burden and costs in proposed tax policy changes. These include
proposals for tax credits (e.g., President Clinton’s proposal for a $3,000 credit in the
FY2001 budget), an additional personal exemption (e.g., the Taxpayer Refund and Relief
Act of 1999, vetoed by President Clinton), or a new $10,000 deduction not limited to
itemizers (e.g., H.R. 5542, which was incorporated in legislation the House passed at the
end of the 106th Congress, but was not enacted). Current law already allows a small tax
credit for taxpayers who pay others to provide household care so they can be employed.
The principal financing issue for individuals and families is whether they can anticipate
costs and take appropriate steps to meet them. Most families cannot pay nursing home
costs for prolonged periods, at least not without selling their homes and/or depleting other
assets, but many might be able to save more than they now do for potential long-term care
costs. Options might include establishing new tax-advantaged savings accounts for long-
term care. Other possibilities include expanding pension and individual retirement
arrangements to include long-term care options. Tax-advantaged savings arrangements
do little to help taxpayers with lower incomes, however, and their effectiveness in
encouraging new savings has been questioned.
Long-term care insurance may be the solution for some families. While some
taxpayers who itemize can deduct premiums for qualified policies, proposals have been
made for tax credits or deductions that would be generally available to all taxpayers with
a tax liability. In the 106th Congress, the House and Senate passed legislation that would
have allowed deductions for long-term care insurance. Tax benefits for long-term care
insurance might reduce Medicaid costs later on, but whether the savings would pay for the
benefits remains unclear. Some have questioned whether families should be encouraged
to obtain policies they might not be able to afford. In addition, the cost for insurance is
quite high for older persons.

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Joint Public-Private Strategies. Some analysts have argued that what is needed is
a strategy that would combine public and private financing approaches. For example, they
argue that many individuals cannot afford the entire cost of care themselves, but could pay
for a portion of such costs. An example of such an approach was contained in the 1990
U.S. Bipartisan Commission on Comprehensive Health Care (the Pepper Commission)
which recommended expanded federal commitment for nursing home and home- and
community-based care, cost-sharing by individuals, and incentives for private insurance.
The Commission recommended social insurance for home- and community-based care and
for the first 3 months of nursing home care regardless of income, but with cost-sharing
from individuals based on ability to pay. For persons with longer nursing home stays, the
Commission recommended a floor of asset protection ($30,000 for individuals and
$60,000 for couples, excluding homes). Persons wanting additional asset and income
protection could purchase private long-term care insurance, with certain recommended tax
incentives for private insurance.
Other Issues
In the short term, there are several continuing concerns.
Quality of Nursing Home Care. Despite significant federal spending on nursing
home care, and even with enactment of major reform of nursing home quality of care
requirements in 1987, oversight and enforcement of nursing home standards continue to
draw attention. Recent General Accounting Office (GAO) reviews showed that more than
one quarter of nursing homes surveyed had deficiencies that caused actual harm to
residents or placed them at risk of death or serious injury. In September 2000, the Clinton
Administration proposed a $1 billion, 5-year initiative to improve nursing home quality.
Among other things, it would have established a program to address nursing home staffing
and training issues. Other parts of the proposal would have established immediate
penalties for nursing homes that endanger patient safety, and would have provided public
information on nursing home staffing levels.
Personnel Needs. Directly related to quality issues is concern about recruitment,
training, and retention of nurses and nursing aides in nursing homes and home care
settings. Nursing aides and homemaker/home health aides, who provide the bulk of care
across many long-term care settings, generally receive low wages and limited, if any,
benefits, and have little opportunity for upward mobility, but nonetheless carry out
emotionally and physically challenging tasks. As a result, long-term care jobs are
characterized by high turnover presenting challenges for long-term care administrators. he
aging of the population will intensify the demand for long-term care personnel. One
DHHS study estimated that the projected demand for registered nurses and nursing aides
will increase by 44% and 47% respectively from 2000 to 2020. Over the same time
period, the need for nurses and aides in home health agencies is projected to increase by
44% and 48%, respectively.

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