Order Code RS20784
Updated December 18, 2002
CRS Report for Congress
Received through the CRS Web
Long-Term Care: What Direction for
Public Policy?
Carol O’Shaughnessy, Bob Lyke, and James R. Storey
Specialists in Social Legislation
Domestic Social Policy Division
Summary
The need for long-term care is expected to grow substantially in the future. While
need cannot be predicted with certainty, total public and private spending for long-term
care for the elderly could double from 2000 to 2025, even assuming no expansion of
benefits. How these added costs would be financed is unclear.
More than $140 billion was spent on long-term care services in FY2000,
representing over 12% of total U.S. personal health care expenditures. Increases in life
expectancy and the impact of the aging of the Baby Boom population will dramatically
affect future demand for services. Long-term care policy in the United States is based
primarily on Medicaid, which finances 47% of public and private spending. Medicaid
long-term care spending almost tripled during the 1990s, straining state budgets. Many
people indicate that the Medicaid financing system is biased toward institutional care.
Families and individuals finance about 22% of total spending on long-term care.
Issues for Congress include: how to pay for these escalating expenses; how to
apportion costs among the public and private sectors; and how to help people get the
long-term care benefits they both want and can afford. Although Congress has
considered broad-scale reform in the past, it has primarily made incremental changes to
current programs. Different directions have been suggested for long-term care policy,
including additional incentives for private insurance, expanded home and community-
based services, and broader social insurance protection.
A Growing Need
The need for long-term care — supportive services and health services for persons
who have diminished capacity for self-care — is expected to grow significantly in coming
decades.1 Two-thirds of the people receiving long-term care are over 65, an age group
1 The need for long-term care is measured principally by assessing the assistance others must
provide with respect to activities of daily living (ADLs). ADLs usually include bathing, dressing,
eating, toileting, continence, and transferring from a bed or a chair.
Congressional Research Service ˜ The Library of Congress

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expected to double by 2030. After 2030, even faster growth rates are anticipated for
people over 85, the age group most likely to need care.
Long-term care is already costly. In FY2000, $140.7 billion was spent on long-term
care services for persons of all ages. Of this sum, Medicaid and Medicare provided $85.2
billion (60.5%), largely for care in institutions. Private health and long-term care
insurance provided $15 billion (10.7%), while individuals needing care and their families
paid $31.3 billion (22.2%) from their own income and assets.2 The $140.7 billion does
not include the cost of informal caregiving provided by families. One study estimated that
the economic value of these services can range from $140 billion to as much as $389
billion.3
While the need for long-term care will surely climb in the future, whether it will
grow as rapidly as the number of elderly is less certain. The prevalence of disability
among the elderly has been declining over the last 20 years.4 If this trend continues, the
elderly of the future may be healthier, which may reduce their need for care. On the other
hand, increased life expectancy of the total population could result in more people
needing services. Whatever the rate of growth, increases in aggregate demand will likely
drive up prices for care, though it might also result in more efficient ways of providing
services and, for some, less satisfactory care. While future need is difficult to predict,
total public and private spending for long-term care for the elderly could double from
2000 to 2025, even assuming no expansion of benefits.5
How these added costs will be financed is unclear. If economic productivity steadily
increases, the nation may have additional resources to spend on long-term care, at least
in the aggregate. However, financing options may diminish because the ratio of people
ages 18-64 to those 65 and over is projected to fall from 4.6 in 2000 to 2.7 in 2030,
leaving far fewer workers to support the retired population. The shrinking worker/retiree
ratio will make it difficult to maintain Social Security and Medicare benefits at current
levels, let alone expand other programs for the elderly.
This dilemma – looming costs but uncertain financing – is not news to policymakers.
The demographic trends have been apparent for some time, as evident in the long debate
over the future of Social Security and Medicare. While their import for long-term care
has received less attention, reports of the congressionally-mandated Pepper Commission
(the U.S. Bipartisan Commission on Comprehensive Health Care) and other bodies called
attention to them more than a decade ago.
2 Center for Medicare and Medicaid Services (CMS)). The remaining 6.6% of expenditures
included spending for state and local general assistance and veterans’ benefits for nursing home
and home care services.
3 Arno, Peter S., Carol Levine, and Margaret M. Memott. The Economic Value of Informal
Caregiving. Health Affairs. Mar./Apr. 1999, p. 182-188.
4 Manton, Kenneth G. and XiLiang Gu. Changes in the Prevalence of Chronic Disability in the
United States, Black and Nonblack Population above 65 from 1982 to 1999. Proceedings of the
National Academy of Sciences, May 22, 2001.
5 The Lewin Group, Inc. The Long-Term Care Financing Model. For Dept. of Health and
Human Services. 2000.

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Current Policy
Medicaid is the primary payor for long-term care; in 2001, it paid $ 75.3 billion for
care in institutions ($53.1 billion) and in home and community-based settings ($22.2
billion), an increase of 155% since 1990. Medicaid provides coverage for nursing home
care and intermediate care facilities for the mentally retarded (ICFs/MR) and a wide range
of home and community-based care for persons of all ages who meet stringent income,
asset, and categorical eligibility tests. Many people qualify for Medicaid after depleting
their assets and income by paying for nursing home care. In 2000, Medicare financed
$18.7 billion for a limited range of services. It provides medically necessary, part-time
skilled nursing and rehabilitation therapy services at home, and up to 100 days of skilled
nursing facility care following hospitalization for individuals who need full-time skilled
nursing care. Other programs such as the Older Americans Act and the Social Services
Block Grant (SSBG) program support limited home and community-based services.

Congress has adopted a series of incremental changes that provide additional forms
of assistance and protections for people needing care. These incremental changes have
added to long-term care policy in the following ways:
! Home and community-based care. In 1981, Congress gave
authority to the Secretary of the Department of Health and Human
Services (DHHS) to waive certain provisions of Medicaid law
allowing states to provide a wide range of home and community-
based services for persons with disabilities of all ages. In 2001,
$14.4 billion was spent for these services for persons (primarily
those with mental retardation and developmental disabilities) who
meet state income and asset tests and functional eligibility criteria.
! Services to family caregivers. In 2000, Congress authorized a new
state grant program under the Older Americans Act to assist family
caregivers. The program is funded at $136 million for FY2002.
! Long-term care insurance. In 1996, Congress clarified the tax
treatment of long-term care insurance and allowed taxpayers who
itemize a limited deduction for premiums. In 2000, it established
a voluntary long-term care insurance program for federal
employees, retirees, and family members as an example for other
employers.
Medicaid and Medicare and other smaller social service programs provide a variety
of assistance and protections that help families with diverse needs. Nonetheless, advocates
for people needing care express a number of concerns about current policy. Medicaid
eligibility and services depend in part on state policy and financial support, resulting in
disparate service patterns and eligibility criteria across states. Many states are concerned
about their ability to continue support for Medicaid long-term care services because of the
current fiscal crisis facing most states, and, in the long-term, states will face rising costs
as increasing numbers of persons turn age 65. Medicaid waiver programs for home and
community-based services tend to be relatively small. Other programs administered by
states, such as the Older Americans Act and the SSBG, vary widely in scope. Long-term
care insurance helps only those who elect and pay for that coverage.

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A second concern is that, while most people needing long-term care receive services
in their homes or community-based settings, most public funding goes for institutional
care. About 18% of the people over age 18 who receive services reside in nursing homes.
Yet, in 2001 Medicaid spent almost 71% of its total long-term spending for institutional
care. While nursing home residents typically need more services than people receiving
care at home, many advocates argue that state and federal policies have an institutional
bias. Some states have made significant strides to develop home- and community-based
care, but service availability across and within states is inconsistent.
Most long-term care is provided by families that receive little or no public assistance.
Almost 60% of persons age 65 and older receiving care at home or in the community rely
exclusively on unpaid caregivers, primarily spouses and children; only 7% rely
exclusively on paid services. Family members – predominantly women – who provide
care frequently experience enormous strain.
Finally, advocates point to persistent quality problems, most evident in nursing
homes, which are subject to federal standards and regular inspections. Problems may also
occur in smaller assisted-living facilities, group homes and home care. Quality problems
are partly attributable to shortages of trained personnel.
What Future Direction?
The growing need for long-term care and concerns about current policy raise
important questions about how services might be organized and financed in the future.
What role should the federal and state governments play? To what extent should families
pay for care? When should they pay – only when care is needed, or through lifetime
saving and/or insurance? Should families needing care receive tax relief or grant
assistance? Who should provide care, and in what settings? What standards are desirable,
and how can these be assured?
As it considers these questions, Congress might continue making incremental policy
changes like those of the past 2 decades. By taking small steps, Congress could support
what seems to be working and avoid costly commitments that limit future options. On the
other hand, incremental changes may not be sufficient to prepare for the large increase in
future needs. Demand for care may rise so sharply that programs currently in place will
not be adequately financed. Thus, larger, more comprehensive change may be needed.
Whether small or large steps are taken, Congress might consider the different
directions described below in developing long-term care policy. None of these directions
need be exclusive, and all might be combined to some degree. But the approaches differ
in objectives, as well as in degree and type of government involvement.
Assistance to family caregivers. Long-term care is expensive, particularly for
prolonged periods, and few families can afford to pay costs out of current income. A year
in a nursing home typically costs about $60,000. Some families are forced to spend down
assets quickly, becoming eligible for Medicaid. If families could save more, these
problems might be alleviated, at least for those with the means to save. Policies to
encourage saving might include authorizing tax-advantaged long-term care savings
accounts, perhaps in conjunction with medical savings accounts, and permitting more
flexible, tax-advantaged withdrawals from pensions and individual retirement

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arrangements. However, tax-advantaged savings accounts typically do little to help
taxpayers with lower incomes, and their effectiveness in encouraging new savings has
been questioned in some economic studies.
Long-term care insurance might be the better solution for many families. The
number of policies sold increased steadily during the last decade, reflecting growing
consumer interest and more governmental oversight. However, long-term care insurance
can be expensive if purchased in retirement (premiums generally are based upon the age
when policies are acquired), and many find it a difficult product to evaluate. More
families might obtain the insurance if taxpayers were allowed to deduct premium costs
(whether or not they itemize), as President Bush proposed in his FY2003 budget. Some
argue that the cost of the tax deduction to the federal treasury would be offset by future
Medicaid savings, but such offsets are speculative.
Encouraging families to finance more of their own long-term care through tax
incentives, for example, is appealing to those who prefer not to expand government
programs. It would likely save some public costs as well, though some object that public
subsidies to encourage savings or insurance may largely help families preserve assets, not
pay for care. The principal issue with this approach is whether families will actually
anticipate the costs they might incur and save enough to cover these costs or purchase
insurance. Perhaps people could be educated about the need for long-term care,
notwithstanding tendencies to discount risks that occur late in life.
Expanded home and community-based care. Most long-term care is
provided informally in the home or the community, not in nursing homes. Moreover, the
home is where most people want to stay, even with significant physical limitations. While
family care is usually preferred by persons needing services, it can be burdensome for
family caregivers if needed for a prolonged period of time for highly impaired individuals.
There also are significant economic costs to caregivers who must curtail their own
employment. Recent proposals to recognize these burdens and costs in the tax code
include a credit for caregiving, as President Clinton proposed in his last several budgets,
or an additional personal exemption, as President Bush proposed in his FY2003 budget.
Some argue that home and community-based care merits increased public financial
assistance. One option would be to give this care the same access to Medicaid funding
as nursing homes now have. Nursing home care is an entitlement under Medicaid for
persons who meet state financial and functional eligibility criteria. Home and
community-based care is not an entitlement and is primarily supported through waivers
of Medicaid law granted by DHHS. Another option might be to establish a grant program
to states for this purpose, as President Clinton once proposed. However, either approach
might result in more people receiving public support than at present, thus increasing
federal costs.
Broaden social insurance. Current policy already provides limited social
insurance for long-term care, as described above. Medicaid’s coverage of long-term care
might be expanded, for example, by extending coverage to people who have higher
income or more assets than current tests allow and requiring persons to pay premiums and
cost-sharing (as is the case in certain Medicaid state optional programs, such as for
working disabled under the Ticket To Work program). However, policymakers may be
more concerned about preserving, rather than expanding, long-term care benefits.

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Medicaid expansion may be limited by sharply rising health care costs and the harsh fiscal
constraints state governments face. Medicare expansion may be limited because of
competing initiatives, such as improved prescription drug coverage, as well as by rising
health care costs.
Even if long-term care benefits were not expanded under these programs, policy-
makers might take into account how both programs, as well as Social Security, affect
people who need long-term care. Medicare payments for health care, for example, have
significant indirect effects on families’ ability to pay for long-term care; without health
care coverage individuals would have less income and assets to pay for long-term care.
Similarly, long-term care costs affect perceptions of the adequacy of Social Security
benefits. One advocacy group, Citizens for Long-Term Care, argues that need for long-
term care is insurable and should be considered as part of reforms in Social Security and
Medicare financing.
Some argue that a new social insurance program is needed for long-term care
expenses. Models include systems adopted in Germany in 1995 and Japan in 2000. One
advantage of social insurance dedicated to long-term care would be that coverage could
be universal (at least for those who met a basic eligibility test, such as that for Medicare).
One concern might be that, if the insurance were funded through a payroll tax, the trust
fund could be inadequate to provide benefits to those already near old age. Another
concern might be that social insurance would reduce the likelihood that families would
save or buy private insurance.
Hybrid strategies. Some observers argue that long-term care policy should
include a mixture of the approaches outlined above, combining some aspects of incentives
for private financing as well as public financing. Hybrid strategies might build on current
programs and initiatives, expanding some and strengthening others. One rationale for
hybrid strategies is that they can better respond to the diverse needs and circumstances of
people who need care – for example, those with varying income and assets and
impairment levels, and those with and without informal caregivers. Another is that it may
be easier to reach consensus for a combination of strategies than for one approach.
However, hybrid strategies may have internal conflicts – incentives for one program may
be undermined by incentives for others, and coordination of programs may be a continual
problem.
One hybrid strategy proposed by the 1990 Pepper Commission was to expand the
federal commitment for nursing home and home and community-based care, cost-sharing
by individuals, and incentives for private insurance. Social insurance would cover home
and community-based care and the first 3 months of nursing home care, with cost-sharing
from individuals based on ability to pay. For longer nursing home stays, the Commission
recommended a floor of asset protection ($30,000 for individuals and $60,000 for
couples, excluding homes, in 1990 dollars). Persons wanting additional asset and income
protection could purchase tax-advantaged private long-term care insurance.

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