Regular readers know that one of my pet peeves are legislation names with too-clever acronyms, and the WISH Act is pure cringe, on this metric: it’s the Well-Being Insurance for Seniors to be at Home Act, introduced by Rep Tom Suozzi (D-NY) at the beginning of July. Its objective is to create a new federal long-term care program, funded by a payroll tax, but it intends to simultaneously give a boost to private-sector programs as well.
Here’s how it would work:
- Employees and employers would each pay 0.3% of (uncapped) wages into a designated fund; the self-employed would pay 0.6%. For eligibility, a worker would be required to have paid in for four “quarters” (that is, a year and change) for prorated benefits, or 10 years for full benefits.
- Upon reaching retirement age, benefits are available to anyone who meets the requirement of being unable to perform two Activities of Daily Living or who has severe cognitive impairment. However, there is a waiting period, of at least a year, but phasing in to as high as 5 years, by income level.
- Benefits would be provided as cash money, based on the government’s calculation of the median cost of 6 hours per day of paid personal assistance, estimated to be $3,600 per month at present. This would not be taxable income nor factor into Medicaid eligibility but would reduce the amounts paid out by Medicaid.
- Finally, the hope expressed by Suozzi is that due to the defined waiting period, insurance companies would be able to step in to provide waiting-period coverage, would be able to set premiums more confidently, and would find a market for it.
Would Suozzi’s plan pass? It seems unlikely, given the absence of any co-sponsors, and our current political times in general. But it nonetheless has some interesting characteristics worth giving some thought to.
First of all: the cost. In none of the reporting, nor in Suozzi’s own information on the bill, is there information on how the cost of the program was calculated. Clearly, there would be a short-term build-up in funds, as the entire workforce pays in but only a small segment of the population would be using benefits, because the requirement to have paid into the program first would defer significant payouts until those in their early 60s at the time of enactment, begin to attain that “2 or more ADL” requirement in significant numbers; according to a recent study, 8% of 65 – 74 year olds have long-term care needs, compared to 17% of those 75 – 84 and 40% of those over age 85. Over time, this initial build-up would be spent-down, and, also over time, the shrinking old-age dependency ratio would result in greater usage of long-term care funds relative to funds being paid in, as with Social Security itself. The bill itself offers no mechanism for adjusting the payroll tax as needed over time, let alone setting the initial tax rate to an actuarially-determined level to begin with.
Second, the benefit design. The bill itself is being marketed as a way for people to pay for in-home care rather than needing a nursing home, but there is not actually any stipulation to this effect. As the law is written, an individual can use this cash to pay for caregivers, can pocket the money if family members are providing the care, or can use it to offset the costs of a nursing home/assisted living community/memory care community. In many respects, this is a positive development, allowing the greatest flexibility, and is certainly an improvement over requirements that family caregivers not only be paid through government programs but be dues-paying union members. Likewise, there would be no waiting lists for specific programs. On the other hand, there are practical risks with respect to the all-or-nothing benefit: $43,200 per year for crossing that threshold of 2 ADL impairment (unable to manage two of the following independently: eating, toileting, transferring, bathing, dressing, and continence) or meeting the definition of “severe cognitive impairment” (defined as a degree of cognitive impairment severe enough to “require substantial supervision to protect such individual from threats to health and safety”), is a substantial amount of money, and raises the stakes for crossing that threshold, especially when there’s no mechanism to ensure the funds are actually spent on personal care. Whether this means doctor-shopping to qualify, doctors themselves marketing their services for qualifying, or the elderly overstating their impairments, there are significant risks of users gaming the system — which the legislation itself acknowledges in calling for future reports to include “a description of the likelihood of manipulation of eligibility criteria by beneficiaries or beneficiary advisors and recommendations as to the merits of possible remedies.”
Third, benefit adequacy. The specific wording is that the benefit is to be “an estimate, to be determined by the Secretary of Health and Human Services in consultation with the Department of Labor, of the median cost of 6 hours per day of paid personal assistance in the United States, indexed to wages in the long term care sector.” Later, the bill stipulates that recipients must pay the applicable payroll and other employment taxes and the minimum wage. How, precisely, HHS would take into account the differences between those who use agencies and those who hire caregivers directly is not clear. What’s more, even though Suozzi presents this benefit as a “catastrophic” benefit because it comes after a waiting period, it is far from a sufficient amount of money for those who need 24-hour care. Is it reasonable and appropriate to keep the status quo for those in the latter situation, that is, exhausting their funds and relying on Medicaid afterwards?
Fourth, the income-based waiting period. This is actually an innovative method of means-testing — I suppose it’s the equivalent of Social Security raising its eligibility age from the current 62 – 67 to a new level of 64 – 69 for higher earners only. And there’s a certain logic to saying that medium to upper-income people have more ability to weather care costs; specifically, the one-year waiting period applies to those with lifetime incomes at the 40th percentile or lower, and then the phase-in begins to a 5 year wait. But those with low incomes in retirement would still need some additional assistance to get to that one-year mark, potentially creating convoluted programs to fill in the gap. And those with higher incomes would be, let’s face it, according to statistics on the duration of long-term care use, highly likely to die before collecting a penny. At the 75th percentile income (higher wages than 75% of workers), the waiting period would be 3 years and 4 months; at the 85% percentile, 4 years. And, according to a recent study, of those individuals who end up needing long-term care, with middle-class incomes or above, only one in four need more than 4 years of care.
Is this the right or the wrong approach? There is no perfect answer here, but a waiting period so extensive that families will begin to notice that their loved ones died before they could collect a benefit will be politically difficult unless the hope for a new norm of long-term care insurance works as hoped.
All in all, even if the proposal goes nowhere, it provides a framework for discussing future solutions.
As always, you’re invited to comment at JaneTheActuary.com!