Create Your Long-Term Care Model
A mandatory program would require all participating individuals to pay premiums into the program and would provide benefits to those individuals who meet the disability criteria (e.g., two or more activities of daily living) after any vesting requirements were fulfilled. A voluntary program, on the other hand, would allow people to opt-out of participating in the program; only those who participate would be able to receive benefits.
In this model, all individuals over the age of 18 would be eligible to participate as long as the meet the working requirement (if selected in your LTC benefit design). Retirees would be eligible as long as they had at least one year of work history and paid the premiums during their retirement. This model assumes premiums continue to be paid until the beneficiary begins to draw benefits.
When participation is voluntary, there is risk of adverse selection, wherein a disproportionate number of people already in need of or at above-average risk of needing services participate. This would cause premiums for the overall program to be higher, which could in turn reduce participation.
Limiting the eligible population to those who are working would allow all adults who are currently employed to pay premiums into the program. The other option is to allow all adults, regardless of employment or retirement status, to pay premiums into the program. Both of these options are limited to individuals over the age of eighteen.
By limiting the population to those who are working, you limit the risk of enrolling individuals who are elderly and are at higher risk of disability with an immediate need for services. Working status is considered a proxy for individuals who are healthy enough to work — another means of preventing adverse selection.
Method of Payment: Cash or Services
Eligible individuals can receive a cash benefit, which would give them a set amount of money each day to spend on equipment or services. This dollar amount would increase annually with the consumer price index. Alternatively, enrollees could receive a services benefit, which would cover any needed care after paying a specified out-of-pocket amount. The services benefit would operate similar to Medicare with no hard cap on service amount. Home and community-based services, assisted living, and nursing home care would all be covered.
A services benefit would guarantee that beneficiaries receive comprehensive services, but this can be costly and drive up premiums. A cash benefit would allow flexibility in the type of services a person uses and would, for example, allow an individual to pay a family member who serves as a caregiver. On the other hand, a cash benefit may not provide enough to cover all needed benefits.
A cash benefit usually results in lower premiums than a services benefit, but copayments and deductibles in the services benefit could offset some of the higher costs.
Minimum Premium Payment Period
A minimum premium payment period, also known as a vesting period, would require participants to pay premiums for a specified number of years before they are eligible to receive benefits.
A vesting period helps to ensure the program functions as an insurance program by preventing individuals who need services immediately from receiving benefits without having paid premiums into the system.
Without a vesting period, the cost of the program increases because some enrollees are entitled to receive benefits before premium revenue can accumulate.
Length of benefit
Length of benefit stipulates how long individuals may receive continuous benefits once they become disabled under the program. The longer the length of benefit, the more expensive the program will be.
The elimination period, similar to a time deductible, is the amount of time individuals must wait after meeting the benefit trigger — which in this model is requiring assistance with at least two activities of daily life or having a cognitive impairment — before they can receive services. Without an elimination period, persons eligible for benefits would receive these benefit payments immediately, which would increase the cost of the program.
The 90-day elimination period in the model requires that individuals eligible for benefits bear the costs of care for the first 90 days, while the 0-day elimination period provides payments from the onset of the disability.
The subsidy to low-income individuals helps individuals below a certain income threshold to participate in the program by providing a premium subsidy and covering any co-pays or deductibles for a services benefit. Eligibility is based on annual income relative to the federal poverty level (in 2009, the Federal Poverty Level was $10,830 for a single individual).
The low-income subsidy is covered by higher premiums to others in the insurance pool. In a voluntary program setting, higher low-income subsidies increase demand for insurance coverage among people eligible for the subsidies.