Keep long-term care insurance mandatory in WA

The nation is ill-prepared for the consequences of a rapidly aging society where the number of people over 85 is projected to more than double by 2040. An expanded number of people in need of personal care will accompany such population changes. Washington state has taken steps to address the mounting needs, but a measure going before voters in November could undercut that estimable goal.

The Washington Legislature enacted the Long-Term Services & Support Trust Act in 2019, a modest but important effort to protect low- and middle-income state residents against some of the growing risks of high costs stemming from the need for long-term services and support. Despite some modifications, it remains grounded in sound insurance principles.

In November, Initiative 2124 will ask voters whether to make the mandated participation provision of the program voluntary. Proponents of this effort (including this newspaper’s editorial board) appear to be blind to the advice of the actuaries used by the state, history and the lessons learned from the failure of commercial long-term care insurance markets.

The WA Cares Fund provides a lifetime benefit of $36,500 and it forbids premium increases and underwriting (the practice of excluding applicants who present with health problems and are thus more likely to use the covered services). It is funded by a mandatory payroll tax on workers of 0.58% of earnings. 

Making this program voluntary will lead to the same problems faced by voluntary long-term care insurance programs in commercial markets. The people most likely to need LTSS (who will cost the insurer the most money) want to sign up, and those who are the healthiest and least likely to need LTSS will forego the coverage. Those incentives unleash what is referred to as a “death spiral,” where the healthiest insureds leave the program as the premiums rise causing further premium increases. Washington’s consulting actuaries make this clear in their recent report.

The commercial long-term care market has already been unraveling. Today about 30% of Americans seeking such insurance are denied coverage due to underwriting, and premium increases are well above inflation rates. In addition, the number of firms selling long-term care insurance has dropped from over 100 in the early 2000s to about 12 today. The result is that only about 3% to 4% of U.S. adults over the age of 50 have long-term care insurance even though most will eventually need LTSS. 

Meanwhile, voluntary programs have a terrible track record at both the state and federal level. California’s voluntary CalPERS programs have faced large unexpected premium increases and declining enrollment. The premium increases led to a class-action lawsuit that ended with a prohibition on additional premium increases for 100,000 policyholders. Similarly, the Community Living Assistance Services and Supports Act, which was part of the Affordable Care Act, was determined by the Obama administration to not be feasible because of its voluntary design.

The actuarial estimates suggest that if Washington’s program becomes voluntary and participation rates fell to 50% (compared to 91% of men and 74% of women under mandatory coverage) premiums would be roughly double the 2022 premium rate under the mandatory program. 

It is estimated that about 70% of people now age 65 will need long-term care and support before they die. About half will have to rely on paid care, with expected outlays of over $120,000 per person. Given that about 40% of older adults have wealth of $100,000 or less, many people will have to choose between going without the care they need and cutting back on other necessities like food and housing.

The costs of care continue to rise yet Congress continues to drag its feet on any kind of national insurance program. States are already paying for some nursing home costs and are looking for an alternative to Medicaid.

As it currently exists, the WA Cares Fund provides a constructive step toward easing the bite of needing long-term care and support by making it affordable to many more older adults. That protection will only be realized if the mandatory provision of the program is retained.