How Medicare Could Fill Its Biggest Coverage Gap

Image: Medicare.gov.

Tens of millions of American retirees rely on Medicare to cover their healthcare costs in retirement. As vital as Medicare is, though, it leaves some key elements of healthcare uncovered. Arguably the biggest gap in Medicare comes from its limited coverage of long-term care expenses, which can leave retirees who have chronic health conditions requiring such care in financial jeopardy. Yet in other countries, such as Germany and Japan, measures to provide long-term care within the context of their healthcare systems have had some success in filling this dangerous coverage gap. Let's take a closer look at Medicare coverage of long-term care and how adopting reform could help fill a need for American retirees.

Long-term care: What Medicare covers
Medicare is primarily designed to cover medical care needs, and so it doesn't generally cover long-term care costs by themselves. What the program does cover is long-term care that's tied to a medical event. For instance, long-term care hospital expenses can be covered for those with multiple serious conditions and who are expected to improve over time and eventually return home. Similarly, skilled nursing facility costs are covered in full for up to 20 days, with a required copayment for each subsequent day up to a total of 100 days. To qualify, though, you need to have had an inpatient hospital stay of at least three days. As for home healthcare, only homebound patients who need skilled nursing care, physical therapy, speech-language pathology, or occupational therapy typically get coverage.

That leaves a huge gap in coverage that Americans have trouble filling. Private long-term care insurance aims to cover those needs, but it has been a commercial failure for many health-insurance companies. Several providers have simply left the business after suffering bad claims experience, while others have had to increase rates dramatically, upsetting customers and jeopardizing their ability to keep paying premiums to keep coverage in place.

What Japan and Germany have done with long-term care 
By contrast, both Japan and Germany have implemented public long-term care insurance as part of their universal social insurance programs. Both programs recognize that in the absence of coverage, family members end up stepping in, and both aim to support those caregivers and reduce their responsibility for caring for those needing long-term care.

In Germany, the basic idea is to compensate family caregivers for their service, making it more attractive as what essentially is a part-time job. Retirees can choose cash allowances for those providing care, and those who spend at least 14 hours a week caring for a family member have their Social Security premiums paid and are able to get coverage for respite-care when the caregiver goes on vacation.

Japan, on the other hand, aims at providing supplemental services to give family caregivers help. Services include adult day care, home help, and respite care, as well as visiting nurses and those who can do remodeling work in a home to make it more suitable for the needs of the resident needing care.

The programs get their funding from a combination of income-based premiums and other tax revenue. Different eligibility levels determine who can get various benefits under the programs, and ceilings on benefits prevent the government from taking on too much financial risk.

The results have been positive in both countries, although in different ways. For Japan, retirees have more long-term care services available, even though per-capital spending is only slightly more than the U.S. spends. In Germany, by contrast, the greater emphasis on supporting family members has kept spending low, with the country spending more than 25% less than the U.S. per capita.

Will Medicare follow suit?
The U.S. has considered similar proposals in the past. As part of healthcare reform, the Community Living Assistance Services and Supports Act, also known as the CLASS Act, became law in 2010, but it was repealed in the fiscal-cliff compromise in the opening days of 2013. With the law having required self-supporting funding, it was unclear how it could be structured to raise enough revenue to cover its costs.

To succeed, a program like the CLASS Act envisioned would likely have to get wrapped into the existing Medicare framework. Just as broadening Medicare to cover prescription drug costs added value to the overall system, so too would building in long-term care coverage -- even if it proved difficult from a financial standpoint. Even if it seems politically unlikely, filling the long-term care coverage gap would go a long way toward shoring up the financial prospects for millions of American retirees.