Most people don't buy long-term care insurance. They simply don't want to think about moving into an assisted living center or hiring a stranger to bathe them.
Seven years ago, Robert Myers of suburban Chicago did buy long-term care insurance. Myers' wife, who died in December 2008, needed care as she fought cancer.
"It was a godsend," Myers, 64, an Episcopal priest, says of the insurance. "It didn't cover everything, but it broke the back of the bills."
Unlike Myers, most people may want to plan for the future, but they need a nudge to overcome their avoidance and laziness. At least that's the assumption behind a program tucked into the health care overhaul legislation emerging from Congress.
The program would create a voluntary long-term care insurance program to be run by the government.
Voluntary, yes. But workers at participating companies would be automatically enrolled — critics say "tricked into" enrolling — unless they opted out. People would see a deduction for the program from their paychecks — estimates range from $160 to $240 a month — unless they signed a form or clicked a box saying they wanted to keep the money.
More care as boomers age
The proposed program would help shift the financial burden of an aging population from Medicaid, now the largest funder of long-term care, to individuals. The federal-state health insurance program for the poor is straining state budgets.
"The caregiving burden in this country will be huge" as baby boomers age, says Dr. Robert Butler, who heads the International Longevity Center and favors the long-term care insurance proposal.
Governments and the private sector can and should nudge people into doing what's best for them, some economists say. A best-selling book, "Nudge: Improving Decisions About Health, Wealth and Happiness," made the notion popular. President Barack Obama named "Nudge" co-author Cass Sunstein to an Office of Management and Budget post.
"No one thinks they need long-term care until two years after they need it," says Richard Thaler, the other co-author of "Nudge." "The theme of our book is we should try to help people make decisions without telling them what they have to do."
Automatic enrollment in 401(k) retirement savings plans has succeeded in increasing enrollment to more than 90 percent at some companies. But people can more easily picture themselves retiring than becoming incapacitated by illness, and they know they can get their savings back — if the stock market cooperates — when they do retire and start withdrawing from their 401(k).
Long-term care insurance may look like a gamble because any individual may never need the benefit.
The easier it is for people to sign up the more people will sign up, says Jeremy Pincus of Forbes Consulting Group, a private company specializing in applying psychological theory to business problems.
"The question is," Pincus says, "is it a good thing to basically trick people into getting something that's good for them?"
Program included in both House and Senate bills
The long-term care insurance program is detailed in the CLASS Act, or Community Living Assistance Services and Support Act, which is part of both the House and Senate bills.
It would work like this:
Any actively working American could participate, but would have to pay premiums for at least five years before being eligible to make a claim. Premiums would be stable over a person's life, unless the government had to raise them to keep the program solvent.
Benefits would be at least $50 a day once a person became seriously cognitively impaired or unable to perform at least two or three daily activities, such as dressing and eating, without assistance. Students and the poor would be able to enroll for $5 a month, which would mean other participants would subsidize them.
The program is meant to be self-supporting, without government subsidies. But some worry too few healthy people would enroll, leaving a group of enrollees at higher risk for needing long-term care — and not enough money in the program to care for them.
"If premiums are $2,000 a year, some people are going to look at that and say, 'Boy, that's pretty steep. ... I'll worry about that risk some other time,'" says Allen Schmitz, an actuary with the independent consulting firm Milliman Inc.
Schmitz says automatic enrollment might help increase sign-ups, but Medicare's chief actuary has predicted enrollment as low as 2 percent. That could require raising premiums, which would mean even fewer people would participate.
Given that, Schmitz says he sees "significant risk" that the program will fail. Rate increases will be more likely with the government program than in the private market, he says.
As long as Medicaid provides a safety net, many people won't believe they need long-term care insurance, says University of Illinois business professor Jeffrey Brown, a former member of the Social Security Advisory Board. The nudge of automatic enrollment could help, he says.
"People do respond to automatic enrollment," Brown says. "They don't unenroll."
Myers, the Chicago-area priest, says his wife's annual premium was $1,533, and the rate remained the same over the years. All told, they paid nearly $9,000 in premiums for her policy. Their claims for Bonnie's care, at an assisted living center and at home, added up to $37,162.
He says he tells people to consider buying long-term care insurance on the private market through a broker. "My advice would be definitely do it. It's just part of good financial planning."