A home care benefit for Medicare

Almost one in five Americans over age 65 are unable to manage basic activities of daily life—bathing, dressing, eating, toileting—without assistance. Among those over age 85, the proportion is closer to half. Friends and family members can and do help out, but even so, about half of people reaching the age of 65-years of age will use paid long-term services and supports (LTSS) at some point. Most Americans do not have enough income or savings to cover these costs. The private long-term care insurance industry has never worked well despite many creative efforts to fix it and to encourage enrollment. The Federal Medicare program provides limited home health care services that, in practice, means short-term care and, as such, does not offer long-term care for lasting functional impairments. That leaves Medicaid. Medicaid offers a critical long-term care safety net for people who get their healthcare primarily through Medicaid—but it isn’t a good solution for most Medicare beneficiaries as it doesn’t align with the system that manages their care and pays their providers. Moreover, eligibility for Medicaid is restricted to those with very low incomes and few assets, so few older adults qualify. It is well past time to add a universal home care program to Medicare itself.

Prior efforts to move in this direction have been stymied. Some proponents have called for a universal, open-ended benefit. Critics have argued that any universal home care benefit would be a budget buster. These tensions are ubiquitous in social program design. An additional tension in designing a program that serves people towards the end of their lives is that public funds should be focused on expanding access to necessary care rather than protecting the ability of people to leave large bequests to their children. Designing a fiscally responsible, universal benefit that does all that is a challenging task—but we believe it is not an impossible one. In this post, we describe some design options for a Medicare home care benefit that could be dialed up or down depending on the priority assigned to program generosity or fiscal feasibility. 

Several features make designing a universal home care benefit challenging.

• The need for home care is based on measures of functioning, not lab tests. A program must have simple and reliable ways to measure who needs care and how much care they need.
• Most people report a preference for care in their own homes over that in nursing homes or other institutional settings. This is because, unlike medical care, which is often unpleasant and painful, home care typically provides support, comfort, and a degree of safety for beneficiaries. One consequence of these preferences is that a home care benefit would be susceptible to overspending. The program will need to have measures in place to avoid overuse.
• Income alone is a poor indicator of how much Medicare beneficiaries can afford to pay for home care. For example, beneficiaries who are renters may depend on their incomes to afford housing; other beneficiaries may have very large, non-liquid assets but limited incomes, leaving them ineligible for Medicaid programs while unable to pay for care. Program design will have to address the importance of assets in this population.
• Much LTSS is provided through informal care. Beneficiaries often prefer care provided by family members, but paying for informal care raises the potential for overspending, fraud, and exploitation of older adults.
• State Medicaid programs currently cover the cost of home care for 4.2 million people, according to KFF, though eligibility and costs vary considerably across the country. Medicaid would continue to provide home and community-based services for people who are not Medicare beneficiaries. Some of this spending could be redeployed by states to improve the quality of nursing home care and for home and community-based services for people who are not eligible for Medicaid. The federal share of Medicaid savings could be used to defray the costs of a new Medicare home care program.

None of these challenges can be ignored—but none of them are damning either. As with any program, policymakers will need to make tradeoffs across these challenges to design a program that provides the maximum benefits consistent with their budget appetite. The good news is that the current landscape of home care financial protections is so limited that even a modest program that made conservative choices across these parameters, with costs we estimate at around $40 billion annually, would make many people who currently lack services much better off. Turning the dials more generously would, of course, cost more—and it would extend more benefits to more frail and vulnerable Medicare beneficiaries. 

What might such a very-conservatively designed universal program look like? Eligibility for the program would be restricted to people who independent clinical reviewers determined were unable to perform two activities of daily living (e.g., bathing, toileting, or eating). That’s the standard that many State Medicaid programs already use, and it could be assessed annually during the initial implementation period to further develop and monitor the uniformity of functional assessments over time. Second, the program would include cost-sharing that varied according to people’s means. Medicare beneficiaries with high income and assets would receive modest assistance from the program to defray a portion of the costs of home care; those with fewer assets and less income would pay much less. Third, beneficiary contributions to the costs of their care would depend on both their current income and their accumulated assets, but through cost-sharing rather than a strict cutoff. For example, at the cost listed above, we could allow all qualifying Medicare beneficiaries to fully retain income up to 150% of the poverty line ($22,600 in 2024) and assets up to $30,000; beyond that limit, individuals would still qualify but would pay cost-sharing out of their resources to defray taxpayer costs. Fourth, only care provided by formal caregivers associated with home care agencies would be covered. Hours of support would be based on need, but provider agencies would be subject to a population-based hours of service budget. The combination of resource-based copayments with population-level budgeting will ensure that the costs of this program will not explode. Finally, Federal Medicaid savings from shifting home care benefits from Medicaid to Medicare would be used to defray the costs of the program.

The program we’ve outlined tightly focuses benefits on the most vulnerable people who currently have little eligibility for care, and few means to pay for services. But many others could also benefit from a new home care program. People who have impaired functioning that does not meet the two activities of daily living standard may also need assistance. Lower cost-sharing for middle-class people would leave them more resources to make the most of their lives. The tradeoff is simple: at a higher cost to the federal budget, more people would get more protection. We can’t define where the lines should be drawn—that’s Congress’s job—but our analysis suggests that there are programmatically tractable, fiscally feasible ways to add a home care benefit to the Medicare program.