Protection on Health Costs

A year ago President Reagan promised in his State of the Union message a study of “affordable insurance for those whose life savings would otherwise be threatened when catastrophic illness strikes.” On Tuesday he promised to “submit legislation shortly to help free the elderly from the fear of catastrophic illness.” This means, we are told, that the President remains committed to doing something but has not managed to make up his mind about which way to go.

In a sense that may not matter much. The excellent report that he inspired last year led Dr. Otis R. Bowen, secretary of health and human services, to propose a first step that already enjoys strong congressional support.

The basic Bowen proposal is to provide a voluntary extension of Medicare insurance, permitting those 65 and over to pay $4.92 a month for a guarantee that their hospital expenses, and their share of doctors’ bills associated with acute care in a hospital, would not exceed $2,000 a year. This would be in addition to the $17.90-a-month voluntary Medicare insurance program, the so-called Part B, that covers at least in part the fees of doctors.

The enthusiasm in Congress has its limits, because this proposal addresses only a small fraction of the problem of catastrophic health care and, worst of all, would do nothing about the biggest problem--long-term nursing-home care. Bowen estimates that, of the 28 million Medicare beneficiaries, about 800,000 incur personal liabilities for acute in-hospital care in excess of $2,000 a year. That number is substantial. But it is small in comparison with the 1.4 million elderly now in nursing homes with annual expenses averaging $22,000 a year. Neither Medicare nor most Medicare supplementary insurance policies cover nursing-home care. The only government protection is under Medicaid (Medi-Cal in California), the government health insurance for poor families. Each year thousands of older Americans are forced to exhaust their life savings on long-term care before they become eligible for protection under Medicaid.

An estimated 70% of persons with Medicare now purchase supplementary insurance. Some of it is worthless. Much of it is excellent, going far beyond what Bowen’s acute-care protection proposal would do. The validity of good policies is apparent: The best private insurance policies pay out 85 cents or more for each $1 paid for protection. But it is expensive--ranging from $12 to $100 a month, depending on benefits. That is beyond the means of many. That is why, as a first step, the extension of Medicare is the right thing to do.

Regarding the graver risk, long-term care, the picture is entirely different. Insurance company experts estimate that only about 170,000 of the 28 million on Medicare have long-term protection, even though one in five will face the use of custodial facilities. The reason is clear. The cost is so high and the future so uncertain that the insurance companies are only now beginning to offer coverage. The premium is fixed according to age at enrollment and varies with different benefits, but even for a person enrolling at age 50 the lifetime monthly cost could be as much as $15, with the monthly fee approaching $150 for those waiting till their 80th birthday to enroll. Scarcely half the Medicare beneficiaries could afford rates of that sort, according to industry estimates.

Bowen sees long-term care as too costly for the government to handle directly, and proposes instead tax incentives to encourage people to buy policies or to establish early in life medical savings plans. Again, however, that is only a partial answer that is likely to exclude millions of Americans. Unfortunately, there is a shortage of good data. One major insurance company has had to use a 1977 study to contrive its long-term program. And the situation is changing rapidly as the number of older citizens commences to increase, as new research turns up new treatments--some more cost-effective, some costlier. There is obviously the need for further study of this, and of the problem of the 2.8 million Americans under 65 who face catastrophic illness without adequate insurance each year, and the problem of the 35 million who have no health insurance whatsoever.

The agenda for Congress, it seems to us, is to speed passage of the extension of Medicare to offer on a voluntary basis protection against catastrophic costs of acute hospital care. At the same time, Congress should authorize substantial research funds to study the other unresolved health-care problems, including long-term care, so that further decisions can be taken a year from now to move the nation to the kind of protection that its citizens need.