Why Harris’s Medicare at Home Plan Is the Next Frontier of Industrial Policy

At a dinner party a year ago, I argued that if someone under the age of 75 (ahem, 82) were running for president, they would be running on finally fixing long-term care. On Tuesday, Vice President Kamala Harris (59) announced a new plan, Medicare at Home, that will bring long-term care coverage fully into Medicare—notably a benefit most Americans already believe they have.

It’s fun to say I told you so to the 15 or so people who heard my prediction, and nice to have a platform where I can try to convince the rest of you that I really said it. But the real reason I think it’s important to write about it today is because in Harris’s Medicare at Home proposal, we see a necessary and natural expansion of the industrial policy experiment of the last four years, from manufacturing into the care sector.

One of the most significant policymaking shifts we’ve seen in the 2020s has been a more affirmative embrace of the government’s role in shaping essential markets. Heeding the lessons of the COVID-19 crisis and subsequent supply chain issues, and facing the ever-more pressing threat of the climate crisis, policymakers have sought to shape the markets for goods ranging from microchips to electric vehicles through major legislation. Famously left on the cutting room floor of this effort was the care agenda.

Nevertheless—and despite their best intentions—baby boomers have continued to age (the greatest number of Americans ever will reach retirement age this year). And their children have continued to find ourselves squeezed as we care for aging parents and young children. Boomers and their children are discovering every day that our long-term care system is very broken—something Kamala Harris knows from personal experience. She is right; we need a plan to fix it: Enter Medicare at Home, an industrial policy approach for the broken elder care industry.

A Very Broken Market

One of the most shocking things about the long-term care system in the US is how little most people know about it. In 2020, the American Prospect reported that “70 percent of baby boomers falsely believe that Obamacare covers long-term care.” Overall, only 20 percent of Americans fully understand that Medicare does not cover long-term care. This confusion belies a strong and widely held belief that Medicare should cover long-term care. In fairness, it also reflects the confusing recent history of the long-term care market.

The private long-term care market has been flailing for decades. Long-term care insurance products have been available for purchase by individuals since the 1970s, but as the market has been regulated to keep consumers safe from junk insurance policies, it has become increasingly unstable as a business proposition. The 1996 Health Insurance Portability and Accountability Act included new rules about both the kinds of services long-term care policies had to cover and how payouts were determined, but it did not include the kinds of regulations that would have helped stabilize the insurance market itself. For example, there is no legislation mandating purchase (as in car insurance) or provision of coverage despite preexisting conditions (as in health care after the Affordable Care Act).

As a result, the long-term care insurance market is known for high premiums and frequent claim denials. Quite reasonably under these circumstances, purchase of private long-term care insurance has declined steeply in recent decades. The ACA originally contained a provision creating a public long-term care insurance program, but it was intended to be financed entirely through user contributions with no subsidies, and when its financial solvency was questioned even before implementation, it was repealed with little fanfare in 2012. At this point, only 3 to 4 percent of Americans 50 or older are paying for long-term care insurance.

But, and it can’t be said enough, baby boomers have continued to age in the last 12 years. And aging has continued to be very expensive. According to a recent study from Georgetown, a room in a nursing facility can cost around $100,000 a year, and long-term care at home costs between $60,000 a year at the low end and well over $250,000 a year on the high end. These costs are beyond the means of many older adults living on fixed incomes (median household income among seniors in the US is just over $50,000 annually). As a result, the majority of older adults receiving long-term care services (who are themselves the majority of adults over 65), are cared for by informal providers outside the paid labor market.

This is an enormous strain on many families, especially since caregivers often have to take time out of the paid labor force. The public program available to help is not Medicare, as many believe, but Medicaid. And Medicaid is not generous in its support. It requires the elderly to spend down most of their assets to become eligible for the means-tested program, and leaves many on waiting lists for years. Of the small portion of older adults and people with disabilities in need of long-term care services who do qualify for Medicaid, nearly 700,000 are on multiyear waiting lists. Significant caregiver shortages, exacerbated by the pandemic, have made these wait lists worse.

Aging Is the Classic Use Case for Public Insurance

Aging is perhaps the best-established use case for public insurance systems. Social Security put aging at the center of the original public insurance system, and Medicare built on this model.

As Jacob Hacker writes in his book The Great Risk Shift: 

Although markets work splendidly in most areas of commerce, insurance markets often fail precisely when we need them most. The problem of adverse selection, for example, often makes it difficult for private insurers to provide good benefits at a premium that lower-risk people are willing to pay . . . Many of the risks that we most want to protect ourselves against—unemployment during severe downturns for instance, or unexpected inflation that erodes our retirement benefits—are hard to insure against because they are ‘systemic,’ they occur to many people at once and are thus particularly difficult for private insurers to effectively cover. And some risks, like the cost of long-term care thirty or forty years down the line, are just too, well, risky for insurers to take on.

To put a finer point on it, we can’t know whether or not we will need long-term care when we age. One-third of people die before they need any, yet 20 percent of people need more than five years of long-term care support. Roughly half of those over 65 will use paid long-term care service at some point. This is exactly the kind of risk that insurance is meant to protect against and the kind of risk where a public option can be most effective: a risk we all face but have no way of predicting or controlling the cost of.

Seen this way, of course most people assume Medicare covers long-term care. It should.

Public Insurance as Industrial Policy

A great advantage of bringing Medicare into the long-term care industry is that doing so should not only help the direct recipients, but fix a larger market. We should understand Medicare as industrial policy for the health-care industry. Ninety-eight percent of physicians participate in Medicare, which means that the program has tremendous market power in setting prices, quality standards, and working conditions. It makes sense to deploy it to help create a better-functioning market in the elder care industry. To be clear, Medicare at Home will not create a functioning private elder care insurance industry; there are too many fundamental problems with a privatized elder care insurance market. But it can help address supply, quality, and workforce issues throughout the industry—ensuring a more affordable, accessible, and stable supply.

As I wrote in May, consistent public funding is essential to grow and maintain the home care industry because those using the service almost definitionally have a minimal income. They need home care services because they can’t do the things that would allow them to work outside the home. Much of what drives the insufficient supply of long-term care is low pay, but because the cost already stretches family budgets, it is almost impossible to raise prices without public funding.

Medicare at Home can inject this funding into the system while helping direct how it is spent. Already, Medicare and Medicaid together provide the majority of spending on long-term care; Medicaid alone covers 42 percent of long-term care expenditures. This means the federal government already has substantial leverage in the industry. It, along with states implementing Medicaid programs, determines the kinds of care patients are eligible for, minimum staffing ratios and helps establish training requirements and wage standards. Its ability to do these things as well as it can has been hampered, however, by funding constraints and the fact that most of the money runs through Medicaid and therefore through means-tested programs in the states. Investing in a new Medicare at Home program will allow the federal government to direct the necessary expansion of this industry while raising care standards, stabilizing the workforce, and increasing pay. With appropriate guardrails, it can also ensure that money flows to public and nonprofit organizations offering home care instead of enriching private-equity-owned firms.

On signing the Social Security Act, FDR said, “We can never insure 100 percent of the population against 100 percent of the hazards and vicissitudes of life, but we have tried to frame a law which will give some measure of protection to the average citizen and to his family against the loss of a job and against poverty-ridden old age.” Medicare built on this initiative, and in doing so, deeply shaped the structure of the medical industry as well as Americans’ expectations for what kind of security the government supported. That’s why so many today assume they have a long-term care benefit already. Kamala Harris is proposing to make that true. If she does, she will fix the broken long-term care industry at exactly the moment many of us need it to work the most.

If You Ask Eleanor 

“If the old people cannot afford their medical care under their own Social Security allowances, then the burden is going to fall on their children who are in their earning years. This will mean that just at the time when these children who may be having young children of their own and needing medical care, a young couple will also have to consider shouldering the burden for parents as well. This is not fair, and leads to both the children and the older people not getting full coverage, since both will try to shave a little off their needs in order not to make the burden.”

– Eleanor Roosevelt, My Day (May 23, 1963)