February 21, 2017

A Critical Review of the Urban Institute Model of Financing Long-Term Services and Supports

Summary

Mercatus Center Senior Research Fellow Mark J. Warshawsky discusses the shortcomings of the Urban Institute model and suggests areas for improvement.

Since the demise of the Community Living Assistance Services and Supports (CLASS) insurance program in the Patient Protection and Affordable Care Act (ACA) covering long-term care and since the majority report of the 2013 Commission on Long-Term Care, which did not endorse a new social insurance program, some advocates and analysts have been looking for other means to encourage policymakers to create a mandatory, tax-based social insurance program to finance long-term care.

These advocates and analysts will find some comfort in the Urban Institute scoring model, which shows that the cost of such a program is surprisingly low. But a closer examination of the assumptions and methodology of the Urban Institute model reveals many sources leading to a significant underestimate of the cost. In particular, compared with the mainstream professional literature, Congressional Budget Office and Social Security Trustees models, and actuarial pricing, the Urban Institute assumes that the elderly (above age 65) population is healthier, experiences lower incidence and duration of disability, and gets significantly more unpaid care, both currently and, especially, projected into the future. The model also suffers from a policy bias—it is set up to consider only major federal programs, not the creation of varied incentives to encourage retired households to get private insurance and asset holdings to cover the long-term-care risk.