CATASTROPHIC DILEMMA

WHEN A COMB LOSES some of its teeth it is still recognizable as a comb but hardly functional. There is a great possibility that by the time the Domestic Policy Council puts its stamp on a catastrophic insurance program it will resemble a broken comb.

The plan developed by Secretary of Health and Human Services Otis Bowen recommended dealing with the catastrophic expenses associated with acute illness with a government program for Medicare recipients, while opening up a new commercial market for long-term care insurance through the judicious use of tax incentives.The pieces were complementary because any intrusion into current Medigap insurance policies that supplement Medicare in the private sector would be compensated for by creation of a new market for nursing home care insurance.

Until now, although a few companies have experimented with limited nursing home insurance, the market has not been viable since the product cannot be priced if only those in need attempt to purchase it.

To create an insurance market, the industry must have middle aged buyers who plan for the possibility that they might some day need long-term nursing home care in the same way that individuals purchase life insurance.

Tax incentives are the most direct method of convincing the middle aged that this is the time to purchase this type of insurance.

But, the administration has been campaigning against using the tax code for any social purposes and indeed fought for closing various loopholes in the tax code that favored putting money aside in Individual Retirement Accounts and other vehicles for retirement.

President Reagan promised the nation in his State of the Union Address last February that he would create a catastrophic insurance program.

Although the advisory committee to Dr. Bowen clearly stated that long-term care is the greatest catastrophe for which there is no insurance coverage, private or public, there are growing signs that catastrophic coverage will be sliced away from long-term health care and presented to the public on its own.

This will create a dilemma for the public as well as for the insurance industry. The rhetoric surrounding introduction of the program will surely lull even more retirees and their families into believing that there is coverage under Medicare or Medigap insurance for custodial nursing home care.

There is none, and under catastrophic insurance proposals there would be none. More coverage would be available for temporary nursing home care that can accompany illness or broken bones in the elderly, but long-term care would still be largely borne by state Medicaid programs and the families of the very old and very frail.

A federal program to add catastrophic coverage to Medicare in the form of a $2,000 out-of-pocket limit on Medicare-recognized expenses would not eliminate the private insurance market that deals mostly with Medicare co- insurance and deductibles in the beginning of a course of illness and with covering medical costs not recognized by Medicare such as additional charges by physicians, eyeglasses and prescription drugs.

But surely a federal program would disrupt this market by requiring that policies be rearranged so as not to duplicate the federal program. Further, the impetus to purchase supplemental insurance will slow when policyholders already have catastrophic coverage from the government.

Without the new market of long-term care insurance, why should insurers be suddenly subject to this type of competition from the public sector?

Secretary Bowen acknowledged the relationship between the two pieces of his plan when he wrote members of the Domestic Policy Council that Medigap coverage would continue under his program as a vehicle for first dollar coverage while his other proposals would open up a new market for long-term care protection that will ultimately dwarf the current Medigap business.

But the Reagan administration is in a bind. It wants a major domestic policy initiative to blunt media attention to foreign policy probes of Iran arms and yet it cannot endorse a tax initiative to stimulate long-term care insurance.

The real danger is that the at-risk population will believe the problem is solved when the problem of nursing home coverage will still be looming in the wings to overwhelm state Medicaid programs.

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