The new drug benefit–also called Medicare Part D–does 4 things for long term care insurance sales:
1) It helps find the money to pay LTC premium by limiting the out-of-pocket costs for prescription drugs.
2) It allows LTC insurance to truly contain the LTC risk.
3) It makes the daily or monthly benefit much easier to establish, which makes the sales process much simpler.
4) It puts a final nail in the coffin for expecting a government-funded LTC program.
Let’s look at each point.
Point 1: Finding the money. It helps find the money to pay premium by limiting the out-of-pocket costs for prescription drugs.
For only about $32 a month, a Medicare beneficiary finally can get a handle on out-of-pocket drug costs in a year. In a nutshell, the out-of-pocket costs are as shown in Table 1.
After charges exceed $5,100, the Medicare beneficiary only has to pay a maximum of 5% of each prescription and Medicare Part D picks up the rest! (Only 18% of people over 65 are expected to have drug charges above $5,100, so most people will never exceed the $3,600 out-of-pocket, according to the 2005 Medicare Chart Book from Kaiser Family Foundation.) In fact, Kaiser is projecting that the average Medicare beneficiary will have $2,864 in direct charges in 2005, which equates to an out-of-pocket of only $1,364, so it would look like the computation in Table 2.
Point 2: Containing the LTC risk. It allows LTC insurance to truly contain the LTC risk.
Not only do people not have to worry about uncontrollable drug charges while at home, the biggest safeguard comes for those in a nursing home. Typically, the drugs must come through the pharmacy that services the nursing home, and the charges can be $1,000 or even more a month.
(I have an aunt who ran $1,500 a month consistently while in a nursing home! That’s an extra $18,000 a year, which can be much more out-of-pocket than someone expects to pay who has LTC insurance, especially if the person is coinsuring part of the cost, as most people do. In a situation like my aunt’s, having an LTC policy may not keep the patient off Medicaid because some people just can’t make up that kind of unanticipated difference.)
Point 3: Simplifies. It makes the daily or monthly benefit much easier to establish. This makes the sales process much simpler.