Although state long term care partnership insurance sales have been unremarkable since their inauguration in 1992, that may soon change, industry observers say.
The Deficit Reduction Act of 2005, enacted in February, allows states across the nation to make LTC partnership plans available to residents. Until it was enacted, only California, Connecticut, Indiana and New York had partnership programs.
The new law allows the expansion of partnership plans nationally by repealing 1993 legislation that had effectively closed the door on new programs.
DRA allow wider partnership policy choices to consumers than do the four states with existing programs. By allowing the sale of less costly products, the new partnerships could significantly increase LTC insurance sales, industry observers believe.
The questions that no one seems to be able to answer, however, are: When will the first partnership programs come on line, and how many states will participate? The U.S. Department of Health and Human Services, through its Centers for Medicare & Medicaid Services, has yet to issue the state guidelines for Medicaid-qualified plans that DRA calls for. Without those rules, states may be reluctant to submit a plan for CMS approval, observers say.
The LTC partnership program is an alliance between states and private insurers. Individuals who buy LTC insurance designated by the state as a partnership policy and who eventually need LTC services, first rely on benefits from their policy. When those are exhausted, they can have access to Medicaid, if they meet income, asset and other requirements.
Normally, individuals must spend down or drain their assets to qualify for Medicaid. Partnership policies allow policyholders to protect their assets, up to the value of the policy, from Medicaid’s spend-down requirements, if their income is below a certain level.
Under the CRA, CMS must issue guidelines to the state governing such issues as reciprocity (allowing asset protection to continue if a person moves to another partnership state) and exchanges of existing nonpartnership policies for a partnership policy.
The DRA encourages but does not mandate reciprocity.
Partnership policies under the DRA also allow a number of provisions–including inflation protection–that are not as stringent as in the original four states.
The National Association of Health Underwriters reports that 16 states have passed legislation permitting partnership programs, while three others are studying the move.
A number of states are ready to introduce their plans. On May 15, Idaho Gov. Dirk Kempthorne signed enabling legislation that could make it the first state to offer a DRA-style partnership program. Virginia and Florida are also ready to jump in, according to officials in those states.
Companies in the industry are ready to launch partnership policies as soon as HHS and the Centers for Medicare and Medicaid Services start approving them–whenever that is.
“Your guess is as good as mine,” says Brian Peterson, senior vice president of Allianz Life Insurance Company of North America, Minneapolis, and national sales manager for LTC.
When it does happen, though, Peterson feels confident the programs will give LTC sales a jump start.
“Any time the federal government puts long term care into the spotlight, it will educate the population,” he says. “I think individual plans outside the partnership program may grow just as much as partnership policies. It’s going to be the shot in the arm the industry has been waiting for.”
Sam Morgante, vice president, government relations, Genworth Financial Inc., Richmond, Va., says he believes more than half of the states want to play in the partnership game.
“We are keeping our fingers crossed but would be delighted to see the first programs start by the third quarter,” Morgante says. “More likely, we think we’ll see the floodgates open in the first or second quarter of 2007.”
Like other executives, he believes the most important development of the partnership programs is the point they make to consumers.
“This is another message from the federal government working with the states that you need to plan for long term care needs,” Morgante says. “One of the most important pieces of the law often overlooked is that it sets up an information clearing house and allocates $3 million annually over the next five years to create a long term care information center in HHS. It’s really a big deal, with the federal government investing so much in telling people they need to think about this.”
David Martin, assistant vice president for contracts and legislative services for John Hancock Life Insurance Company, Boston, notes that states are still waiting for preliminary guidelines from CMS.
“A lot of states are interested,” he says.
Martin and other executives representing the LTC insurance industry were scheduled to meet May 24 with Mark B. McClellan, CMA administrator, to urge him to issue the necessary state guidelines.
“Right now, there’s nothing in the statute that would prevent states from opting in,” Martin says. “If the federal government does its work quickly, then states would have something to run on. We hope the federal part of it will get kicked into gear soon.”
Martin says Hancock executives have met with the governors of Illinois, Texas, South Carolina and Michigan and found a strong interest in partnership programs.
“I would say in the next few months, if CMS would issue guidance, it shouldn’t take the states long, perhaps two to six months to opt in,” he says.
Laura Moore, senior vice president, John Hancock Long Term Care, notes the new partnership policies would be simpler than those required in the original four states, “so the administrative ramp up we had gone through with those states won’t be required.”
For Hancock, about 28% of its LTC insurance business in California is partnership policies, while in Connecticut, it’s close to half, in Indiana 75% and in New York, about a third, Moore says.
Although she expects implementation of partnership programs to be protracted, she projects an industrywide sales lift of 10% to 15% for LTC insurance within a year or so following their wide adoption.
Dennis O’Brien, first vice president and actuary, New York Life Insurance Company, says his company and the industry “are doing everything we can to grease the skids” for the programs.
“We hope it’s soon. Once it starts moving, it will move quickly.”
Although he is hesitant to predict exactly how many states eventually would adopt partnerships, he believes “it will be a sizable number in the next few years.”
In the meantime, his company is pondering products and options it will introduce for partnership policies, including such details as when owners of existing LTC policies could exchange them for asset-protection policies, he says.
One of the benefits of the new partnership programs is that they will allow carriers to use existing application forms, he points out. That’s important, because one of the problems with partnership plans in the original four states is that they require special applications, which push up costs.
Jody Anatole, vice president, MetLife Long Term Care, also believes the partnership programs will give an enormous boost to sales. “You will see people attracted to policies with shorter, more affordable benefits, and people will like the reassurance of having Medicaid at the back end.”
New partnership states are likely to show higher sales than the original four, she believes, because “marketing is going to be simpler, and they will be easier for agents to understand,” she says.
Once they are in place, Anatole predicts sales increases for the LTC industry in the range of 15% to 20%–across the LTC board, not just for partnership policies.