Failure to plan adequately for the long-term care (LTC) needs of our longer-living population is putting more than just the people at risk, who stand to lose trillions. Federal and state governments along with the LTC insurance industry also face multi-trillion dollar losses, and may be flirting with insolvency. And all three constituencies – industry, government, aging Americans – face untold intangible losses as well.
This problem is highlighted by the fact that only about 8% to 10% of consumers who could benefit from LTC insurance have it, and by the likelihood that Medicaid, in a time of belt-tightening, will lack the means to care for the rest.
We can avoid the three-part wipeout by catching an unprecedented wave: the trend toward healthy life-extension. It promises not only to lengthen our lives but also to raise the quality of our lives, yielding more peak-productive years.
The Scope of the Problem
To understand the enormity of the challenge before us, we need to consider the impending losses of the three constituencies:
1 Millions of aging Americans stand to lose their shirts as well as care-free lifestyles beyond 40 or 50. Many will be hit twice by long-term care needs. Lacking financial protection such as LTC insurance for family members, they will be forced to care personally for an incapacitated parent, spouse, or other loved one. Then, as the years pass, they are likely to face long-term care needs of their own.
This one-two punch will be expensive. According to a study by the MetLife Mature Market Institute, America’s 10 million employed caregivers face $3 trillion in lifetime losses for missed pay, pensions, and social security. That amounts to $304,000 per worker.
The bill for the caregivers’ own care will magnify this loss. The annual cost of a private room in a nursing home rose to $83,500-plus in 2010, up 4.6% from 2009, according to MetLife. The cost of home health care by a trained assistant was $21 per hour in 2010.
If care were needed an average of six hours a day, the cost would be about $46,000 for a year. If either nursing-home or in-home care were required over several years, the total bill could easily rival the $304,000 lifetime-earnings cost suffered earlier, for a total hit of half a million or more. Imagine the impact on one’s retirement dreams.
According to a February report from Fidelity Investments, the average 401k totaled $71,500 in 2010, a fraction of the looming double whammy. A separate issue, not addressed here, is how to manage the obscenely large medical expenses often incurred at life’s end in the vain attempt to keep a terminal patient going.
2 Government faces future bills it can’t hope to pay without compromising security, education, infrastructure, scientific research, and more. The cost of Medicaid accounts for a significant part of mushrooming federal expenditures that have become hard to sustain. According to annual government projections published in Health Affairs, total Medicaid expenditures are expected to grow to $794 billion in 2019 from $378 billion in 2009. Let’s assume total expenditures average $586 billion per year over the next 30 years, probably a very low estimate. LTC accounts for 32% of the Medicaid budget. That would be $188 billion of the $586 billion. Over a 30-year period, that amounts to about $5.6 trillion. The total could be much larger, especially when inflation ups the ante and aging Baby Boomers, 77 million strong, swell the ranks of those needing care.
Washington and the states are likely to shift much of the LTC burden off of Medicaid. A reasonable option would be to make it much harder for people with means to qualify for Medicaid. Another reasonable option would be to reduce the overall need for LTC by promoting better health with a lower incidence of adult-onset diseases that necessitate care. An unthinkable option would be to abandon millions to a squalid end.
3 The long-term care insurance industry risks pale profits, business failure, and mammoth lost-opportunity costs. The rapidly-rising cost of care challenges the profitability of LTC policies, forces unpopular rate hikes, and has induced some carriers to exit the business. According to the American Association for Long-Term Care Insurance (AALTCI), in 2010 major carriers such as Genworth, John Hancock, Prudential, and Mutual of Omaha paid out 53% more in claims than four years earlier. In addition carriers face a big opportunity loss. Let’s assume that market penetration is 10% or less, a conservative estimate based on the statement from the U.S. Department of Health and Human Services (HHS) that only about 3 percent of adults have a private LTC policy. The lion’s share of the potential income is left on the table. AALTCI reports that total earned premium for the LTC insurance industry in 2010 was about $11.7 billion. Over the next decade, that amounts to $117 billion, not including inflation and the coming Baby Boomer bump. Multiply that by 10 (based on the estimate of 10% market penetration), and you end up with a whopping trillion dollars plus in potential revenue foregone, more than $3 trillion over 30 years.
Why do we find ourselves in this situation? Three factors conspire to make the constituencies slow to solve the common problem.
The first factor is that LTC policies are promoted in a way that turns many consumers off. The term “long-term care insurance” emphasizes a positive remedy for a negative development: needing help with the tasks of daily living, such as moving around, washing, or dressing. Help is a good thing, but who wants to think about needing it? Who wants to imagine being unable to eat without help, or requiring assistance to urinate or change diapers? Who wants to contemplate months in a sickbed on a downward slide toward death?
The second factor is that governmental incentives keep millions from taking responsibility for their own LTC. Current law allows middle-class and even affluent Americans to artificially impoverish themselves to qualify for nursing-home care through Medicaid. Financial advisors often coach clients to transfer assets to children or other relatives—to become “poor” on paper for Medicaid qualification purposes.
The third factor is that too many people need care for too long. According to theHHS, about 70% of people over 65 will require long-term care services at some point in their lives. Why this percentage? Why not 60% or 50%?
The need for care is triggered by incapacitating adult onset diseases such as Multiple Sclerosis, Parkinson’s Disease, and Heart Disease, which have been on the rise; and by Alzheimer’s and other forms of dementia, which are becoming more prevalent.
Why aren’t these conditions waning instead of waxing, when prevention is well within our grasp?
According to the HHS, the average stay in a nursing home is 2.2 years for men and 3.5 for women; and LTC insurance claims (which may be for assisted living or home care as well as nursing home care) go on for about 3 years. Why that long? Why not less when prevention is waiting in the wings?
In addition to reducing the number that need care and the duration of care, prevention also enables us to reduce the percentage of one’s life devoted to LTC, by adding healthy years to one’s life span. Over three decades, trillion-dollar savings are possible.
But even more savings are possible. Poor health of aging Americans affects us in the pocketbook far beyond the cost of two or three years of LTC. LTC benefits are triggered when the insured person can no longer perform two or more tasks of daily living, including bathing, dressing, eating, toileting, walking or wheeling, and transferring into and out of bed. Before that time, millions muddle through unable to perform just one of those tasks.
Imagine not being able to take a bath by yourself, dress yourself, feed yourself, go to the bathroom by yourself, etc. This diminished capacity makes millions less productive as employees or citizens, and saps energy from others who must accommodate their disability. The “pre-LTC” costs to society, if calculated, would be enormous. No wonder it seems as if America is just limping along. To convert the mammoth disability crisis into an equally gigantic opportunity, we need three solutions that address each of the three causal factors head-on.
Solution 1: Focus on “Health” More than “Care”
LTC insurance, a good thing, need not be viewed through a dark lens, the “needing care” perspective. Today’s Baby Boomers and Gen Xers would prefer a rosier image, a 100% positive one. They’d rather think about robust health than about care for failed health, essential as the care might be.
LTC policies could and should be sold under the umbrella of long-term health. “Health” in big, bold type; “care” in small, subordinate type.
With this shift in emphasis, a much larger percentage of Americans would be likely to go for the protection.
According to advertising-industry lore, a company marketing slippers found that the headline “Keep Feet Toasty Warm” sold far more slippers than “Keep Feet from Getting Cold.” How come? In the first case, the prospect’s mind was focused on sensations of warmth and comfort; while in the second case, the prospect’s mind was bathed in frigid, uncomfortable images. Same product, different mindset.
Soft drinks are sold with images of happily imbibing the tasty, frosty fluids. We don’t see many successful ads that dwell on uncomfortable, parched throats in need of lubrication.
Ads for many products, such as pain remedies, do portray the problem that needs solving, but they seldom dwell on it. They quickly get off the problem and portray the desired pain-free state: people smiling again, getting back to work, interacting normally again with friends or children.
Problem identification is of course a key part of selling, but care must be taken to “get off it” quickly and get on to the positive result everyone wants. What images come into a consumer’s mind when “long-term care” is read or heard? Is it really anything most people would want or strive for, when it conjures images of suffering from a disease or injury that might never leave you, spending time in a sickbed or wheelchair, or needing help to eat or go to the bathroom?
Now let’s try another phrase: “long-term health.” If the industry used this term, or one like it, as a broader umbrella in which to present LTC protection, insurance buyers would be induced to visualize living a long life, staying healthy into old age, and enjoying the ability to walk, work, and play for many years.
Put aside, for the moment, the question of whether a care-free future is a result that should be offered. Which set of images would people rather entertain?
People gravitate toward positive prospects; they shrink from negative ones, even when it’s rational to entertain them. Auto accident insurance would be a harder sell if the law did not mandate it.
The shift in focus from “long-term care” to “long-term health” would require new substance from carriers, not just words.
Examples of substance include:
Longevity insurance. Introducing and/or more aggressively promoting longevity policies such as those now offered by MetLife and Hartford Financial Services Group. This coverage, if teamed with LTC insurance, would bolster the vision of living a long time.
Hybrid longevity-LTC products. Introducing and/or more aggressively promoting policies that combine LTC and longevity insurance features – again, strengthening the long-life expectation.
Pocketbook incentives. Offering financial rewards, such as discount vouchers for joining health clubs, to encourage policyholders to think about keeping fit, and hopefully put off the day they need to claim LTC benefits. These incentives could be patterned after those now offered by many health insurers.
Healthcare partnerships. Forming alliances with health organizations, especially those that prescribe lifestyle enhancements such as healthy diets, exercise, and stress reduction – again, focusing minds on keeping fit and vigorous.
Better-health education. Providing prevention information and tools, arming policy-holders with facts and reminders on how to live healthier. According to a Sun Life Financial survey, over 90 percent of Americans either underestimate or have no idea how much they will spend on healthcare in retirement. The need for information is enormous—to minimize those expenses and, more importantly, boost healthy, productive longevity.
Better-health education is perhaps the simplest of the options, and some insurance carriers are already doing something about it. Genworth Financial’s new Live+Well program, developed with the Mayo Clinic, is one good example. Another is Performance Matters, announced in 2011 by John Hancock Financial Network.
MetLife offers the Disability Health and Wellness Connection program to help companies control costs and maximize productivity by reducing illness or injuries. Prudential Financial offers the Health, Life and Wellness program to its own employees and advice to other organizations on how to implement similar programs of their own.
In the interests of public well-being and their own bottom lines, carriers could offer such better-health education more widely and promote it more aggressively in conjunction with LTC and longevity insurance.
But the shift in focus from “long-term care” to “long-term health” must be more than semantic. In the case of “keeps feet toasty warm” versus “keeps feet from getting cold,” the product stayed the same; only the sales pitch changed. If we shift the emphasis from “long-term care” to “long-term health,” the product as well as the pitch must change. For maximum effect, there needs to be an actual improvement in health with a corresponding decrease in the degree and duration of incapacity. There are two key reasons why doing this is imperative:
The first is that the American economy can’t perform at its best when undue resources must be devoted to care. That’s a route to second-class nationhood.
The second is that insurance companies will find it hard to pay benefits, without escalating premiums, when increasing millions live for long periods in a state of incapacity. Carriers could flee the business, finding it unprofitable. And market penetration could shrink to well below the current 8% to 10% as policy rates exceed the ability to pay.
Going forward, if we’re to have the robust, growing country we want, we have no choice but to improve actual health rather than just tinkering with the system of delivering care once health has gone, or bickering over who pays for it.
Solution 2: Use Governmental Carrots to Motivate Change
We can create additional state and federal incentives for consumers to take responsibility for their own care. A lot can be done to promote long-term care planning, at a reasonable level, under the umbrella of longevity and wellness. Helpful measures include:
Medicaid reform. New, stronger legislation to reserve Medicaid for the truly poor.
Bigger LTC tax incentives. An increase in the current federal and state tax deductions or credits for LTC insurance premiums, motivating wider purchase of the insurance.
More tax incentives for building health. Wide-ranging deductions that encourage prevention. We need to move beyond today’s emphasis on illness and disability-based deductions.
Fewer barriers to local food production and distribution. Food grown organically and nearby is far better for us than processed food from afar, including nutrient-poor fast foods, but current law and subsidies favor big, distant sources. Community farms, markets, and restaurants are thriving, but with a level playing field they could improve our health even more, even faster. Consumers will of course decide what to eat and from whom or where, but present farm and food industry legislation biases the array of choices toward poor ones.
State partnerships. Extension of the “LTC Partnership” programs to states not yet participating, and stronger promotion of existing programs.
A long-term health awareness campaign. A government-industry program alerting the public to their positive options, including lifestyle choices for living longer in good shape; and ways to plan for long-term care. This campaign could parallel and find synergy with the “3 in 4 Need More” campaign, run by the 3in4 Association, which seeks to alert the public to the need for some form of LTC planning to address longer-lasting illnesses and disabilities not covered by regular insurance or Medicare.
The proposed long-term health awareness campaign would involve working with publishers, media companies, insurance carriers, and national insurance agencies to make the government’s vast arsenal of health-improvement information more accessible to ordinary people. It might, for example, leverage the “Healthy People 2020” program, announced by the U.S. Department of HHS in 2010, or the “Go4Life” campaign announced by the National Institute on Aging15 in 2011.
Online tools & apps. A government-industry web portal, plus smart-phone and tablet apps, that help people choose the right LTC protection for their situation; and a similar portal and apps that help people choose health-enhancement services, products, and behaviors that suit their individual needs and tastes.
Solution 3: Facilitate Longer, Healthier Lives
The LTC insurance industry, government, and other stakeholders can support a development already well underway, the emerging trend toward healthy life extension.
Geometric growth of medical technology, together with Internet-speed dissemination of prevention information, promises to yield much longer life spans for at least some Americans over the next few decades. This prospect, while good news for the public, involves challenges for government and private-sector planners.
How can we plan for such an uncertain future? Who could possibly predict the coming onrush of life-extending advances and their impact? Three concerns need to be addressed.
The first is this: if people are insured today based on current projections, and they actually live a lot longer, won’t there be a big surge in LTC claims? And might not the length of incapacity, during which LTC is needed, be greatly extended?
Indeed, if medical advances are used merely to extend the length of an unhealthy, degraded existence. But that’s not the aim of leading researchers. They’re out to keep people healthy, robust and productive during their extra years of life. Through cell therapies and nanobiology, they’re out to slow and even reverse aging processes, so that in time an 80- or 90-something might have the body and mental agility of a much younger person. How soon this will happenif ever, is unclear.
The second concern, then, is this: won’t a swelling mass of longer-living Americans put an intolerable strain on society? Should we think twice before encouraging extended life spans?
Another good point. Some observers point to dangers of increased longevity such as a greater incidence of dementia and inability to live independently, millions of people in wheelchairs (overburdening the remainder who are fit), and massive numbers of people living at home in what must essentially become nursing home conditions. How could we care for all of those residents? Today, we rely on unskilled, cheap immigrant laborers to care for the elderly, but will that labor source still be available in 2040 or 2050? And finally, as doddering seniors displace sharp, energetic young people, America could suffer a “skill and brain drain,” falling behind other nations.
It’s wise to confront such possibilities, but they are not show stoppers. Far from it. They all rest on the assumption that increased age spells decreased ability. Older means weaker, sicker, and slower in the head. But that’s a prejudice based on outmoded thinking. Modern prevention and emerging biotechnology promise to do much more than lengthen a doddering old age. They promise to counteract aging and in fact make body and mind better than ever. The effect will be to enhance all one’s years and extend one’s “peak years” by a significant margin.
The third concern, then, is this: recently, health and longevity appear to be declining for some of us. On the heels of poor nutrition, sedentary lifestyles, and stress, the obesity epidemic and other poor-health trends could throw a monkey wrench into long-life expectations.
How should we react to this? Some scientists, analyzing the effect of obesity on longevity, warn that the steady increase in life expectancy over the past 200 years may soon end.
Others cite negative influences in addition to obesity. A study led by Majid Ezzati, associate professor of international health at Harvard, has uncovered a disturbing correlation between declining longevity and increasing income disparity since 1983.
The study found that life expectancy rose in wealthy pockets of the U.S. but declined significantly in poor ones. Earlier, from 1961 to 1983, no U.S. county had a statistically significant decline in life expectancy according to the study, but after 1983 life expectancy went down in many less-affluent counties, especially for women. Contributing factors appeared to be cardiovascular disease, lung cancer, and diabetes as well as obesity. “What’s driving the disparity is the worsening of the worst off,” said Dr. Ezzati, quoted in the New York Times.