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LTCI Watch: The Accidental LTC HMO

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 A few weeks ago, I suggested that people might be able to get past any temporary or lingering shortage of high-quality long-term care insurance (LTCI) that occurs by setting up long-term care (LTC) cooperatives, or relying facility-based LTC arrangements.

Of course, many continuing care retirement communities (CCRCs) already offer “life care contracts” that let people rise through different levels of care in the same community, and plenty of LTCI agents are making CCRCs part of their own LTC plans. The contracts are, essentially, a kind of LTCI arrangement.

One important caveat is that any facility-based organization, whether it’s a health club, a golf club, a CCRC that offers life care contracts, or a “staff model” health maintenance organization (HMO) that runs its own clinics, is apt to run into the same kinds of feast or famine demand problems that HMOs often face.

Either business is slow, and the HMO has trouble getting patients in the door, and customers paying premiums, or business is too strong, and every member seems to show up on the doorstep with double pneumonia at the same time. When the feast times come, the HMO has an incentive to skimp on care, the golf club may have scruffy greens and long waits for tee times, and the packed health club might do a poor job of cleaning sweat off the equipment between sessions.

No matter how nice the people starting a CCRC are, they need to talk to a smart, creative, brutally honest actuary to make sure they are not going to disappoint the baby boomer members when incoming boomer members need to shift between levels of care.

Many states, such as Arizona, Iowa and Missouri, already give state insurance departments some say over CCRCs, but other states rely on banking departments or securities departments to regulate the facilities or impose no oversight requirements on the facilities, according to the U.S. Government Accountability Office.

Even the insurance departments with oversight powers seem to focus mainly on making sure that the CCRCs disclose their policies to the consumer and put some money in escrow. CCRCs don’t face anything like the scrutiny that faces even the smallest HMO.

Of course, government scrutiny is not always what it’s cracked up to be. Plenty of well-scrutinized LTCI carriers have run into problems with actuarial forecasts, and Bernie Madoff had many regulators. Minimizing red tape may reduce would-be barriers to entry for CCRCs, increase the supply of the communities and lower the price.

The federal government and state governments have had trouble with Medicaid, Medicare and their own retiree health benefits programs, including voluntary LTCI benefits programs.

But, if analyzing future demand for services is difficult for all of those big, well-funded organizations, think of how much harder it must be for one little CCRC.

I think the best approach is to welcome energy and creativity, recognize that every decision in life involves some level of risk, but to lean toward doing business with CCRCs with managers who seem to be thinking seriously about the forecasting challenges and strategies for dealing with those challenges.


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