You can go into a discount store and buy a multi-tool with or without a sharp knife blade, with or without scissors, and with or without pliers.

In the U.S. private insurance market, you can get stand-alone long-term care insurance (LTCI). You can get a life insurance or annuity product with features that could help the user pay for long-term care (LTC) services.

But it’s not easy to find a product that combines LTC benefits with medical insurance, LTC benefits with critical illness insurance, or LTC benefits with disability insurance — even though the LTC benefits and the other health insurance benefits might be helping the same consumer cope with the same effects of the same ailment.

LTC specialists are now participating in a private-sector “National Conversation on Long-Term Care Financing,” and the government is setting up an LTC Commission.

Should the idea of extending the list of hybrids be on their agenda?

What they have — and think they have

The SCAN Foundation looked at disabled U.S. residents ages 65 and older who had incomes over 5 times the federal poverty level. Even at that high income level, only about 20 percent of the consumers had LTCI coverage.

Meanwhile, 28 percent of U.S. workers have long-term disability insurance, 64 percent of U.S. households have private health insurance, and 70 percent of U.S. households have life insurance.

Insurers have promoted LTC planning by adding riders or other features that can help the holders pay for LTC services to life and annuity products. But LTC planners note that the life-LTC and annuity-LTC hybrids tend to appeal to a niche market within a niche market: Qualified consumers who can pay an initial minimum premium that might be as high as $50,000 to $100,000.

The life-LTC and annuity-LTC hybrids also work best for consumers who happen to have skilled LTC planners.

Krys Reid, a principal at Tower Benefit Consultants Inc., a member of the United Benefit Advisors consortium, is 59. He can remember his parents sitting down to talk with their life insurance agent at the kitchen table.

“That doesn’t happen anymore,” Reid said. “We don’t have those kinds of life insurance agents.”

John Scatterday, a senior vice president at Keenan, an insurance brokerage firm that sells life-LTC hybrids, said he thinks offering hybrids increases LTC planning awareness.

“Often times, packaging long-term care with better-known products (i.e., life insurance) can provide an easier entrée for consumers to better understand the value of long-term care,” Scatterday said.

One twist: Many consumers who own no private LTCI coverage think they own LTC hybrids.

Northwestern Mutual reports that 19 percent of U.S. adults say they have no need for private LTCI coverage because their medical insurance will pay for any LTC services.

LifePlans Inc. drew attention to the health-LTC hybrid topic in 2012, by asking insurers that had left the LTCI market about regulatory changes that might lead them to consider returning.

A significant minority — 32 percent — said their companies might take another look at the market if regulators would make it easier for insurers to create new types of LTC hybrids, such as disability-LTC hybrids or critical illness-LTC hybrids.

Insurers themselves are not racing to the LTC product laboratory. When asked to comment for this article, representatives for several said the Patient Protection and Affordable Care Act (PPACA) is giving their companies enough excitement for now.

How we got here

Historically, insurance regulators have been skeptical of innovation in health product design, and especially in the design of products aimed at elderly consumers.

In the 1970s, as insurers were building nursing home insurance distribution networks, consumer groups were blasting most health insurance products other than major medical plans provided by government agencies and the rich group health plans provided by giant private insurers.

The consumer groups regarded supplemental health products as, at best, an excuse for the government to leave holes in Medicaid coverage, Medicare coverage and commercial health coverage requirements.

The late Rep. Claude Pepper, D-Fla., blasted private LTCI carriers in December 1987, when he held a House subcommittee hearing with the memorable title, “Nursing Home Insurance: Exploiting Fear for Profit?”

Pepper’s panel acknowledged in a hearing report that nursing home care could be ruinously expensive, and that 1 in 4 elderly people ran the risk of eventually needing nursing home care.

But the panel railed against the policy provisions that insurers used to manage claims risk, such as exclusions for dementia or lack of inflation protection.

Because of the limitations, “at present, the consumer’s odds of collecting off these policies are better at the track,” the panel said.

The Pepper panel urged Congress to eliminate the need for stand-alone LTCI coverage by adding nursing home benefits to Medicare and to set up a commission that would create a comprehensive LTC program for people without Medicare coverage.

South Dakota insurance regulators recently seemed to echo the Pepper’s skepticism about innovation in LTC product design, in a bulletin about LTC riders offered along with annuities. The South Dakota regulators emphasized that an annuity must offer special features in addition to the LTC-linked features, and that the marketers must not focus on the idea of using the annuity to pay for long-term care.

In 2010, Congressional Democrats tried to make good on the Pepper panel’s call for a universal LTC program by including the Community Living Assistance and Support Services (CLASS) Act in PPACA. The CLASS program was supposed to create a voluntary stand-alone LTC program for workers. The Obama administration killed the program after actuaries decided that the program would be unsustainable.

Although the CLASS program is now officially dead, Medicaid still provides nursing home benefits for the poor, and Medicare still provides home health care services for the non-indigent elderly.

“Care coordination” programs” are trying to hold down Medicaid nursing home costs by managing medical services along with LTC services for “dual eligibles” – people who qualify for both Medicare and Medicaid. They include the Program for All-Inclusive Care for the Elderly (PACE), the Medicare Advantage special needs plan program, and new managed care programs for dual eligibles.

A PPACA penalty on “preventable hospital readmissions” could get hospitals into the medical-LTC care coordination fight, by giving hospitals a financial incentive to keep patients away from low-quality LTC providers.

Results of the established medical-LTC programs are hard to find and seem to be mixed.

John Holahan and colleagues at the Urban Institute suggested in a 2011 paper that one program might have cut skilled nursing home days by 16 percent, home health care episodes by 30 percent hospital readmissions by 21 percent, and that another program might have reduced nursing home admissions by 8.7 percent.

But David Grabowski, a Harvard health care policy specialist, noted in a 2009 paper that total first-year costs for patients in a PACE program plan study were 9.7 percent higher than if the patients had stayed in the traditional Medicare program.

Solutions?

Murray Gordon, the chief executive officer of MAGA Ltd., who has been selling LTCI coverage since 1975, snorts at the idea of Medicare or Medicaid doing much to improve the U.S. LTC financing system.

Murray Gordon

“We’re not going to be depending on the government for long-term care,” Gordon says. “They’re having enough trouble figuring out Obamacare.”

Scatterday says government efforts to improve the LTC safety net by working through private plans – by, for example, requiring all Medicare Advantage and Medicare supplement insurance plans to offer LTC benefits – would backfire.

Adding a Medicare plan LTC benefits mandate “will simply result in rates being increased across the board for all consumers, many of whom do not need long-term care coverage for various reasons,” Scatterday says.

Creating any new types of public or private health-LTC hybrids would be difficult because of the way the products work, LTCI Gordon says.

“If it was a viable thought, it would have done already,” Gordon says. “These are completely different products. There are so many moving parts to that puzzle.”

When a life insurer accelerates benefits payments from a permanent life policy to pay an LTC-linked claim, the insurer is simply changing the timing of benefits payments that it knew it would have to make.

Sellers of LTC-linked annuity benefits expect LTC risk to help offset annuity payment longevity risk: The consumers who need LTC services tend to die earlier and stop collecting annuity income earlier than other annuity holders.

Critical illness risk, disability risk, the risk of entering a hospital and the risk of needing LTC services do not offset each other, and the risk that people over 65 will become critically ill, be too disabled to work or enter a hospital is thought to be so high that people over 65 typically have difficulty insuring against those other risks, even when they are healthy and are still working.

Those same considerations limit consumers’ ability to use ordinary, stand-alone disability insurance or critical illness insurance products as LTCI alternatives.

Honey Leveen, a Houston LTCI specialist, says even younger LTC planning clients tend to be in their 50s.

Honey Leveen

Critical illness insurance “just doesn’t price well in the 50s,” Leveen said.

Benefits limits are another problem. A year in a nursing home can cost $100,000 in some states, but buying a U.S. critical illness insurance policy with a limit over $75,000 or a disability policy with annual benefits exceeding 60 percent of the insured’s pay is difficult.

Marc Cohen, chief research officer at LifePlans, an LTC risk management firm, says writing LTC benefit also takes a much different set of skills in the home office than writing most other health insurance products.

A provider of LTC benefits needs the investment skills to manage a product that may stay in force for many years, pay off many years after it is issued, and pay a claim that will last for years, Cohen says.

Larry Moore, marketing director at American Independent Marketing (AIM), says another obstacle is that LTC planners are passionate about stand-alone LTCI coverage.

“In their eyes,” Moore says, “no other products are any good.”

Leveen concedes that she has little interest in selling critical illness insurance, Medicare supplement insurance, or LTC benefits attached to those other products.

Designing a good LTCI plan takes more creativity than selling the other products, selling LTCI is still more lucrative, the business stays on the books better, and the likelihood that clients will run into problems with claims is lower, Leveen says.

Leveen adds that getting the people who now sell Medicare plans to promote LTC benefits features could also be difficult.

Medicare plan sellers tend to resist the idea of buying LTCI for themselves, let alone selling it to others, Leveen says.

Besides, Leveen says, in the real world, buyers seem to prefer simpler products.

“Less is more,” Leveen says.

Moore is one LTC specialist who is still trying to experiment with the health-LTC hybrid concept.

About a year ago, his distribution company worked with an insurer to develop a critical illness insurance policy that pays a fixed monthly benefit when a patient needs critical care, has cancer or has heart problems. The benefit is higher for insureds who enter an assisted living facility or a nursing home.

“We can’t call it long-term care insurance, because it’s not,” Moore says, but he is hoping LTCI will see the product as a bridge product for clients who are unable to meet the underwriting standards for stand-alone LTCI.

One reason for optimism, Moore says, is that consumers seem to be interested in more LTC planning in general. “Because we’re all getting older.”

AIM is offering the product through worksite programs, and Moore says he likes the idea of offering any product that gets workers thinking about LTC planning at the worksite.

He says there are few more effective insurance educational experiences than having workers sit in an open-enrollment meeting and hear a co-worker say, “I wish I’d had that for my mother.”

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