Insurance agents and brokers usually love the papers published by the researchers at the Boston College Center for Retirement Research (CRR).
Those researchers use the tools of economics and sociology to come up with new ways of thinking about financial planning issues, such as the likelihood that Americans will outlive their assets, and the logic of adding long-term care (LTC) cost projections to workers’ retirement risk forecast calculations.
Recently, a team led by Leora Friedberg shook up the CRR fans in the insurance community by taking a tough look at a cherished rule of thumb: the idea that consumers should have private long-term care insurance (LTCI), if that’s financially feasible, because roughly three-quarters of people may need some form of LTC services in their later years.
The statistic has been so popular that members of the LTC planning community used “3 in 4 need more” both as a slogan and as the name of their organization — the 3in4 Association. In the real world, only about 13 percent of Americans buy private LTCI coverage.
Friedberg’s team tried to analyze the gap between popular LTC needs forecasts and actual use of LTCI by looking at factors that might reduce Americans’ actual need for LTCI. Her team reported in one paper, based on new survey data, that older Americans use nursing home care for a shorter period of time than earlier researchers had estimated. In a companion paper, Friedberg’s team reported that Medicare covers a much higher percentage of those older Americans’ nursing home care costs than other researchers factored into their analyses.
The idea that Medicaid crowds out private LTCI coverage is well known. Managers of Medicare generally say that Medicare does not pay for long-term care in nursing homes, but Medicare does pay for short periods of skilled nursing facility care for many patients.
For men, the shorter-than-expected length of nursing home stays could reduce the percentage of single individuals willing to pay for LTCI coverage to 22 percent, from 33 percent, and the Medicare crowd-out issue for short nursing home stays could cut the percentage of men willing to buy LTCI to 19 percent, from 22 percent.
For women, the researchers say, the length-of-stay issue could cut the percentage willing to buy LTCI coverage to 34 percent, from 41 percent, and the Medicare crowd-out cut the percentage willing to buy LTCI to 31 percent, from 34 percent.
This analysis “strengthens the claim that, due to Medicaid crowd-out, few individuals would choose to buy insurance, even if they were rational, far-sighted and well-informed,” the researchers conclude.
Bloomberg covered the study with the headline “Maybe You Don’t Need Long-Term Care Insurance After All.” Other organizations gave stories about the study similar headlines. Time, for example, gave its story the headline, “Here’s a New Reason to Think Twice Before Buying Long-Term Care Insurance.
Some members of the LTCI community have objected to the idea that it’s possible for the LTC planning community to exaggerate consumers’ need for LTC planning and LTCI.
What should members of the LTC planning community think about the Friedberg study and the uproar surrounding the study? For some ideas, read on.
1. The researchers were trying to explain a well-known gap between LTC needs estimates and LTCI ownership — not to defend the way the United States pays for LTC services.
Friedberg’s team was just trying to identify factors that could throw off the needs estimates, including actual nursing home care use and the way Medicaid and Medicare operate.
Her team was not making a value a judgment about whether government programs should be paying for LTC services, or how much long-term care they ought to cover.
2. The Friedberg team did not say anything about whether Medicare or Medicaid actually have the resources to pay the nursing home care benefits people are hoping and expecting to get from those programs.
Economists typically analyze complicated questions by simplifying the questions. In the new papers, the researchers assume that Medicare and Medicaid will keep paying for about as much nursing home care in the future as they have paid for in the recent past.
There is, obviously, no guarantee that programs like Medicare will have the cash to meet their benefits obligations.
3. The researchers assume that consumers will want LTCI only if they have a high probability of needing LTCI benefits.
Consumers already pay large sums for major medical insurance, even though the probability that they will have catastrophic health claims before age 65 is low, and they pay large sums for homeowners’ insurance, even though the likelihood of a home being destroyed is low.
Tom McInerney, the president of Genworth, recently called the idea that consumers will pay thousands of dollars per year because of a 1 in 200 risk of losing a home to fire, but are unwilling to pay a similar amount to prepare for the risk of needing expensive nursing home care, “kind of crazy.”
4. The Friedberg team did not look at how the kinds of families that can afford to pay for LTCI think about depending on Medicaid nursing home benefits.
Medicaid and private LTCI might both pay for nursing home care, but a private LTCI policy might pay for a better facility located closer to a resident’s loved ones.
The Friedberg team did not include any indicators for resident or family satisfaction with coverage in its analysis.
5. Still another challenge is the slow spread of information about the existence of the LTC insurance market.
The Friedberg team suggests their analysis shows that consumers might be making the same low level of LTCI puchases even if they knew more about LTCI products.
But the researchers indicate in their article that even economists who are well-known in the LTCI research field have had a difficult time getting basic information about how often people use nursing home services. Critics of the Friedberg paper have suggested that the paper shows that the researchers are unaware of some developments in the U.S. LTCI market.
The paper and the controversy surrounding the paper imply that, even when people know something about LTCI, they may not have a complete understanding of how the LTCI market works.
See also: Is that nursing home good?