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5 looks at a plan for protecting LTCI’s biggest beneficiary

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Policy shapers in Washington are thinking more about long-term care insurance (LTCI) programs. But, really, it’s not about you, or your clients. 

The wonks are always careful to mention the needs of the care recipients, and the heroic family caregivers, but, of course, their real prospect is state Medicaid programs.

The long-term care (LTC) planner in the wonks’ sights is Congress.

The Urban Institute, a bipartisan think tank associated with research that happens to appeal to Democrats, recently came out with two LTC financing briefs: “How Much Might New Insurance Programs Improve Financing for Long-Term Services and Supports?”  and “How Much Could Financing Reforms for Long-Term Services and Supports Reduce Medicaid Costs?”  

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In the briefs, the authors — Melissa Favreault, Howard Gleckman and Richard Johnson — propose three new types of user-paid LTCI programs and analyze how voluntary unsubsidized, voluntary subsidized or mandatory versions of each program might affect overall Medicaid long-term services and supports (LTSS) spending by 2070.

Favreault and her colleagues say better LTCI programs could provide older adults with more flexibility, but they emphasize another motive for encouraging LTCI sales: “New LTSS insurance programs with dedicated premiums or taxes would prefund at least some LTSS expenditures and reduce spending by Medicaid, which is financed through general tax revenues and strains government budgets.”

The private LTCI community has had a lousy relationship with LTC wonks since at least as far back as the early 1990s, when it lobbied against the Pepper Commission’s efforts to set up a universal nursing home care safety net program.

The federal Advisory Council on Alzheimer’s Research, Care and Services barely mentions private LTCI in the country’s national plan for fighting dementia. In the final report on the 2015 White House Conference on Aging, the conference staff refered to private LTCI only to sniff that issuers account for just 3.3 percent of U.S. LTC spending.

See also: White House asks for LTC funding ideas  

Favreault and her colleagues have set themselves apart by suggesting that expanding use of some kind of user-paid LTCI program might be useful. 

The team’s work could influence a wide range of LTCI proposals. For a look at some of what Favreault and her colleagues said, and what their analysis could mean for private LTC planners, read on.


1. Medicaid is already a gorilla of an LTC benefits program.

The Favreault teams says Medicaid alone spends about $100 billion per year on LTSS and accounts for about 60 percent of U.S. LTSS spending. 

France and the United Kingdom are examples of countries viewed as having government-run “single-payer” acute health care systems. Government programs account for about 77 percent of health care spending in France and 84 percent in the United Kingdom, according to a report released by the Commonwealth Fund.

In other words: Medicaid already looks an awful lot like a universal, single-payer LTC benefits system.

See also: Single-payer programs also control costs  

Dark water

2. The Favreault team says it’s come up with a good way to analyze new LTCI options.

The team designed three hypothetical, easy-to-analyze LTCI products, then used Milliman data and its own simulation system to predict how the new products might perform.

Each of the three products would pay a cash benefit of $100 per day to insureds who qualified for benefits in 2015. The benefit would increase 3 percent per year.

The first product, a front-end benefits policy, would pay benefits for two years, after the insured got through a 90-day waiting period.

The second product, a back-end benefits policy, would pay benefits after an insured had been getting long-term care for at least two years.

The third product, a comprehensive policy, would pay for all long-term care a qualified insured received once the insured got through a 90-day waiting period.  

See also: Mandate could amplify LTCI effects, analysts say

A 50something couple

3. The team says voluntary, unsubsidized programs are for the birds.

U.S. insurers now offer voluntary, unsubsidized LTCI.

The Favreault says the voluntary, unsubsidized versions of its products, which would be somewhat different from the LTCI products now available in the United States, would be expensive, would sell poorly and would do little to reduce Medicaid LTC spending.

Because the coverage would start out being expensive, it would appeal mainly to high-income people who suspected that they were at relatively high risk of needing long-term care, the team says. Adverse selection would soon drive the cost of the coverage even higher, and most of the people who did buy the LTCI coverage would be too rich to face much risk of ever qualifying for Medicaid nursing home benefits. 

Without any subsidy or purchase mandate, the back-end benefits version of the program might cut 2070 Medicaid LTSS spending by 1 percent. The front-end benefits version would cut Medicaid LTSS spending by about 0.1 percent that year, and the comprehensive version would have no noticeable effect, the team predicts.

The Favreault team does not talk about LTCI distribution, but one advantage of a voluntary, unsubsidized of program for agents and brokers is that, even if a government agency provided every penny of the coverage, the agency would need a large, energetic, well-compensated distribution force to sell its high-priced coverage.

See also: Policy group: Restructure private LTCI 

Flood (IS)

4. A mandatory LTC insurance program might do the most to cut future Medicaid LTC spending.

The United States has just gotten past a painful Supreme Court battle over whether Congress has the authority to make people pay for major medical insurance, but the Favreault team says mandatory purchase requirements can sharply reduce the per-enrollee cost of LTCI coverage, by getting healthier people into the risk pool.

The team predicts a mandatory version of the front-end benefits program would cut 2070 Medicaid spending 7 percent. The spending cuts would be 31 percent for the back-end benefits program, and 35 percent for the comprehensive program.

Medicaid already acts like a mandatory, government-run back-end benefits program: It pays nursing home bills for most people who have been in a nursing home long enough to use up their savings.

The Favreault team’s mandatory back-end program would, apparently, be a better-financed version of the Medicaid nursing home benefits program, and even the comprehensive program might be comparable to a more stable version of the current Medicaid nursing home benefits program.

If that’s the case, the LTCI producers who are used to competing with Medicaid today might find competing against the skimpy $100-per-day Favreault care benefit to be a snooze, as long as the government continues to permit the sale of private LTCI policies and insurers are willing to write the policies.

See also: PPACA: Sebelius Ponders CLASS Fix

An archery target with a dollar sign on it

5. A voluntary, subsidized LTC insurance might have a smaller effect on Medicaid LTC spending but be more efficient.

One weakness of a mandatory LTCI program is that many of the people who paid for the LTCI coverage wouldn’t need it, and many of the high-income enrollees would start out with a low risk of ever needing Medicaid nursing home benefits.

A voluntary, subsidized LTCI program would save Medicaid less money, overall, but it would be more efficient at having any of the extra money spent go toward reducing Medicaid spending, Favreault’s team says.

The voluntary, subsidized program would be efficient because it would tend to attract people at relatively high risk for needing long-term care, and the subsidies would help make the coverage affordable for the kinds of high-risk low-income people who are likely to end up using Medicaid nursing home benefits.

The analysts estimate the share of voluntary, subsidized program outlays going to reduce 2070 Medicaid LTSS spending would be 17 percent for the front-end benefits program, 45 percent for the back-end benefits program, and 48 percent for the comprehensive program.

If all other factors stayed the same, a shift to a voluntary, subsidized LTCI system could help agents and brokers, because the issuer, or issuers, would need someone to persuade consumers to pay for the coverage, and the subsidies would expand the percentage of consumers capable of paying the premiums. 

The ultimate impact of the shift on producers would depend on how other system features, such as rate review rules and issuer marketing strategies, affected issuers’ interest in working with producers.

See also:

Limelight strategist: The exchange force is real 

AHIP to NAIC: Well-Paid Producers Important to Exchange System  

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