LTCI Watch: What About an Exchange?

Gloria Eldridge, an analyst at the Altarum Institute, Ann Arbor, Mich., and Dr. Joanne Lynn, a hospice physician, have mentioned the idea of setting up a long-term care insurance (LTCI) exchange in an article for Health Affairs about how long-term care (LTC) policymakers ought to proceed now that the U.S. Department of Health and Human Services (HHS) has stopped implementing the Community Living Services and Supports (CLASS) Act.

In the midst of the current campaign rhetoric, "our political leadership is losing sight of the facts that matter most: We need a long-term care financing solution, and we need it quickly," Eldridge and Lynn write. "We need fiscal solutions that encourage the middle class to save for the future costs of aging and its disability, and not to assume that Medicaid will cover these supports."

One solution might be to simply late boomers buy into Medicaid when they reach age 65, and another solution would be to come up some other type of program, rather than an insurance program for people who either already have disabilities or have illnesses likely to lead to disabilities, Eldridge and Lynn say.

A third solution could be to persuade private LTCI providers to sell coverage through either general health product exchanges or specialized LTCI exchanges, Eldridge and Lynn say.

"All employers would be required to offer at least one of the private long-term care insurance products in the exchange, as well as the public product, so that all workers would have easy access to two long-term care insurance options through their employer," Eldridge and Lynn say. "However, individuals would have the choice of whether to participate, with incentives built-in to purchase earlier in one's working years. Individuals would also be able to purchase exchange products of their own choosing outside of the workplace environment."

An LTCI exchange ought to allow carriers to use some underwriting, set different rates for insureds of different ages, and impose penalties on workers who wait until they are retired to buy LTCI, Eldridge and Lynn say.

An exchange could allow for the sale of life-LTC hybrids as well as traditional LTCI coverage, Eldridge and Lynn say.

The authors suggest that individuals could pay for the products either with payroll deductions or through additions to Social Security taxes.

One reason an exchange program would be more sustainable than CLASS is that it would allow for some underwriting and would not be aimed at individuals who already live below the federal poverty level.

"The challenge is in providing fair and just incentives for the middle class to insure for their future long-term care costs instead of assuming that they will rely on spending down to the Medicaid program," Eldridge and Lynn say.

One challenge I see is that an exchange program could be hard on agents and brokers.

The agents and brokers in the LTCI are really nice, smart, passionate people who live and die LTCI, and it would be criminal to cut them out. Any changes that lead to cutting out LTCI intermediaries are bad changes.

But the current situation is not all that easy on producers, either. Maybe LTCI exchange architects could figure out a way to make the producers central to the exchange.

It seems as if another, much bigger problem is that LTCI carriers are not really in a mood to compete aggressively for business by offering lower prices or looser underwriting rules. They've discovered that they don't know enough about human behavior to be sure how healthy LTCI insureds will be, how owning coverage will influence the insureds' use of LTCI, or how likely LTCI insureds are to keep or give up their policies to play around with prices and underwriting.

Right now, our government is broke. It can't really afford to give an LTCI exchange big subsidies or back a generous LTCI reinsurance program.

Once the exchange got going, maybe the government could help fund an LTCI reinsurance program that would reduce insurers' fear of the market by some of the projected Medicaid nursing home benefits savings resulting from the exchange into the reinsurance program.

Maybe another, free-market way to build a reinsurance fund would give able-bodied LTCI policyholders free coverage and modest payments if they take in LTCI policyholders who are frail and in need of help with activities of daily living but do not really, truly need round-the-clock supervision or skilled nursing care.

Because, of course, the real LTC reinsurance program is probably that many of us will have frail elderly people in our guest rooms, whether we knew those people before they moved in or not. Maybe LTCI insurers could accelerate and formalize the Great Filling of the Guest Rooms and use the flow to create elder-financial energy.

LTCI carriers could take the difference between what the informal care by the LTCI policyholders costs and what formal care costs and contribute that amount to the LTCI reinsurance program.