Can the wonks save private LTCI?

Governments throughout the world — in Asia, in Europe, in North America, and even in "developing countries" with seemingly low average life expectancies — are suddenly facing a challenge that no other major national governments have had to face in quite the same way ever before: The likelihood that a relatively small population of "working age" workers will somehow have to support a large population of "old old people" who have disabilities that interfere with their ability to handle major "activities of daily living."

The workers also may have to help support many older people who need expensive, close supervision because of Alzheimer's or other forms of dementia.

The Chicago Health and Aging Project has estimated that the cost of acute health care and LTC services for people with dementia will total about $203 billion, this year alone, just in the United States. That total does not include the cost of informal care provided by friends and relatives. The total could rise to $1.2 trillion by 2050, the center researchers estimated.

The package of papers released in conjunction with the SCAN conference includes looks at topics such as Medicaid nursing home benefits eligibility requirements, government long-term care insurance (LTCI) programs, ways to shore up the private LTCI system, and ways to get employers involved with helping their workers plan for LTC expenses.

Here is a sampling of what the LTC policy specialists were saying.

What's out there now
Eileen Tell, an executive at Univita Health, a home care management company, gave attendees an overview of the many different public and private LTC financing options that exist today, ranging from private LTCI coverage to Medicaid to private LTCI to hybrid insurance products.

Tell tried, for example, to explain what she believes to be common misconceptions about the options.

Even private disability insurance and the Social Security Disability Insurance system could be viewed as LTC financing options to some extent, but public and private disability insurance "are designed to partially replace lost income and are not sufficient to cover both living expenses and LTC," Tell said.

"We as a society, and each of us as individuals, must address the challenge of funding future LTC needs," Tell said. "While there are several ways to meet this need, they all have limitations. Also, despite government initiatives to raise awareness of the risks and costs of LTC, and the efforts of business people to educate consumers about how their products can help, most people have taken no steps to plan and provide for their future needs. Why not?

"The most important reason is probably denial — most people simply do not know the risk of needing LTC or the potential costs they face. Lack of knowledge is also a factor. Many individuals have misconceptions about the cost of care and how they can meet these future financing needs.

"Others are informed about the products and have considered some of them, but have concerns about their limitations and value and so have not taken action. In some cases, the complexity of products and the array of choices may keep potential buyers from reaching a decision."

Private LTCI
Richard Frank, Marc Cohen and Neale Mahoney developed a paper on expanding the private LTCI market that was presented at the conference by Frank.

Frank and Mahoney are health policy researchers at Harvard. Marc Cohen is chief research and development officer at LifePlans Inc., a health risk management firm.

"We argue that the current private market for  LTCI is not functioning well," the authors said "For a variety of  reasons, there is both an under-demand and  undersupply of LTCI. "

Because of all of the many political and financial barriers to expanding a voluntary, private LTCI system, "our measure of success is modest," the authors said. "If the combination  of approaches results in the percentage of  Americans over the age of 50 that are insured  against the cost of LTSS increasing from under 10 percent today to over 20 percent during the coming decade, we will consider that to reflect an  improved well-being of an aging America."

The authors said the problems include the difficult of producing and buying a product that insures against risks that might take place decades in the future, and the difficulties consumers face when judging the competence of LTCI carriers to manage long-term risks.

"For example, the CalPers LTCI that covers state and local government  employees in California recently assumed rates of return on investments well over 7 percent per  year," the authors said. "The result was a 32 percent deficit in 2009 and  premium increases of about 22 percent for what were  supposed to be level premium products. More  recently an increase in premiums of 85 percent was  announced. This also means that households considering buying LTCI face risks of insolvency  by insurers or rate increases in the product that  they may not be able to afford at a time when  they are at their highest risk for needing [long-term care]. Thus, key attributes affecting the stability and  performance of the product being purchased are  largely unobservable to consumers."

Possible solutions for improving the private LTCI supply could include creating a new reinsurance pool, expanding the employer role in the market, and encouraging LTCI carriers and acute care health insurers to form joint marketing efforts, the authors said.

"While private LTCI as currently constructed has  had a disappointing track record, we think there  is scope to expand the role of private insurance  in modest but meaningful ways," the authors said. "Based on  simple projections, we believe that our package  of policies could more than double the share of  adults over age 55 with LTCI. We also hope that  an expansion of LTCI would serve to bolster the  financial footing of the Medicaid program that serves as the nation's [LTC] safety net."

Strategies for expanding demand could include simplifying and standardizing products, finding new ways to index premiums, mandating availability, creating targeted subsidies, and selling LTCI coverage through employer-sponsored programs other other "forced choice" programs that would require consumers who don't want the coverage to opt out of having the coverage, rather than inviting consumers to opt in to buying coverage, the presenters said.

Employers
Jeremy Pincus, Katherine Wallace-Hodel and Katey Brown — consultants at Forbes Consulting Group — talked about the employer LTCI market and presented many tables on the U.S. employer LTCI market, including one showing, for example, that 58 percent of the jumbo employers with 20,000 or more workers were offering access to LTCI benefits in 2010, up from 44 percent in 2003 and up from 13 percent in 1998.

But there is still a large, untapped market for employer-sponsored LTCI programs, especially in the small employer and midsize employer markets, the presenters said.

"We estimate  that 20 percent [of U.S. workers] either have access to an employer-sponsored plan (employees) or already own an individual policy (self-employed/ small business owners), and 80 percent either do not have access to coverage (employees) or  do not own a policy (self-employed/small  business owners)," the presenters said. "It is estimated that there is  an enormous untapped market of 134 million workers: 112 million employees who do not  have access to long-term care coverage through the workplace, and another 21.5 million selfemployed and small business owners without coverage.

Avalere
Analysts at Avalere Health, a health policy consulting firm, have developed their own paper on the challenges facing the private, voluntary LTCI market.

"Our analysis shows that policies aimed at increasing insurance coverage for [LTC services] through voluntary enrollment are implicitly making the choice to maintain Medicaid funding as the primary source of payment," the analysts concluded. "There may be good reasons to make this choice.

"Policymakers may not want to require individuals to pay premiumsor taxes. And, a voluntary approach can achieve important policy goals such as increasing the number of people with coverage.

"However, our research shows that the sheer number of enrollees will not be sufficient under voluntary insurance for it to be a major source of financing for long-term services and supports.

"Voluntary approaches to increasing coverage will not cover substantial numbers of people with disabilities or change the trajectory of Medicaid spending in any significant way. In order to accomplish that, mandatory coverage is needed."

See also:

• Long-term care: What's at risk?
• Good, Bad, Blah
• SCAN: Complicated Patients Keep Coming Back