By 2040, the U.S. will see a threefold increase in the number of seniors over the age of 85. This trend creates a nagging problem for the insurance industry, tax payers and legislators alike: Who will pay for their long-term care?
A new bipartisan bill (S 1602) sponsored by Sens. Chuck Grassley (R-Iowa), Hillary Rodham Clinton (D-N.Y.) and Evan Bayh (D-Ind.) would attempt to address the issue by creating incentives for middle-income consumers to buy private long-term care insurance — a product which has been met with lackluster support in the past.
The bill — known as the Improving Long-Term Care Choices Act — would require states to disregard benefits paid under LTC insurance when determining Medicaid eligibility and offer policyholders tax breaks for qualified LTC premiums. These provisions are aimed at coaxing middle-income consumers — who have been traditionally priced out of LTC insurance — to buy private coverage. Seniors with disabilities without private insurance have only one option: to “spend down” their assets until they qualify for Medicaid.
However, some experts believe the Grassley bill is a piecemeal effort that doesn’t address the underlying shortcomings of LTC insurance products — namely, that the insurance is too expensive for the consumers who need it most and too risky for insurers.
Ben Lipson, an insurance broker for 50 years who wrote a book on the topic, said, “The trouble is long-term care insurance is a very risky product; the premium is not guaranteed, and we’ve already seen some insurers go out of business.” He added, “For the person on a fixed income, they will still have difficulty affording the product — even the tax relief will be minimal.”
However, the National Association of Health Underwriters has embraced the bill and is hoping it will encourage younger workers to buy LTC insurance products. Capturing market share among this demographic is crucial for LTC insurers because healthy, young buyers will balance out some of the risk represented by older policyholders.
“We think the bill provides proper incentives in the marketplace because consumers can buy through their employer on a pretax basis,” said John Greene, director of federal affairs for NAHU. “The above-the-line deduction will further incentivize people to prefund their long-term care when they can afford to do so,” he said.
Still, LTC insurance is a difficult product to profit from, Lipson argued. Insurers that have tried to expand market share by offering products with liberal benefits have seen this strategy come back to bite them when policyholders need long-term care for an extended period of time.
“There’s no way of telling the early signs of dementia in people in their 50s and 60s, and when insurers get hit with a claim, it uses up all the resources of the policy,” Lipson said. “Insurers can’t adequately underwrite the risk of dementia and long range, this is an uninsurable risk,” he said.
A public-private partnership has existed since 1994 in California, with the Office of Long-Term Care offering many of the same incentives outlined in the Grassley bill for more than a decade. Specifically, consumers can purchase an amount of private coverage equal to the amount of assets that they wish to protect from “spend down” to qualify for Medi-Cal.
The California Partnership for Long-Term-Care program markets its product to individuals through agents, as well as to state employees as a benefit option via CalPERS. In fact, CalPERS now has the largest group private LTC insurance program in the country with 176,000 policyholders, or about 17% of its total membership of 1.2 million.
However, the response to the program has been tepid, although the percentage of Californians with LTC insurance policies has increased steadily since the partnership’s inception.
“The market penetration has been impressive despite the small number of people buying it, but long-term care insurance has not been, and probably will not be, a major percentage of long-term care expenses,” Andrew Scharlach — director of the Center for the Advanced Study of Aging Services at UC-Berkeley and author of a study on California’s experience with the Long-term Care Partnership — said. “Our observation is that the market that insures through individual policies is a high-end market and these are not the people who need to protect themselves from long-term care costs,” he added.
The Californians who most need LTC insurance aren’t reached by the program because there’s not much incentive for insurers to cover them, said Scharlach.
This could be the fundamental problem with LTC insurance — those who can buy it, don’t need it, and those who need it, can’t buy it.
So what’s the solution? One answer could be to create group policies that allow pricing across age groups and vulnerability levels so that the risk is shared, Scharlach said. In a big enough pool, it all washes out and becomes a viable market for insurers.
One way to pool policyholders would be through employee groups, and the Grassley bill encourages buyers to do so through their employers. But employers, already strapped with employee health insurance costs, are reluctant to take on the additional cost of LTC insurance, according to Scharlach. Even the CalPERS program is funded entirely by individuals — no public employer has agreed to assume any of the costs of the long-term care policies.
Greene of NAHU believes that consolidation and maturation in the marketplace might improve LTC insurance products and that, as companies experiment with various policies, they will eventually land on a product that works for both consumers and underwriters.
Scharlach of UC-Berkeley has a different theory. He believes advances in gerontology and medical technology eventually might obviate the need for long-term care, and with it, LTC insurance. A new focus on preventive care and emerging technologies that enable seniors to stay in their homes rather than move into expensive nursing homes will reduce the need for the kind of services nursing homes and assisted-living centers provide.
The Grassley bill would encourage such a shift by allowing state Medicaid programs to pay for home and community-based services.
While that’s a step in the right direction, Lipson believes it’s not enough to stave off an LTC funding crisis. “The only solution is a major enhancement in the Medicare program, with more at-home benefits that would keep people out of nursing homes,” Lipson said.
“But, with the deficit,” he added, “that’s highly unlikely.”