WA LTC INITIAL 8 HOUR COURSE
Chapter 4: Changes or Improvements in LTC Services
Changes or Improvements in LTC Services
Our grandparents did not anticipate ever needing care in a nursing home. If they lived to be very old or became ill it was likely that a family member, often a daughter, would take care of them for the last years of their life.
Times have changed. Today our daughters work outside of the home and may live in another state. Families also tend to have fewer children to share the responsibilities associated with caring for an elderly or sick family member. As families found themselves needing to care for an elderly member, they began to turn to paid care in private homes and eventually this evolved into facilities offering such care.
Care for an elderly or sick member is expensive. Nursing home care is the most expensive, but care in assisted living or in other facilities is not far behind. Today families need to consider long-term health care needs along with their planning for a financially secure retirement. If an individual fails to consider the costs of health care in their final years, they may find all the financial planning they did is quickly eroded by long-term nursing care costs. Financial planning is only complete when health care issues are fully considered.
With the baby boom generation reaching Medicare age and the cost of services going up, paying for long-term care is an issue of pressing importance for policymakers who fear Medicaid applications will outpace the programs financial ability. While some individuals can count on friends and family to assist with the activities of daily living, many others must determine how to pay for extended home-health services or a potential stay in a nursing facility.
The high costs nursing home care make up the largest part of long-term care costs in the United States. Almost $122 billion was spent on services provided by free-standing nursing homes in 2005, with an additional $47.5 billion spent on home-health care. Medicaid accounted for the largest share at 43.9 percent of the total spent on nursing facilities. Consumers covered an additional 26.5 percent of nursing home costs out-of-pocket and private insurance covered another 7.5 percent.[1]
The likelihood of needing nursing home care is significant. A 65-year-old man has a 27 percent chance of entering a nursing home at some point in his life; a 65-year-old woman faces a 44 percent probability of doing so. While costs vary from state to state, and even from region to region within states, the average nursing home stay costs more than $70,000 per year (or nearly $6,000 per month). The financial stakes are high for both state and federal governments. On average, states spend 18 percent of their general fund budgets on Medicaid. Individuals must spend nearly all their non-housing assets before they qualify for Medicaid assistance, so financially it is devastating to everyone.
Defining Long-Term Care
It is important to define long-term care since it relates to insurance contracts and federal and state guidelines. Long-term care is not hospital care although some hospitals may have long-term care sections. Long-term care specifically applies to care in a nursing home, home health care setting, or other institution providing non-hospitalization benefits. When hospitals provide such care the wing of the building is called a nursing unit rather than a hospitalization unit.
Various laws will define long-term care based on their interpretation or intent. Partnership states will define long-term care based upon Partnership requirements. Federal law considers long-term to mean care provided for 90 days or more. Additionally, most long-term care definitions relate to the inability to perform the general activities of living, called activities of daily living or ADLs. These activities include eating, toileting, transferring to and from beds and chairs, bathing, dressing, and continence. Non-tax qualified state plans may include ambulating as an ADL, the ability to move around independently. When ambulating was omitted from federal requirements, many long-term care professionals felt the omission reduced their clients ability to collect insurance policy benefits.
A cognitive impairment is also used as a measure for collecting policy benefits. A cognitive impairment would be the inability to take care of oneself due Alzheimers disease, dementia or some other mental incapability.
A long-term care policy will cover multiple types of care: custodial or personal care, intermediate nursing care, and skilled nursing care. Medicare only covers skilled care, and only for a specified time period. No individual should rely on Medicare for their long-term care needs. Custodial or personal care is the least technical since it covers help with the daily activities of living. Skilled care is the highest level of technical care and can only be provided in the appropriate setting. The Medicare & You handbook, published by the Department of Health & Human Services, defines skilled nursing facility care as: a semi-private room, meals, skilled nursing and rehabilitative services, and other services and supplies (only after a 3-day minimum inpatient hospital stay for a related illness or injury) for up to 100 days in a benefit period. To get care in a skilled nursing facility, you must need skilled care like intravenous injections or physical therapy. Medicare doesnt cover long-term care or custodial care in this setting.
While no one can precisely predict who will need long-term care we do know that the risk is high. As we live longer and healthier lives we may need a nursing home simply because we become frail, not necessarily because we are ill. At one time family members provided this care but, for many reasons, that is increasingly not the case today. While purchasing an insurance policy is not the only solution it is perhaps the most logical choice.
Statistically, the people most likely to end up in a nursing home are female, elderly, increasingly frail, and living alone, although any person of any age can end up in a nursing home. Many would find it surprising that 40 percent of those in a nursing home are between the ages of 18 and 64.[2]
Medicaid is the major payor of long-term care services. It is because of the increasing costs of covering those who have spent all their own assets (ending up on Medicaid) that the Partnership Program began. While asset conservation is a goal of the Partnership Program, another goal is reduced Medicaid spending.
A May 2007 GAO report stated it was unlikely Medicaid would actually realize any savings since those that are buying Partnership policies generally have sufficient assets to have funded a nursing home stay without applying to Medicaid. In two of the four initial Partnership states, more than half of Partnership policyholders over the age of 55 have a monthly income of at least $5,000 and more than half of all households have assets of at least $350,000 at the time they purchased their Partnership policy. In many cases, these individuals (80%) would have bought a traditional long-term care policy if Partnership plans had not been available, reports the Government Accountability Office (GAO).[3]
Not everyone agrees with the GAO suggestion that Medicaid will not realize any real savings from Partnership plans. HHS commented that the study results should not be considered conclusive since it does not adequately account for the effect of estate planning efforts, such as asset transfers (although the period of time to do so has been increased to five years rather than the previous three years). It is the Health & Human Services (HHS) position that these individuals would have moved their assets, enabling them to qualify for Medicaid, had the Partnership Program not been available. Whether or not those who would have repositioned their assets would still have purchased a traditional long-term care policy is not known, of course, but one could theorize that high-income, high asset households often tend to be more aware of their options than those with less income and assets. Therefore, even if they did not reposition their assets, they may have sought other measures to protect their assets (income cannot be shielded from nursing home contribution requirements).
The GAO report looked at:
1. The benefits and premium requirements of Partnership policies as compared with those of traditional policies;
2. The demographics of Partnership policyholders, traditional long-term care insurance policyholders, and people that had no long-term care insurance coverage; and
3. Whether the partnership programs are likely to result in savings for Medicaid.
Data from the four initial Partnership states was used from 2002 through 2005. The four initial Partnership states are California, Connecticut, Indiana, and New York.
The Evolution of a Major Industry
While there were some policies prior to the 1970s that claimed to cover expenditures for long-term care, for all practical purposes the long-term care policy was developed in the ten years between 1970 and 1980. Of course, there have been many changes since then. Todays policies barely resemble those of the 70s and 80s. For a policy type that takes twenty or more years to develop reliable profit and loss statistics, this industry has emerged very quickly.
The long-term care policy was developed because consumers recognized the need for such a policy to prevent the depletion of their own assets. It goes without saying that the industry also promoted the product. As with all types of products, they evolve because a need, and consequently a market, becomes obvious.
There was a time when consumers did not believe that they personally would ever go to a nursing home. They believed that their children would manage to care for them at home. Today, many less people hold on to that belief. Many actually realize that their children are not likely to be able, by training or experience, to deliver the type of medical care that may be needed. We would certainly not feel secure have a mechanic or accountant provide our medical care; why would we want our children to? With todays high medical technology, only those with experience or training should do so.
Many would argue that simple maintenance care requires no special skills and to some degree that is correct. Certainly those who love us would perhaps have something to offer that a stranger would not compassion. The problem with this argument is the length of time that such care may be required. While a child or children may start out with the best of intentions, and certainly compassion for their aging parents, as time wears them down physically and emotionally that compassion may turn to frustration, stress, and even anger at their parent for putting them in such a position. There will also be feelings of guilt due to the emotions that have developed. Most experts agree that children should take an active part in their parents care, but they should not attempt to totally provide it themselves. Even something as simple as adult day care five days a week may ease the stress of trying to totally care for an aging parent. That is assuming that finances allow it.
Children as Caregivers
When it comes to our parents and aging, the numbers tell the story:
Percentage of caregivers who are female: 60%
Percentage of caregivers who are married or living with a partner: 66%
The average age of the caregiver: 46 years old
The average age of the care recipients: 77 years old
Percentage of caregivers who have children under the age of 18 still living at home: 41%
The percentage of caregivers who are employed full time: 52%
The caregivers out-of-pocket monthly expenses associated with the care: $221
The median family income of the caregivers household: $35,000 [4]
Gary Barg, editor in chief of Todays Caregiver magazine based in Florida states that about a fourth of U.S. households care for an aging relative in some way. [5] Few Americans expect to do this (it will always happen to someone else they think). Unfortunately, few families prepare for it either. The U.S. Census Bureau says that by 2050, the percentage of Americans 65 and over will grow to 21 percent of the population from the current 12 percent. Approximately 19 million elderly are expected to need some type of long term professional care. If the family cannot afford alternatives, such as assisted living, it is likely that the children will provide the care themselves, whether they have prepared themselves adequately or not.
Deputy Director of the National Center on Caregiving at Family Caregiver Alliance in San Francisco, Lynn Friss Feinberg, says: It affects everyone. She reports that it is a myth that the majority of our elderly go to nursing homes. Its not what the baby boomers want, she says.
Gail Gibson Hunt, the executive director of the National Alliance for Caregiving, reports that many caregivers feel isolated and alone. While family caregivers are facing everything from mild supervision of their family members to full time care, legislation addressing the situation is still mainly in its infancy. In 2000, Congress established the National Family Caregiver Support Program in which the government provides funding to each state for caregiver services, such as respite care, education and training. But the 2003 budget for the entire country was only $155.2 million, which Hunt calls a drop in the bucket. Funding for 2004 was $159 million.
A few states have passed legislation. In 2002, California led the nation in passage of a paid-family-leave law. Hawaii passed a law in 2003 that allows employees to use sick leave for family purposes. Congress has considered various initiatives but nothing solid has yet come.
While many families cope well with caring for an elderly parent, others do not. Primarily it will depend upon the support they receive from their family and their community. While caring for elderly parents is similar to raising children, the process goes in reverse. Children grow and learn and become increasingly independent whereas the elderly become more and more dependent upon their caregivers. It is this increasing dependence, at a time when adult children have raised their own families and expected to have the freedom that brings, that can most difficult.
Can Families Make It Through?
There are families that do completely care for their elderly members, but most families say success depends upon community services to help them and provide periods of rest. Most communities have some form of help, though not necessarily for free. The families that will handle it best are those lucky enough to have personal financial resources to pay for outside help. There are some places to turn for information, whether financial resources exist or not. These resources include:
Eldercare Locator: 800.677.1116 or www.eldercare.gov
Family Caregiver Alliance/National Center on Caregiving: 800.445.8106 or caregiver.org
National Alliance for Caregiving: caregiving.org
Alzheimers Association: 800.272.3900 or www.alz.org
Faith In Action: 877.324.8411or fiavolunteers.org
National Academy of Elder Law Attorneys: 520.881.4005 or www.naela.org
National Association of Professional Geriatric Care Managers: 520.881.8008 or caremanager.org
Caregiver.com, Todays Caregiver magazine
Paid Home Care
Next to the spouse and children, paid home care is the most commonly used method to remain at home. Many of the paid home caregivers do not show up in statistics because the family pays for it out of their own pocket. The caregiver is not licensed, in these cases, with any medical agency.[6] These unlicensed and medically untrained caregivers provide an important service. They do the daily routines necessary to keep the individual at home (called activities of daily living). The type of care non-medical people provide is called personal care.
Better Health Equates Into Longer Life
As our population experiences longer life, and even a healthier life in many ways, the problems associated with aging will continue to be something we must deal with. In fact, a healthier life actually contributes to the need for nursing home care since many of those who require care are simply frail, not ill. Eventually they are too frail to care for themselves.
Americans did not always gracefully accept the need for a nursing home. Of course, our nursing facilities were not always model institutions either. Changes in our families made nursing home acceptance important. Daughters gradually became unavailable. During World War II, many women entered the workplace. Even when the war ended, many of the women remained workers. Beyond that, as our country's economic climate changed, women found it necessary for them to work. The two-check family is now part of our culture. Families can no longer spare one of the wage earners, even when it involves caring for elderly or ill parents.
As insurance products go, long-term care policies are the new kid on the block. Nursing home policies primarily emerged in the '70s although their popularity did not begin to rise until the '80s. Today they are one of the primary health care products sold. In 1996, President Clinton signed a bill allowing a tax deduction for such policies effective in January 1997 for those who qualify. This indicates that even our government is hoping that such policies will become commonplace. This is not surprising. Since nearly half of all nursing home expenses are paid by Medicaid, the government's medical program for the poor, whether or not Americans can cover the cost is an issue even our government has a stake in. Obviously, it is important to the federal and state governments to shift some of the long-term care burden to other areas (such as insurance policies).
Todays insurance policies for long-term care are far better than they were in the past. Early policies generally paid for only skilled care benefits. Coverage for intermediate and custodial care were either excluded or severely limited. While some of the improvement is due to government regulation, much of it is the result of competition. As companies fought to enter this new marketplace, they continually improved the policies offered. Where improvement did not come from competition, the states mandated legislation that forced it. Between the two, today's policies offer broad protection for those willing to pay the premium rates.
Unfortunately, todays policies are seeing great increases in cost. Even existing policies, whose premium rates were expected to remain stable at the time they were sold, have risen dramatically. In some cases, previously issued LTC contracts have actually doubled in cost in a single rate increase. Consumers are left feeling betrayed when this happens. They pay for years on a product they wont need until they are elderly only to have it priced out of their reach before receiving any benefits. In such cases, they are left wishing they had merely put the premium cost away into a savings account.
Sudden dramatic rate increases can happen anywhere, so agents should feel no false security when selling a long-term care product. That is why so many states have now required that agents access the buyers ability to continue paying premiums, absorbing rate increases, for several years.
Policy Benefits Improve Over Time
Policies purchased in the 1980s were vastly different from those of today. Any policy purchased prior to 1990 may have:
1. A skilled care requirement prior to receiving intermediate or custodial benefits.
2. Coverage for only skilled care.
3. No coverage for Alzheimer's disease or other mental disorders.
4. A "medically necessary" gatekeeper. Such a restriction could prevent benefits from being paid for simple old age or frailty.
5. Dollar or time limits on some or all of the benefits received.
6. No allowances for inflation, as today's policies do.
Consumers who have purchased policies many years ago should review their policy to be sure benefits will be paid as expected. Some insurance companies offer updates to current policyholders, but there may be time limitations for doing so. It should be noted that upgrades would probably be based on current issue ages. Therefore, the premium cost is affected.
All 50 states now have some type of regulations regarding long-term care policies, although these regulations are not uniform. Many states follow the National Association of Insurance Commissioners guidelines.
People are living longer lives, yet fewer children are born to care for them in their old age. It has been traditional that daughters or daughters-in-law take on the burden of caring for parents and parents-in-law. As we have changed our family roles, however, those female children now are in the work force along side of their brothers. Additionally, the nature of the family itself is changing. For every two marriages, there is one divorce. More than half the children born in the 80's will not spend their childhood with both parents in the home. This aspect will bring even greater change to the way we deal with elderly parents in the future. Doctors now routinely warn children to avoid unsatisfactory care arrangements with their parents. They point out that trying to care for parents personally is not a workable solution and recommend placement in long-term care facilities instead. Because children often feel placing a parent in a long-term care facility is likely to be a permanent situation, they often reject the idea initially. Children often come to view their parents as the cornerstone of the family. When they become old and ill, the children have difficulty coping with this change in family structure. They received care from their parents. To have that situation reversed is difficult, especially if a cognitive disability is present.
Remaining At Home
Children also prefer to keep their elderly or frail parents at home, so they may initially try to care for them at home. Sometimes they assume they can hire help with Medicare-paid benefits. Reality soon sets in. Medicare only provides care at home for those who qualify. Qualification is not based on desire, but rather on a specified list of conditions. At some point, the family must come to terms with the fact that Medicare often will not provide home care since the recipient of care may not meet their benefit criteria.
It is possible that care at home and types of community care may become more widely available under specific circumstances. Since Medicaid is the major payer of nursing home benefits, it would be financially beneficial to keep people at home if medically possible. As new forms of alternative care are developed we do expect to see government funded home care for those that have depleted their own assets and qualify for Medicaid.
Qualifying for Medicare Funded Home Care
There are specific criteria involved when it comes to Medicare funded home care. Home health care involves part-time or intermittent skilled nursing care and home health aide services, physical therapy, occupational therapy, speech-language therapy, medical social services, durable medical equipment, medical supplies, and a few other medical services.[7] The largest reason a person would not receive Medicare funded home health care has to do with the requirement that the care be both skilled and part-time.
To qualify for skilled Medicare benefits, the nursing facility must be licensed to give such care. Many facilities are licensed to give skilled care, as well as intermediate and custodial care. In a skilled nursing facility, Medicare will cover skilled (and only skilled) care from the first day through the 100th day to some degree. The first 20 days do not carry a co-payment, but the 21st through the 100th day does. The amount of that co-payment typically increases each year. After the 100th day, there is no coverage or benefits at all under Medicare. Obviously, 100 days of care cannot be considered long term care.
Medicare pays only for part time home care. For many, this is not enough, since the beneficiary cannot be left alone. Policies that pay for home care can offer additional help, although they are not allowed to duplicate benefits already being provided by Medicare or Medicaid. If Medicare is allowing part-time help (since full-time is not available), family members and friends often must help out if care is to be continued at home.
How Does Medicare Determine a Covered Service?
At times, Medicare makes a national coverage decision about whether a medical service or medical equipment is covered after reviewing information about how a service or equipment improves health or helps manage a health problem. There must be a financial or medical benefit to doing so. When Medicare makes a decision that applies to people with Medicare, it is called a National Coverage Determination.
The Medical Director at a Fiscal Intermediary or Medicare Carrier sets rules for the way Medicare claims in each local area are reviewed. This is not the same as a decision made regarding national coverage. These rules are also followed to decide whether a claim in a particular locality will be paid or not. All local rules must be consistent, scientific, and meet Medicares guidelines. Local rules are not allowed to disagree with a National Coverage Determination, but they may vary from locality to locality. As a result, what worked for Aunt Edith in Tennessee may not apply to Uncle Bob in Washington. Local determinations are called Local Medical Review Policies (LMRP). To determine what is covered in a specific locality, go to www.medicare.gov on the web. Select Your Medicare Coverage and supply the service in question.
If a local determination is not favorable, it can be appealed. The Medicare Summary Notice received by the beneficiary lists the directions for doing so.
Finding a Home Care Provider
When it has been determined that no family member is available to care for an ailing parent, an outside person must be found to provide the care. Most often someone from the neighborhood is hired, but any person the family trusts is appropriate (as long as their experience or training is adequate). Finding a person the family is comfortable with is not always easy. Although children often plan to help pay for the care, they have a family and personal obligations, so the cost has to be within their budget. If the beneficiary is financially able to cover the cost of their care, there may be more options as to the type of care sought. Rather than part-time care, for example, it may be possible to hire someone full time.
It can be difficult to find a person the family is comfortable with. Even when a suitable person is found for an eight-hour shift, around-the-clock care would require three such people. Most people hire only one person and fill in the other time themselves. This often becomes a tremendous chore. Inevitably, one or two children end up doing most of the work. Daughters are the typical caregivers. This is not to say that sons are not willing to help out; many are. Women simply tend to be most comfortable in the care-giving role. The physical aspects of caring for an ill or disabled person are not always pleasant. It involves bed changing, physical body washing, and other aspects that men are not always prepared to handle. As the children become emotionally and physically stressed, an assisted living facility or a nursing home becomes more appealing. This often brings the additional burden of guilt. Even though the children realize that a nursing home makes sense, they may feel they are letting their parents down.
It is not unusual for parents to place an additional burden on their children. They ask their children to promise not to institutionalize them under any conditions. Of course, most children (having no idea of the realities) agree making promises that are nearly impossible to keep. The parents probably have no idea themselves of what they are requesting. They vision nursing homes of the past with all the problems that existed there. Today there are so many options that were not previously available. Knowledge can often make a large difference in the choices made; investigating all possibilities prior to illness allows a family to make wise choices. Elder family members can see firsthand what is available to them and help make their own medical choices prior to need.
Doctors often advise families not to attempt care at home. Besides the stress caused to the family, they often are not equipped by training or education to do an adequate job. Physicians and other health care providers know that over-involved children may not make sound decisions regarding their parent's care. They realize that children may feel guilty, or sometimes even angry, about their parent's situation. In fact, they realize from past experience that when one or two children become less involved, other children are likely to become more involved. If all children become equally involved, decision-making is more likely to be sound and carry less individualized guilt.
Recognizing the Need (and the Market)
Long-term care insurance is now becoming one of the fastest growing insurance markets. The coverage offered, however, can be very confusing, even though states have mandated specific requirements to clear up confusion regarding benefits. America has undergone what is being called the "graying of America." That means we are increasingly becoming a nation of elderly citizens. In 1900, 3.1 million Americans were 65 years of age or older, which equated to 1 person out of every 25 Americans. By 1980, the number had increased to over 25 million or 1 in 8 people. In 1990, the ratio of elderly to non-elderly became about 1 in 5. By 2025, it is expected to be about 1 person 65 or older out of every 3 people.
This will have staggering tax consequences for America. Since working Americans support the retired through their payroll taxes, it will mean increasing those taxes as the elder population continues to grow. Every person will have to provide increasingly more money to support the programs that support those not working, as well as the taxes that support schools, roads, and other national programs. With this in mind, it could be said that the younger people have a greater stake in selling long-term care insurance than the agents themselves do.
There are two major problems facing our country: more elderly people and longer life spans. Both contribute greatly to the growing trend (and the growing payroll taxes). Continually more elderly people are entering nursing homes due to old age, rather than illness or injury. We are expected to continue living longer lives. States will continue to mandate consumer legislation, making benefit payment more uniform, but as premiums continue to rise there is no guarantee that Americans (even those who want it) will be able to purchase long-term care policies.
Insurers Determine Risks in LTC Insurance
In the past decade or so, more than 130 insurance companies have come up with some type of long-term care product. Initially many financial planners and other professionals viewed these policies with mistrust. One book, How to Protect Your Life Savings From Catastrophic Illness and Nursing Homes by Harley Gordon, Attorney At Law, actually stated: "Smelling profits to be made from worried seniors, the insurance industry has been designing scores of long-term care policies and hustling their agents to sell them."[8] In fairness to the author, he did also say that nursing home policies do make sense for some people. Mr. Gordon stated that a nursing home policy can buy a consumer time allowing them to fund their confinement while transferring assets elsewhere. Even so, the main thrust seemed to be protecting assets while shifting the cost to some other entity. We know what that other entity is, of course: the taxpayers (through government funded programs). The various states have been tightening the laws that allowed a person to transfer assets to family members, with the goal of transferring payment of their health care to the federal and state governments. There is now a look-back period that relates to asset transfer.
This author was not the only person who viewed long-term care in terms of transferring assets. Unfortunately there is the mentality that someone else (the government primarily) should pay for our health care. This attitude has changed some as Americans recognize that "government sponsored" actually means "taxpayer sponsored." When an elderly American attempts to hide their assets, he or she is really saying that their grandchildren owe them financial support through taxation. Obviously grandparents do not want their grandchildrens financial support; they simply must realize that transferring assets will accomplish that. Most elderly Americans have always paid their own way; prided themselves on doing so. They want to continue doing so to the end of their lives, but that will take some type of financial planning for long-term care needs.
It was not until the 1990s that insurers finally had a handle on underwriting long-term care policies. No one had any experience in underwriting this type of coverage and the type of benefit statistics required took years to accumulate (since benefits were not generally paid out for many years after policy issue). Understandably, those designing the early policies had little knowledge of what benefits were needed. Their primary focus, however, was to make a profit. No insurer designs any product that they expect to lose money. It took time to feel comfortable designing, underwriting, and marketing long-term care products.
There were few agents educated in the needs or products of long-term care in the 1970s and 1980s. The products were new and there were few, if any, brokers offering training on them. The primary problem was simply ignorance. Even the companies issuing these policies were struggling with policy language because it was so new. Certainly, the agents in the field reflected this. Consumers were routinely given misleading or downright wrong information regarding the coverage they were buying. Unfortunately, the consumer never learned of the errors until claims arose.
Cost was not always an indicator of quality, although the more expensive ones certainly tended to offer the most benefits. Since the regulations of each state must be followed there were variances in products. That sometimes added additional confusion. A consumer who bought a policy because of the wonderful benefits a relative received in another state was often disappointed when their policy did not perform the same way.
Because insurance companies were fearful of losses in the early policies, they tended to write in wording that allowed them to disallow claims if they became excessive. In this way, the company might initially pay certain types of claims that were later disallowed. It was this and other related practices that prompted many states to define precisely certain terms and payment conditions in their regulations.
In many ways, the history of long-term care products can be traced through publications, such as Consumer Reports magazine. In May of 1988 they published "Who Can Afford a Nursing Home?" In this article, they pointed out that the majority of policies were expensive for the average buyer, difficult to understand, and severely limited in the coverage offered. They were right. The policies in 1988 had many restrictions on the very types of care needed most: custodial care.
In October 1989, Consumer Reports printed an article titled "Paying for a Nursing Home." This article pointed out something that was eventually identified by the states as a consumer problem: post-claims underwriting. The insurer considered it a method that allowed them to quickly issue the policy without underwriting (based solely on the application medical answers). When a claim was submitted, the insurer underwrote the policy. Unfortunately, this meant the claim could be denied if the insured failed the companys underwriting standards. The insurer liked this method of underwriting for several reasons, but primarily because it saved them money. If the consumer turned down the policy upon delivery, the insurance company was not out the cost of underwriting. As Consumer Reports magazine pointed out, however, many consumers ended up with a nasty surprise when they submitted a claim. It also delayed payment on the first claim since underwriting had to take place prior to payment.
Since many agents did not fully understand LTC policies, they may or may not have been aware of the consequences of post-claims underwriting. For the most part, if they did know, it was not explained to consumers. Consumers thought they had an issued policy. What they really had was a contractual promise to underwrite the policy when a claim was filed and possibly pay them. Those who turned in claims, only to find out they could be denied, turned to the state insurance departments for help. Since post-claims underwriting was legal, there was no help available. Even consumers who disclosed absolutely everything they were aware of could be trapped by this practice if the agent failed to write down everything on the application or if medical conditions were not fully recognized, therefore reported, by the consumer. If the agent ignored underwriting guidelines, applications were written on obviously unacceptable applicants. Eventually, states banned post-claims underwriting.
In a perfect world, consumers would fully disclose every known medical condition and scrutinize the application for accuracy. In a perfect world, agents actively seek to record each known medical condition. Alas, we are seldom perfect. Therefore, it is important that insurers be required to fully underwrite every policy prior to issue. Only obvious fraud would cause a policy to be rescinded (voided).
In June of 1991, Consumer Reports magazine again reviewed nursing home policies. They seemed to have expected policies to be greatly improved, but in their opinion, this was not the case. The authors felt that insurance companies simply got better at adding gatekeepers; those restrictive clauses that allow companies to "close the gate" on benefit payments.
The magazine also presented another problem: untrained or dishonest agents. It probably doesnt matter which an agent is (untrained or dishonest) since an untrained agent is just as dangerous as a dishonest one. Whichever it happened to be, many consumers found that the policies they purchased would not pay the benefits they had been promised. Policy restrictions were almost never explained.
Rate increases have also plagued many of the long-term care policies. As insurance companies found their costs going up, they applied for and received rate increases from the states. Few policies allowed the consumers to receive any of their premiums back if the policy was dropped. Refunds were seldom possible even if the consumer died before the end of their premium term. This was true even if they had never applied for or received benefits. The rationale was simple: in automobile policies you do not get a refund if no accident occurs. Why should a person who never filed a long-term care claim receive a refund?
Of course, there is one major difference: long-term care policies are not likely to pay benefits for up to 20 years or more after the date of purchase. If premiums continually rise, pricing the policy beyond the consumers means, is this a bait and switch tactic? Are the insurers luring the consumer in with low rates at early ages when claims are unlikely and then simply raising the rates beyond their means by the time they approach use of the policy? It would be impossible to ever prove the insurers were intentionally doing so, and probably unlikely as well. It is more plausible that they failed to realize how the policies would perform and pay benefits over time. Even so, since the recent tendency to price long-term consumers out of their policies has become obvious, consumer advocates are hoping the states will step forward with some type of insurer restraints or solution to the problem.
There were approval problems at state levels early on. The early policies had no regulated format. States were initially overwhelmed by the quantity of companies and policies coming across their desks for approval. Additionally, those who approved policies at state level had little knowledge or background in the area being insured. As a result of these problems, the first policies out had little state intervention.
The LTC Marketplace
Long-term care insurance sales demand a knowledge that is specialized. It should never be considered a side line career. While the senior market is often better educated in insurance (simply through experience) than their younger counterparts, long-term care products are like no other insurance line. Few elder Americans will have specialized knowledge so the agent must be prepared to fully discuss all aspects of the policy.
As people age, some types of disabilities may occur. Any agent who suspects that the applicant is unable to make a logical decision due to impairment, whether caused by medication or a medical condition, should discontinue the presentation immediately. If possible, a family member should be encouraged to attend the insurance presentation.
Dramatic Policy Improvement, But Also Rising Premium Rates
There is no doubt that the quality of the long-term care products, including home care, has greatly improved over the last ten years. However, there cannot be improved benefits without higher premium costs.
Most insurance products have some basic costs: they must cover potential future claims, past and present claims, commissions to their sales staff, expenses, and generate a profit for their company and, depending upon the type of insurer, perhaps for their shareholders, too. As Michael Ebmeier stated: youve undoubtedly heard the clich, a win-win proposition. A good insurance product must be a win-win-win. The consumer, the agent, and the insurance company [all] need to win.[9]
There has to be enough incoming money to deliver the type of product demanded, while still remaining a solvent company. Those who purchased their policies five or ten years ago will be the hardest hit by the rising premium rates because they wont likely have made provisions for them. More recent buyers will be coming in after the rate adjustments. It is hoped that the rising premiums will not continue so that the current purchasers will have a steadier rate over the duration of their policies. Few states have addressed this. California recently passed legislation requiring companies to provide statistical information proving realistic premiums that are likely to remain steady for a period of twenty years.
Long-term care products are the current insurance frontier. There are many opportunities for rewarding careers. To succeed, however, the field agent must make it their responsibility to be fully educated. Education is not something that is done once and forgotten about. Changes continue to occur at a rapid pace and the successful career agent knows that on-going education is essential to professionalism.
History of the Partnership for Long-Term Care
A new kind of long-term care policy is coming. We have heard about them; Washington even had legislation pertaining to them (although no policies ever became available): they are Partnership long-term care policies.
Partnership plans are now gaining attention as all the states have the option of adopting such plans. We are likely to see many insurance companies submitting Partnership plans, including Washington.
In the late 1980s the Robert Wood Johnson Foundation (RWJF) supported the development of a new LTC insurance model, with a goal of encouraging more people to purchase LTC coverage. The program, called the Partnership for Long-Term Care, brought states and private insurers together to create a new insurance product that would encourage the uninsured to purchase long-term care coverage. It was hoped that moderate-income individuals, who faced the greatest risk of future reliance on Medicaid, would cover long-term-care needs through insurance policies.
The Partnership program was designed to attract consumers who might not otherwise purchase this type of insurance. States offered the guarantee that if benefits under a Partnership policy did not sufficiently cover the cost of care, the consumer could apply and qualify for Medicaid under special eligibility rules while retaining a pre-specified amount of assets (though income and functional eligibility rules would still apply). Consumers would be protected from having to become impoverished to qualify for Medicaid, and states would avoid the entire burden of long-term-care costs.[10]
In 1987 the Program to Promote Long-Term Care Insurance for the Elderly was authorized. The Robert Wood Johnson Foundation (RWJF) was charged with providing states with resources to plan and implement private/public partnerships for funding long-term care needs. A primary goal of the Partnership Program was estate preservation, but also to promote an awareness of long-term health care needs faced by individuals as they age. The partnership programs joined the private insurance sector already offering long-term care insurance with the goal of developing high-quality insurance options that would prevent asset depletion and dependence on Medicaid.
Partnership programs protect assets (not income) from the high costs of home care, community care, and nursing home care. Income would still need to be used for the individuals care, but assets would be protected. No policy protects income once benefits are used up and the insured goes on Medicaid.
Between 1987 and 2000, a total of 104,000 applications had been taken and more than 95,000 policies had been sold in the four program states, which were California, Connecticut, Indiana, and New York.
Analysts in the health care industry first recognized the need to develop and promote long-term care policies in the early 1980s. This was about the same time that government realized a need to seek ways to fund the care of those who were ending up on Medicaid. By the mid-1980s insurance companies were marketing private long-term care policies, although these early policies had several flaws in coverage.
Many were surprised to learn that it was not the so-called poor who were ending up dependent upon state and federal aid for their long term health care needs; the middle class were finding themselves quickly impoverished once they entered a nursing home. It took less than one year for many individuals to become poor enough to qualify for Medicaid.
The situation is not expected to improve unless the general population accepts their responsibility by purchasing insurance or providing some financial avenue to pay for long-term care needs. Concern about the financing of long-term care is based on set predictions: the population of chronically ill elderly will inevitably increase with the population of those older than age 80 and with medical advances that enable those with chronic diseases to survive longer. According to a study published by the New England Journal of Medicine, 43 percent of all Americans will enter a nursing home at some time before they die.[11] Of these, 55 percent will stay at least one year and 21 percent will stay at least 5 years. The average stay will last two and a half years. By 2010 the average cost is expected to be around $83,000 per year. Medicare will pay less than 9.4 percent of the long-term care costs since that program was never designed to cover care in a nursing home beyond a very short period of time.
Medicaid, the program that ends up paying the costs once a person becomes impoverished, is one of the largest items in state budgets. The elderly and disabled population represents less than one-third of the total Medicaid caseload, but consumes over two-thirds of the total program funding for care in nursing homes. Obviously, this is a situation that has the potential of totally draining state budgets as the baby-boomer set becomes elderly.
A number of studies and commissions at the federal and state levels have reported the need for long-term health care insurance development is urgent. Additionally, some broad agreements have been reached, including:
Even though these agreements are generally accepted little action has been taken by the public sector. Private long-term care insurance represents more than a $200-million industry, but the coverage is often limited and premium costs are high. As a result, sales of private long-term care coverage have not been as good as analysts hoped for. Only a small segment of the population have actually purchased such coverage; of the total costs of long-term care services, less than 1 percent are covered by private insurance. Our tax dollars still cover the largest part of long-term care costs.
Why havent more people bought long-term care policies? Most people do not want to go to a nursing home and this may be part of the problem. Some may believe owning such coverage will encourage their family members to use it, versus caring for them at home or in a family members home. This equates into a lack of education regarding health care at this stage of life. Even when family members are willing to provide care for a long period of time it is not always prudent for them to do so. Often it is more appropriate for the patient to receive professional care.
As the financial crisis became more evident, the idea of financing long-term care through some type of public-private cooperation gained favor. As a result of state government and insurance company meetings and discussions during the 1980s, a partnership for long-term care needs developed. The Robert Wood Johnson Foundation was attracted by its win-win-win potential. Who wins? Consumers, Medicaid, and private insurers all had the potential to win. RWJF authorized the national program in 1987.
The Robert Wood Johnson Foundation (RWJF) had specific goals:
Partnership Policies are Created
The national program office is located at the University of Maryland Center on Aging. Their primary responsibilities were to provide leadership and technical assistance for grantee institutions during the planning and implementation stages. They would also offer information to other states that were interested in replicating the public-private partnership programs, or even pursue alternative programs that might appropriately address the situation. Additionally, they wanted to develop and implement some type of media relations strategy that would increase policy sales. Obviously, if consumers did not buy the partnership policies, they would not solve the problem.
The planning phase of Partnership long-term care policies was authorized in 1987 with funding of $3.2 million. The national program office contacted states that had demonstrated a commitment to reforming long-term care financing. Grants were awarded to California, Connecticut, Indiana, Massachusetts, New Jersey, New York, Oregon, and Wisconsin. These eight states collected and analyzed data from nursing homes, the elderly population, state Medicaid files, and insurers to help them design and price their products and to assess products impact on costs.
Based on the Brookings/ICF long-term care financing model, which simulates utilization and financing of long-term care services through the year 2020, it was estimated that a national Partnership program involving all 50 states could result in a 7 percent drop in Medicaids share of the total long-term care bill between 2016 and 2020.[12] Currently not all 50 states are participating but they are being added gradually as the Department of Health & Human Services invites them to submit their applications. Since the Partnership program will protect assets (not income), it is expected to be well received in those states that begin to utilize Partnership long-term care programs.
Some interesting initial Partnership facts:
The purchase of Partnership policies have increased significantly since the program began, although there were some down periods in sales. Two states reported that they did not feel the decline in sales had anything to do with Partnership plans since all long-term care policy sales were down.
Most Partnership policies written were comprehensive, covering both nursing home care and home and community-based care.
Medicaid is the Largest Nursing Home Payor
Medicaid is the largest payor of nursing home bills for the elderly. Medicaid is a joint federal-state program that is financed (on average) 57 percent by the federal government and 43 percent by the states. The individual states administer the program in their state according to their Medicaid state plans, which are set up within broad federal guidelines. States can make changes or innovations that go beyond current state parameters, which is the case with Long-Term Care Insurance for the Elderly initiatives in Partnership participating states. States must have the federal governments permission to have the federal parameters or requirements changed, even when it benefits consumers.
One approach has been to use waivers of federal requirements. A waiver of Medicaid requirements can be obtained in different ways:
Administrative waivers typically have a time limit on their duration and have special reporting requirements.
Another approach, the one used for the Partnership program, is through a state amendment to its Medicaid state plan. A state plan amendment may be used in lieu of waivers. States submit their plan amendments to the HCFA requesting permission to alter their Medicaid programs. In this case, the federal role is to approve the modifications (rather than waive compliance with the law) within the existing federal statutory authority. When such amendments are approved the changes become part of the state plan until either the state makes another amendment or until the statutory requirements are changed. Where administrative waivers have a set durational time limit, state plan amendments have no time restrictions and there may be no special reporting requirements.
The first Partnership models required waivers, but later models did not. Models were amended to minimize the need for federal waivers. The plans initiated in early 1988 required a Federal waiver.
Early legislative activity for the waivers included introducing bills specifically aimed at Partnership plans, along with attempts to include waiver language in various budget reconciliation bills. Those efforts never reached the floor of Congress for a vote because a congressional conference eliminated from consideration all budget-neutral items, which included the Partnerships. This decision reflected the need to undo a logjam in the 1989 budget reconciliation process.
Subsequent efforts to revive waiver legislation met with strong opposition led by Democratic Congressmen Henry Waxman of California, Chair of the House Subcommittee on Health and the Environment, which controls legislation involving the Medicaid program, and John Dingell of Michigan, chair of the House Energy and Environment Committee. They had specific concerns, including the belief that:
After the political opposition blocked the initial attempts in the late 1980s, the state Partnership program teams shifted to a Medicaid state plan amendment strategy to obtain the required approvals. This was not a fast process. Delays occurred for various reasons, including:
In the end, the four states that implemented their partnerships, California, Connecticut, Indiana, and New York, received HCFA approval of their Medicaid state plan amendments.
Due to the delays caused by the Medicaid state plan amendment process and HCFAs separate process needed to approve them, the Robert Wood Johnson Foundation (RWJF) awarded implementation grants to the states one at a time, from August 1987 through December 1988. Normally the national program procedure is to authorize all project sites at once.
The states that had planned to have a Partnership program, but did not implement it, cited political opposition, fiscal constraints, and regulatory barriers as the primary obstacles to doing so.
California, Connecticut, and Indiana based their Partnership plans on a dollar-for-dollar model, although Indiana changed its model in 1998. Under the dollar-for-dollar model, for each dollar of long-term care coverage purchased by the insured from a private insurance carrier participating in the partnership, a dollar of assets was protected from the spend-down requirements for Medicaid eligibility. Therefore, if Joe buys a policy that provides $50,000 in benefits, he is protecting the same amount ($50,000) of his personal assets from the spend-down requirement. Partnerships do not protect Joes income, just the assets he has acquired.
For asset protection, the consumer purchases an insurance policy that stipulates the amount of coverage that he or she wishes to have. That figure purchased is the amount the insurer will pay out in benefits under long-term care coverage in a nursing home, assisted living, or other qualified service. Once the purchased benefit amount has been fully paid out by the insurer, Medicaid can assume coverage, following application and approval for Medicaid eligibility. The policyholder, as previously stated, would contribute income towards his or her care since only assets are protected by Partnership policies.
Traditional long-term care policies still offer valid benefits, but since they do not protect assets, Medicaid coverage could only begin after the insured had depleted their assets down to approximately $2,000. In other words, after the non-partnership insurance policy had paid out all available benefits, the individual would still have to use all their assets before Medicaid would step in and pay anything towards their medical care. With Partnership policies, special Medicaid eligibility regulations allow the policyholder to keep assets (not income) up to the level of long-term care benefits they purchased. Since assets are protected only to the level of insurance benefits purchased, the amount of coverage needs to be given great thought. If the Partnership policy benefits expire with the policyholder having assets greater than those protected by the Partnership policy, the insured will be required to spend-down the excess assets prior to qualifying for Medicaid. This does not necessarily mean that he or she should have purchased greater benefits, but it is certainly something to be considered.
Whatever non-housing assets the insured has, he or she will be allowed to keep an amount of assets equal to the amount of long-term care coverage that was purchased through the Partnership program (plus the $2,000 in assets that everyone is allowed to keep). Any income, including Social Security income, pension income, or any non-housing income that is received must be contributed to the policyholders medical care expenses.
In any dollar-for-dollar Partnership program, the spending of assets would look like the following:
|
Partnership Policy Benefits Purchased: |
Policyholder Assets Upon Medicaid Application: |
Required Asset Spend Down for Medicaid Eligibility: |
|
$100,000 |
$100,000 |
None |
|
$100,000 |
$150,000 |
$50,000 |
|
Traditional non-partnership policy purchased |
$100,000 |
$100,000 |
|
No Policy Purchased of any type. |
$100,000 |
$100,000 |
Even though a traditional, non-partnership policy does not protect assets, such policies still have value. The benefits provided by non-partnership policies still allow the insured to keep assets that might otherwise have been spent for medical care if enough traditional insurance benefits were purchased they might fully cover the care preventing Medicaid application entirely. Even so, it would seem prudent (if the choice is available) to purchase Partnership policies since extra protection for assets come with them.
When the first states introduced Partnership plans, New York chose a different approach. Rather than offer dollar-for-dollar benefits, they chose a program called the total-assets protection model. Under this program, certified policies had to cover three years in a nursing home or six years of home health care. Once the benefits were exhausted, the Medicaid eligibility process did not consider any assets of the insured at all. Protections were granted for all assets, even those far above the amount of protection purchased. Income still had to be contributed to the individuals health care, just as in the dollar-for-dollar plans. Total Asset Partnership plans are more expensive than dollar-for-dollar plans. The Deficit Reduction Act specifies that new long-term care Partnership programs offer dollar-for-dollar models only, not total asset models.
States participating in Partnership plans all conducted extensive promotional and educational campaigns designed to inform the public about the availability of these insurance policies with the goal of increasing sales (which would ultimately relieve the state of some portion of their Medicaid expenditures). RWJF contributed to some of the promotional campaigns by providing contracts with public relation firms. Participating states collected and analyzed sales and marketing data and used the information to evaluate the Partnership programs, making any changes they felt necessary.
Program Performance
In 1998, RWJF issued a grant to the Laguna Research Associates to coordinate the writing of a book on the implementation and future prospects of the Partnerships for Long-Term Care. Additionally the national program office convened yearly meetings for Partnership states. These results were published in 6 journal articles, various discussion papers and data reports.
The program did see growth:
These sales came in spite of restrictive language embedded in the Omnibus Budget Reconciliation Act (OBRA) of 1993 that effectively curtailed one of the programs primary goals: replicating the partnerships in other states. Although OBRA grandfathered the four initial program states, it also required states obtaining a state plan amendment after May 14, 1993, to recover assets from the estates of all persons receiving services under Medicaid. As a result of the restrictive language the Partnership asset protection component was only in effect while the insured was alive. Since one of the attractive aspects of Partnership policies was the possibility of passing assets on to heirs, OBRA removed a major selling attraction of Partnership plans, which then defeats the purpose of them promoting insurance sales. Both the Illinois and Washington programs failed to protect purchasers from estate recovery since they were created after OBRAs May 14, 1993 deadline.
Eight states (Colorado, Florida, Georgia, Michigan, Missouri,
North Dakota, Ohio, and
Rhode Island) passed legislation that would facilitate Partnership policies
but implementation had to wait for the overturn of the sections of OBRA
pertaining to estate recovery.
Originally the state where the Partnership plan was purchased was the only place the policy could be used for asset protection; if the insured moved to another state the plan would still pay policy benefits, but no assets were protected from Medicaids spend-down requirements. Connecticut and Indiana sought to have that changed. These two states wanted reciprocal agreements by which qualified holders of Partnership policies could be eligible for care in either state.
New Federal Legislation: The Deficit Reduction Act of 2005
In the spring of 2006 President George W. Bush signed the Deficit Reduction Act of 2005 (DRA 2005) allowing long-term care insurance Partnership models to be used in all 50 states. This Act makes it harder for individuals to give away money and property (lengthening the time period available for asset repositioning from three to five years) before asking Medicaid to pay for their nursing home care, but it also increased the incentives to purchase long-term care insurance. Policies in the new programs must meet specific criteria, such as federal tax qualification, specified consumer protections and inflation protection provisions.
The Deficit Reduction Act of 2005 included a number of reforms related to long-term care services. Of interest to many states is the lifting of the moratorium on Partnership programs. Under the DRA all states can implement LTC Partnership programs through an approved State Plan Amendment, if specific requirements are met. The DRA requires programs to include certain consumer protections, most notably provisions of the National Association of Insurance Commissioners Model LTC regulations. The DRA also requires that polices include inflation protection when purchased by a person under age 76.[13]
Questions that Remain Unanswered
Some of the concerns that prompted Congress in 1993 to halt further implementation of additional Partnership programs in other states remain relevant. Do Partnership programs really save state Medicaid funds or do only the wealthy buy them? What consumer protections are needed to ensure that policies will provide meaningful benefits when they are needed 20 years in the future? Will existing Partnership and non-partnership policies still be affordable in ten to twenty years? We are finding that some currently issued non-partnership policies have become so expensive that policyholders are allowing them to lapse even though premiums have already been paid for many years.
The Omnibus Reconciliation Act of 1993 contained language with direct impact on the expansion of Partnerships for long-term care. The Act recognized the initial four states operating Partnership programs as well as the future program in Iowa and the modified program in Massachusetts. These six states were allowed to operate their Partnership programs as planned since their state plan amendments were approved by HHS prior to May 14, 1993.
States seeking a state plan amendment after May 14th had to follow the conditions outlined in OBRA '93. There are three sections with specific language pertaining to Partnership programs. The requirements in each section are as follows:
Sec 1917(b) paragraph 1 subparagraph C
Section 1917(b) paragraph 1, subparagraph C requires any state operating a
Partnership program to recover funds from the estates of all persons
receiving services under Medicaid. The result of this language is lost asset
protection occurring as soon as the insured dies; only while he or she is
living are their assets protected from Medicaid recovery. This means assets do
not pass on to the insureds heirs. After the participant dies, states must
recover what Medicaid spent from the estate, including protected assets under
Partnership policies.
Sec 1917(b) paragraph 3
This section prevents any state from waiving the estate recovery requirement
for Partnership participants even if they want to in order to promote
Partnership plan sales.
Sec 1917(b) paragraph 4 subparagraph B
This section requires a specific definition of "estate" for
Partnership participants. Estates:
A. shall include all real and personal property and other assets included within the individual's estate, as defined for purposes of State probate law; and
B. . . . any other real and personal property and other assets in which the individual had any legal title or interest at the time of death (to the extent of such interest), including such assets conveyed to a survivor, heir, or assign of the deceased individual through joint tenancy, tenancy in common, survivorship, life estate, living trust or other assignment.
The above definition may vary from the current definition used by a state for estate recovery. States implementing a Partnership program may find themselves in the position of having to use a more encompassing definition for Partnership participants alone. These post OBRA Partnership states may even have to seek legislative approval to implement the required recovery process for Partnership participants.
Promoting
Partnership Long-Term Care Plans
Several organizations are promoting Partnership plans, including the Center for Health Care Strategies, the National Association of State Medicaid Directors and George Mason University. The new long-term care options are made available through the Deficit Reduction Act of 2005.
There is no doubt that as the numbers of elderly Americans increase, long-term-care (LTC) needs and costs will grow. Many professionals believe that private long-term-care insurance can and should play a more significant role in the financing of home care, community care, and nursing home services. The hope is that greater use of individually purchased insurance policies will reduce the burden on Medicaid to some degree, although not all believe this is the case. State Medicaid programs are the largest payer of nursing home costs, since they often serve as the default financier of long-term care services.
One vehicle for encouraging consumers to invest in LTC insurance is the expansion of the Partnership for Long-Term Care, a unique insurance model developed in the 1980s with support from the Robert Wood Johnson Foundation (RWJF). Through the Partnership program states promote the purchase of private LTC insurance by offering consumers access to Medicaid under special eligibility rules should additional LTC coverage (beyond what the policies provide) be needed. Partnership policies encourage individuals to take responsibility for financing their own initial phase of long-term care through use of private insurance.
About 80 percent of those surveyed in the Partnership program said they would have purchased long-term care whether the Partnership program was available or not, since they consider such policies a valuable financial planning tool. The other 20 percent indicated they would have self-financed long-term care if the Partnership plans had not been available (so they would not have bought non-partnership policies) since the need of such care may or may not occur. They purchased the Partnership policies primarily on the basis of asset conservation.
Program Growth
Four states implemented Partnership programs in the early 1990s (California, Connecticut, Indiana and New York) and the assumption was that other states would follow. That is not what happened, however. Citing concerns about the appropriateness of using Medicaid funds for this purpose, Congress enacted restrictions on further development of the Partnership in the Omnibus Budget Reconciliation Act (OBRA) of 1993. The four states with existing Partnership programs were allowed to continue, but the OBRA provisions ended the replication of the Partnership model in new states.
There were two different models used for asset protection: dollar-for dollar and asset protection. California, Indiana and Connecticut chose the dollar-for-dollar model. Under dollar-for-dollar, the amount of insurance coverage purchased equals the amount of assets protected from consideration if and when the consumer needs to apply for Medicaid benefits. For example, a consumer who bought a policy with $100,000 in benefits would receive up to $100,000 worth of qualified long-term care insurance benefits. Once the insurance benefits were exhausted, if further care was necessary, the individual would be able to apply for Medicaid coverage, while still retaining $100,000 worth of assets.
New York elected to use the more generous total asset protection model, where consumers were required to buy a more comprehensive benefit package, as defined by the state. The state initially mandated that Partnership policies cover three years of nursing home or six years of home-health care. Consumers purchasing such a policy could protect all of their assets when applying for Medicaid.
In 1998 Indiana switched to a hybrid model, whereby consumers could choose between dollar-for-dollar or total asset protection. New York also recently added a dollar-for-dollar option for consumers.
As of 2005 more than 172,000 consumers in the four demonstration states had active Partnership policies. Because the program is fairly young and policies are generally purchased well before they are used, relatively few of the policyholders have actually needed long-term-care coverage. However, of those that have accessed their benefits, the Government Accountability Office reports that: More policyholders have died while receiving long-term-care insurance (899 policyholders) than have exhausted their long-term-care insurance benefits (251 policyholders), which could suggest that the Partnership for Long-Term Care program may be succeeding in eliminating some participants need to access Medicaid.
Partnership Participation
The successful implementation of Partnership programs has involved several parties, which includes state policymakers, private insurers and, of course, individuals to purchase the policies.
The process always begins with the state who is the convener of any Partnership effort. This typically involves many aspects of state government. The Medicaid agency, Governors office, state budget office, state unit on aging, state legislature, and the states Department of Insurance all provide input on the design of the program. If a state passed enabling legislation prior to the DRA, then modifications to that legislation may be needed to conform to the requirements of the federal statute.
The private insurance industry also needs to be involved in the development of a Partnership program from the very beginning. Consumer input is valuable since a policy that no one buys accomplishes nothing. Although the DRA mandates a number of consumer protections for Partnership programs, consumer input can be invaluable in helping states determine the best way to implement those protections and whether to offer additional provisions, such as premium protection and non-forfeiture clauses. Consumer groups may be helpful in designing public awareness or educational campaigns.
The insurance industry plays a key role in underwriting Partnership policies. Insurers and the independent agents with whom they work may have extensive experience in the long-term care insurance market. Experienced field agents may have insight that policymakers lack. As such, they may be able to provide states with programmatic and fiscal projections, as well as advice on effective marketing strategies for LTC insurance products.
Public Education
The success of Partnership programs in reducing state long-term care expenditures depend on the programs ability to encourage people to buy them. The consumers they most wish to target are those with moderate incomes and assets. These are the consumers most likely to need Medicaid benefits since they will quickly deplete their assets and their incomes are not high enough to fund the cost of private care. If the Partnership program merely provides substitute insurance for wealthier individuals, who could otherwise afford to pay out-of-pocket or purchase other private LTC insurance, then state savings will not be realized.
As states consider the best way to attract those individuals who would not otherwise purchase LTC insurance, the experience of the demonstration states play a major role. The two models, dollar-for-dollar and total asset protection, seemed to attract consumers with different levels of assets. To qualify for total asset protection, New York mandated a relatively comprehensive benefit package. This increased the premiums and attracted consumers who were financially better off. A Congressional Research Service report notes that some Partnership state directors in the original states felt that the dollar-for-dollar model promoted more affordable policies than the asset protection models. It is no surprise that affordable policies will attract persons with less wealth.
The DRA specifies that all new LTC Partnership programs use the dollar-for-dollar methodology since they seem to attract those with less income and assets. To keep premiums affordable, states should create benefit options that appeal to people with varying levels of assets: less coverage (and associated asset protection) for those with limited income and assets; more generous coverage for those with more to protect. In finding a successful balance between coverage and costs, it will be necessary for the states to develop and implement programs that alert their residents to the possibilities offered through Partnership long-term care programs. This would include educating consumers about the benefits they are purchasing, the level of benefits that will be provided, and what protection might be best for them.
Consumer and Agent Education
Given the complexity of the long-term care insurance industry, and the additional benefits of Partnership programs, many people felt it was necessary to include not only consumer education, but also agent education in the new state Partnership programs. Long-term care policies have so many options, gatekeepers, and limitations that even experienced agents may not be fully educated on these contracts.
The DRA addresses some issues related to education for both consumers and agents:
1. The secretary of Health and Human Services (HHS) is required to establish a National Clearinghouse for Long-Term Care Information that will educate consumers about the need for long-term care and the costs associated with these services. HHS will provide objective information to help consumers plan for the future. A Website, www.longtermcare.gov, was established to aid in consumer education.
2. Partnership programs must include specific consumer protection requirements of the 2000 National Association of Insurance Commissioners (NAIC) LTC Insurance Model Act and Regulation. If the NAIC changes the specified requirements, the HHS secretary has 12 months to determine whether state Partnership programs must incorporate the changes as well.
3. State insurance departments are responsible for ensuring that individuals who sell Partnership policies (insurance agents) are adequately trained and can demonstrate understanding of how such policies relate to other public and private options for long-term-care coverage.
Education for both consumers and insurance agents are closely aligned. Insurance agents play a vital role in ensuring that consumers understand their policy options, policy terms, and benefit conditions of any given policy. Of primary importance is guaranteeing that consumers understand the criteria that will allow them to become eligible for both private LTC coverage and, if necessary, Medicaid. Simply having a Partnership policy does not guarantee that Medicaid benefits will be available after exhausting Partnership policy benefits. Each individual must still qualify for Medicaid based on their states income and functional eligibility criteria. Consumers should also be aware that, although a Partnership policy may cover home-based care, Medicaid coverage may (depending on the state) only entitle them to care in a nursing facility.
The DRA specifies that: any individual who sells a long-term-care insurance policy under the Partnership receives training and demonstrates evidence of understanding of such policies and how they relate to other public and private coverage of long-term care.
It is important to note that this is a training requirement, not a state continuing education requirement. Therefore, the training is required to sell Partnership plans, but that training does not necessarily go towards state education requirements. Agents who want the CE to apply to their state must be sure the course is also state approved. To ensure that insurance agents are well schooled in the intricacies of long-term care and the Medicaid program, states may require a specific number of hours of training on each. Current Partnership states require LTC insurance agents to undergo a number of hours of initial training specifically devoted to the Partnership program, in addition to other general training and continuing education requirements.
Policy Benefits
The type of benefits available in a long-term care policy will depend in part on what the individual chooses at the time of application. He or she determines the types and extent of the policys coverage. The more benefits chosen, the more expensive the policy will be.
Inflation Protection
Inflation protection has recently gained recognition for its value as costs have sharply risen. An inflation provision stipulates that benefits will increase by some designated amount over time. Inflation protection ensures that long-term care insurance products retain meaningful benefits into the future. Because policies may be purchased well before they are needed, and long-term care costs are likely to continue to increase, inflation protection can be a key selling point for consumers interested in purchasing private LTC coverage.
The DRA requires that Partnership policies sold to those under age 61 provide compound annual inflation protection. The amount of the benefit (e.g., 3 percent or 5 percent per year) is left to the discretion of individual states. Policies purchased by individuals who are over 61 but not yet 76 must include some level of inflation protection, and policies purchased by those over 76 may, but are not required, to provide some level of inflation protection.
There are two main types of inflation protection used in long-term care insurance plans: future-purchase options (FPO) and automatic benefit increase options (ABI). Under FPO protection the consumer agrees to a premium for a set amount of coverage. At specified intervals (such as every two years, for example), the insurance issuer offers to increase existing coverage for additional premium. If the consumer declines the increased benefits (or cannot afford to buy them) policy benefit levels remain the same, even though costs for long-term care services may be increasing. A policy purchased to pay a $100 daily benefit may not be adequate ten years later. On the other hand, it may be better to have a $100 per day benefit than none at all.
With ABI, the amount of coverage automatically increases annually by a contractually specified amount. The cost of those benefit increases are automatically built into the premium when the policy is first purchased, so the premium amount remains fixed. Policies that have ABI protection are generally more expensive up front, but are more effective at ensuring that policy benefits will be adequate to cover costs down the road.
Consumer advocacy organizations and some members of Congress maintain that the intent of the language in the DRA was to require automatic compound inflation protection for those under age 61, but some insurers believe that future-purchase option protections can also satisfy the requirement. As of this writing, the Centers for Medicare and Medicaid Services (CMS) have not issued guidance on this matter.
Reciprocity Between States
In 2001 Indiana and Connecticut implemented a reciprocity agreement between them allowing Partnership beneficiaries who have purchased a policy in one state (but move to the other) to receive asset protection if they qualify for Medicaid in their new locale. Prior to this agreement asset protection did not transfer outside of the state where the policy was purchased, although the Partnership insurance benefits were portable. The asset protection specified in the agreement are limited to dollar-for-dollar, so Indiana residents who purchase total asset protection policies would only receive protection for the amount of LTC services their policy covered if they moved to Connecticut.
An individual who has not yet retired may not know where he or she will reside in future years so reciprocity is an attractive feature. The DRA requires the HHS secretary (in consultation with National Association of Insurance Commissioners, policy issuers, states, and consumers) to develop standards of reciprocal recognition under which benefits paid would be treated the same by all such states. States will be held to such standards unless the state notifies the secretary in writing that it wishes to be exempt.
Looking into the Future
Interest has remained steady in implementing Partnership programs. Before the passage of the DRA, 21 states had anticipated a change in the law and proposed or enacted authorizing legislation. A recent survey of state Medicaid directors found that out of a total of 40 states, 20 indicated that they planned to propose a Long-Term Care Partnership program within the year. As momentum behind the program grows, there will be many issues and concerns regarding the Partnership program. While a leading goal is to reduce the amount of Medicaid funds spent on nursing home and related care for the elderly, consumer advocates also hope to protect the assets of those who have saved their entire lives for retirement only to see those assets wiped out in a short period of time. All parties involved will be analyzing and examining this program to determine the ultimate outcome of this unique and innovative policy option.
State Funding
States already face huge financial stress as the baby boom generation ages. The Center for Health Care Strategies (CHCS) has launched an initiative designed to help states take advantage of new opportunities made available in the DRA. The Long-Term Care Partnership Expansion project is being underwritten by the Robert Wood Johnson Foundation. Ten states will receive technical assistance to develop new Partnership programs.
George Mason University has served as the national program office for the original Partnership for Long-Term Care program and continues to provide the latest in research knowledge on Long-Term Care Partnerships to health care policymakers.
The National Association of State Medicaid Directors (NASMD) is available to assist states with concerns or questions regarding the Partnership program implementation process. NASMD will continue to periodically survey states to gather implementation status updates and lessons learned to inform other states.
End of Chapter 4
United Insurance Educators, Inc.
[1] Centers for Medicaid and Medicare Services (CMS), National Health Expenditures.
[2] Health & Human Services
[3] Long-Term Care Insurance, GAO Report to Congressional Requesters, May 2007
[4] National Alliance for Caregiving 2003
[5] USA Today Newspaper February 17, 2004
[6] Home or Nursing Home? Elder Web, March 2000
[7] Medicare & You handbook
[8] Copyrighted 1991
[9] Insurance Marketing, April/May 2004 edition, Page 20
[10] Issue Brief Long-Term Care Partnership Expansion: A New Opportunity for States
[11] Program to Promote Long-Term Care Insurance for the Elderly, July 2007,
Robert Wood Johnson Foundation
[12] Robert Wood Johnson Foundations Program to Promote Long-Term Care Insurance for the Elderly, July 2007
[13] Robert Wood Johnson Foundation May 2007 Long-Term Care Partnership Expansion