LTC Bullet: LTC Partnership Cost-Effectiveness

Wednesday, April 8, 2009

Carson City, Nevada--

LTC Comment: The LTC Partnership program is sweeping the country. Is it cost-effective? GAO says no. Its founder says yes. Details follow the ***news.***

*** WESTERN TOUR UPDATE. Yesterday, I met with three officials of the Nevada Medicaid program in the state capital, Carson City. Nevada's budget problems are among the worst in the country. The state is cutting back on nearly all categories of Medicaid spending, including long-term care. All the "fluff" is gone. Already, Nevada has one of the leanest Medicaid LTC programs in the country, with tighter eligibility rules than most states and many restrictions on available services. Yet, long-term care insurance is almost non-existent among Medicaid LTC applicants. Clearly, Medicaid crowd-out of LTCi doesn't just happen in states like New York and California with more lenient eligibility systems. Ironically, Nevada would like to restrict eligibility further to save Medicaid for the needy, but to get the federal stimulus money state officials had to reverse eligibility reductions already implemented and promise to maintain July 2008 eligibility levels. So much for creating greater incentives to plan responsibly for long-term care.

In the meantime, the LTC Partnership program languishes in Nevada and Medicaid planners often prevail in qualifying their affluent clients for Medicaid despite Nevada's relatively strict eligibility rules. Furthermore, Nevada has joined the rest of the country in limiting nursing home care, which most people would rather avoid, and expanding home and community-based care, which most people prefer. Hence, Medicaid is more attractive than ever for people who can find a way to qualify. My assessment? Any hope of saving Medicaid for the needy and encouraging responsible LTC planning in Nevada is stalemated at least for the time being. ***

*** SENIOR EXPO. Steve Moses will speak at the Annual South Florida Senior Expo on May 1, 2009. Center for Long-Term Care Reform Miami Regional Representative George Braddock has pulled together a terrific program. Check out the details here. ***

*** MORE ON LTC PARTNERSHIPS. Note from Patricia E. Ash FLMI, Senior Editor & Senior Analyst, LIMRA:

Subject: Some amazing statistics about long-term care insurance (LTCI) in our state.

2008 was the 20th year of the first federal-state LTCI Partnership, Connecticut's! . . .

  • As of this past year, more than 49,000 residents now have LTCI coverage through Partnership policies, probably over 50,000 when all the numbers are in.
  • Educational sessions on long-term care insurance were held in Avon, Branford, Danbury, Darien, Groton and Southbury, with over 600 people in total attending the forums.
  • Results show Medicaid savings of 6.8% per year by 2016-2020 as a result of the Connecticut Partnership. Based on current Medicaid expenditures, a 6.8% savings in 2008 would represent approximately $160 million.
  • It is estimated that as a result of the Connecticut Partnership, the State's Medicaid program has saved approximately $6.0 million (half of these savings would accrue to the federal government).
  • The Connecticut Partnership has enhanced the quality of long-term care insurance sold in Connecticut and educated over 94,000 residents about the need to plan ahead for future long-term care costs.

Read the full account in the State of Connecticut OPM's Annual Progress Report:

Connecticut residents owe [LTC Partnership director Dave Guttchen a huge vote of thanks as he has shepherded this process from the beginning. ***



LTC Comment: Mark Meiners is one of my "heroes of long-term care financing." When we first met in the mid-1980s, he was doing the early research that established the insurability of long-term care. When I showed him my early reports on Medicaid estate recoveries and the LTCi crowd-out effect (1985 and 1988), he responded positively.

But from the beginning, Mark and I saw the problem a little differently. To me, the solution to Medicaid's LTCi crowd-out effect was to target Medicaid to the needy so that people young, healthy and affluent enough would be more likely to purchase private insurance for long-term care. To him, my approach of closing Medicaid's eligibility loopholes and recovering the program's cost from deceased recipients' estates was too politically sensitive to pass.

So Dr. Meiners proposed a "carrot" instead of my "stick." He persuaded the Robert Wood Johnson Foundation to fund a pilot program called the "Long-Term Care Partnership." The idea was simple and persuasive: Encourage people at the lower end of the economic scale to purchase LTC insurance by forgiving them part of their Medicaid spend-down liability. That should entice more people to buy LTCi, reduce the demand for "Medicaid estate planning," and save Medicaid lots of money.

The rest is history. From the beginning, the LTC Partnership idea captured the imagination of federal and state officials. It was going strong in four start-up states (Connecticut, New York, Indiana and California) until California Congressman Henry Waxman threw in a monkey wrench. He insisted that Medicaid benefits should go only to the poor and refused to exempt people with LTC Partnership policies from the new Medicaid estate recovery mandate imposed by the Omnibus Budget Reconciliation Act of 1993. Then-existing Partnership states were exempted from the new rule.

So, after OBRA '93 and until the Deficit Reduction Act of 2005, growth of the LTC Partnership program petered out. What good was it to exempt assets at eligibility only to have them recovered later from the estate? But since the DRA '05 lifted that restriction, the newly invigorated LTC Partnership program has been going strong. By now, thirty or more states are in one stage or another of implementing the program.

Today, the biggest issue remaining is whether the LTC Partnership program will actually save Medicaid money in the future. GAO says no. Mark Meiners says yes in a new (March 2009) "issue brief" titled "Long-Term Care Insurance Partnership: Considerations for Cost-Effectiveness." Read it here.

Following below are some excerpts. But first my caveats. For details, see this book chapter I wrote titled "The Long-Term Care Partnership Program: Why It Failed and How to Fix It," in Nelda McCall, editor, Who Will Pay for Long Term Care?: Insights from the Partnership Programs, Health Administration Press, Chicago, Illinois, 2001, pps. 207-222.

First, the LTC Partnership idea is based on the assumption that Medicaid LTC eligibility requires impoverishment. That simply is not true. Anyone with income below the cost of a nursing home qualifies for Medicaid based on income. Unlimited assets may be retained in exempt form. And for people who have too much to qualify even under Medicaid's generous eligibility rules, there are dozens of loopholes Medicaid planners use to qualify them by "artificial impoverishment." These are the real reasons Medicaid crowds out LTCi of all kinds, including Partnership policies. The public ignores LTC risk and cost until they need care and then qualify easily for Medicaid thus adding to the general indifference toward LTC risk and cost by others.

Second, Medicaid is under such financial duress already that it may not be available to the poor, much less LTC Partnership policy holders in the future. Boomers are about to retire and take money out of entitlement programs instead of putting it in. Social Security and Medicare have unfunded liabilities of $102 trillion. Medicaid LTC depends on those two programs because recipients have to contribute their Social Security income to offset Medicaid's cost of care and Medicare pays generously enough to help offset nursing homes' Medicaid losses. Neither Social Security nor Medicare can continue propping up Medicaid LTC indefinitely. When they back off, Medicaid-financed LTC will collapse.

What happens to LTC Partnership policy holders if and when Medicaid can't keep its side of the bargain? What happens to them today when their Partnership policies run out and they can't remain at home or in their assisted living facility because all they can get from Medicaid is nursing home care? What if their income disqualifies them for Medicaid even if they qualify based on assets? Questions like these should and must be asked and answered.

So, the LTC Partnership program isn't perfect but it remains a brilliant idea, pursued for decades with amazing perseverance, by Mark Meiners, one of the leading lights of long-term care financing.


Excerpts from Mark R. Meiners, "Long-Term Care Insurance Partnership: Considerations for Cost-Effectiveness," Issue Brief, CHCS Health Care Strategies, Inc., March 2009, Footnotes omitted.

"Through LTCP policies, consumers are protected from having to become impoverished in order to qualify for Medicaid. They get access to expedited care assessment and management services, and states avoid the full burden of long-term care costs. Cost-effectiveness - for consumers and public purchasers - is the key rationale behind Partnership programs. Cost-effectiveness, however, depends on the confluence of a variety of factors, including which consumers to target, what policy features will help achieve cost-effectiveness, and the influence of Deficit Reduction Act (DRA) legislation. This brief reviews considerations for states in how to design and market Partnership programs to achieve cost-effectiveness." (p. 1)

"The cost-effectiveness of the Long-Term Care Partnership has been the subject of analysis since its inception. Measuring cost-effectiveness is difficult because the types of behavior changes anticipated can only be determined with certainty through actual experience. In addition, determining whether certain behaviors, such as asset transfers in order to qualify for Medicaid, would have occurred in the absence of a Partnership program is difficult. With long-term care insurance, benefit use usually occurs in the distant future relative to the time of purchase.

"It also takes time for the anticipated market changes envisioned through the Partnership (i.e., increased private LTC coverage for people who would otherwise rely on Medicaid) to mature. Together these challenges continue to frustrate states that must justify the Partnership to policymakers by proving value through cost-effectiveness." (p. 2)

"A study by the General Accountability Office (GAO), however, concluded that Medicaid savings were not likely, but that costs to Medicaid were also minimal because 'few policyholders are likely to exhaust their benefits and become eligible for Medicaid due to their wealth and having policies that will cover most of their long-term care needs.' The GAO report sparked controversy with the original Partnership states, some of which had begun to estimate Medicaid savings using survey data along with actual experience. To help new states prepare their own case for cost-effectiveness it is helpful to review these methods as they reveal some key points of contention to anticipate and address." (p. 2)

"Currently, the lower segment of the MM [middle-middle resources] market is largely uninsured for LTC. The cost-effectiveness of state Partnership programs depends heavily on the development and sale of LTC insurance to the lower end of the MM market. The Partnership asset protection feature provides considerable value added to the lower MM group. By knowing that assets beyond the normal Medicaid allowance can be preserved, people with middle and modest incomes have more of an incentive to save. This has the potential to significantly increase that segment of the market in both absolute and relative numbers as compared to the current patterns of LTC insurance purchasers. This will help tip the cost-effectiveness calculations toward the side of saving money for Medicaid as more people see value in preparing for this risk through insurance.

"Whenever LTC insurance benefits exceed the assets that would have been available to pay for care when needed, there is the potential for state cost savings. 'Solid front-end' policies need to be made available for periods as short as one year of LTC services with gradations up to at least five years. This would allow consumers to obtain robust protection and adjust the length of that protection based on affordability and risk aversion. Partnership programs can work with insurers to offer these policy designs allowing consumers to purchase coverage equal to the amount of assets they want to protect while at the same time helping states achieve cost savings. The availability of these policies will draw even more MM consumers to the Partnership, further enhancing the probability of cost-effectiveness." (pps. 10-11)