LTC Bullet: SCAN the LTC Possibilities
Friday, April 5, 2013
LTC Comment: SCAN is a fountainhead of ideas about long-term care financing, but are those ideas potable? Analysis after the ***news.*** [omitted]
LTC BULLET: SCAN THE LTC POSSIBILITIES
LTC Comment: According to its website: “The SCAN Foundation is an independent, non-profit public charity devoted to transforming health care for seniors in ways that encourage independence and preserve dignity.” That’s a noble goal and based on the organization’s prolific publications and omnipresent CEO, Dr. Bruce Chernof (who was recently appointed to the National LTC Commission), SCAN’s endowment must be vast. So, what’s their latest offering?
On March 20, while I was exploring the Himalayan hill station of Shimla, India, SCAN sponsored a major LTC financing shindig at the National Press Club in Washington, DC. Here you can read the eight policy briefs SCAN released that day and watch videos of two panel discussions surveying “The Current Landscape of Long-Term Care Financing” and “Long-Term Care Policy Considerations.” But I’ve already done that homework for you so I thought I’d save you the time and effort by providing the following Cliff’s Notes summary of the key content.
I’ll focus on the two most significant of the new research papers, but note here that Eileen Tell, Senior VP of Univita Health, deserves honorable mention for her “Overview of Current Long-Term Care Financing Options.” Likewise, Jeremy Pincus, et al., for “Size of the Employer and Self-Employed Markets Without Access to Long-Term Care Coverage Options,” which describes an “enormous untapped market” and explains how to tap it. Following, are the two papers I’d like to address in more detail.
“Medicaid Spend Down: Implications for Long-Term Services and Supports and Aging Policy,” by Joshua M. Wiener, et al., sets out “to analyze the Medicaid spend-down experience” and “the potential impact of various models of insurance for LTSS [AKA LTC], focusing on . . . the recently repealed Community Living Assistance Services and Supports (CLASS) Act, and mandatory programs, such as those that operate in Germany and Japan.” The paper concludes: (1) “The high cost of long-term services and supports (LTSS) results in catastrophic out-of-pocket costs for many people needing services, some of whom spend down to Medicaid eligibility”; (2) “[T]he income and assets of people who spend down are considerably lower than commonly assumed, casting doubt about whether the spend down population could be expected to purchase private long-term care insurance”; and therefore (3) “A mandatory long-term care insurance program can shift the LTSS financing burden more effectively from Medicaid to insurance financing . . ..”
Backing these conclusions are data from the “Health and Retirement Study” and “Avalere Health’s Long-Term Care-Policy Simulation (LTC-PS) Model.” We’ve previously critiqued and debunked published inferences from the same data source here and simulation models are notoriously unreliable, e.g. climate change models. Before we take anything seriously in this latest scholarly attempt to convince us that Medicaid spend down is pervasive, but Medicaid doesn’t crowd out private LTC financing sources, we should consider these three facts.
(1) A raft of Medicaid spend-down studies in the late 1980s and early 1990s proved that the vast majority of institutionalized Medicaid recipients were already eligible for Medicaid at admission and did not “spend down.” In 1991, I surveyed and interpreted these studies in “The Myth of Medicaid Spend Down.”
(2) The fact is that income and assets rarely stand in the way of Medicaid long-term care eligibility. Most states deduct medical and LTC expenses from income before determining eligibility which makes it routine for people with high incomes to qualify. Miller income diversion trusts enable the same result in the other states. Because of practically unlimited asset exemptions—the home (up to $802,000) and with no limit, a business, prepaid burial plans, a car, personal belongings, IRA accounts, term life insurance, etc.—asset spend down to Medicaid eligibility is unnecessary, voluntary, and therefore rare among middle class and affluent people who choose to take advantage of the program’s generous eligibility rules. In other words, just because people become eligible for Medicaid LTC, it does not mean they “spent down.”
(3) Anyone who has ever interviewed a Medicaid eligibility specialist anywhere in the USA—and I’ve interviewed scores of them—or reviewed actual Medicaid LTC eligibility cases—and I’ve reviewed hundreds of them—knows that Medicaid spend down only crushes the poor and ignorant. Middle class and affluent applicants/recipients dodge spend down with impunity. They are the people who could, should and would plan for long-term care, buy LTC insurance, and relieve Medicaid of the burden of their care if Medicaid spend down really did require them to pay for their own care first.
Unless and until the authors of this paper address these realities, which they ignored in their paper, their data and conclusions remain dubious at best.
The second new paper I want to highlight is “Making Progress: Expanding Risk Protection for Long-Term Services and Supports through Private Long-Term Care Insurance,” by Richard G. Frank, Marc Cohen, and Neale Mahoney. They argue “that the current private market for LTCI is not functioning well . . . there is both an under-demand and undersupply of LTCI . . . today's political environment demands that . . . insurance program designs be structured as voluntary . . . that there is little taste for new mandated benefits and the criteria for making new financial outlays by government will be extremely demanding. This means that program designs must have some level of medical underwriting, have low budgetary impacts, and be structured in a way that makes them attractive to a broader population of consumers, as well as profitable or break-even for program sponsors.”
Right on! Those are certainly the lessons learned by the abortive pseudo-insurance fiasco called CLASS. But why exactly is the LTCI market not functioning well and how do we fix it? These authors say the problem is a combination of demand factors (consumer denial, misperception, myopia, confusion, mistrust) and supply factors (adverse selection, high cost, risk mis-management). Well, sure, but why is the public so seemingly irrational and ignorant about long-term care risk and cost? And why can’t the insurance industry deal effectively with product design, pricing, marketing, and risk mitigation for LTCI as it has for other products? Blank out. Instead of explaining why these conditions exist, the paper goes directly into speculation about product designs that might ameliorate the market’s supposed dysfunction. That’s dangerous.
If you don’t know why you have a problem in the first place, you run the risk of proposing solutions that exacerbate instead of improve the situation. At best you’re left with a shotgun approach, trying a lot of ideas that may or may not help. That’s where this paper ends up. On the demand side, it recommends simplifying and standardizing products, indexing premiums, launching more education campaigns, mandating availability, etc. On the supply side, the authors propose reinsurance pools, more employer coverage, and co-marketing with health insurance. Some of those suggestions may be helpful, but in the absence of an explanation for why the problems exist that they’re intended to address, we have no standard by which to judge. Furthermore, might not simplified products mean less choice and flexibility for consumers? Why would more education help when education efforts heretofore have failed? Co-marketing with health insurance? Do we really need ObamaCare for LTC?
There is a much better way to approach and solve the problem of LTCI market dysfunction. First, explain why the problem exists. Answer: For nearly 50 years, the government, through Medicaid and Medicare has paid for the vast majority of all catastrophically high long-term care costs. Consequently, consumers have been shielded from the risk and cost of LTC resulting in their denial and intransigence about long-term care planning. Second, address this real problem head on. Stop giving away free LTC to middle class and affluent people after the insurable event occurs, and before long such people will start to (1) spend their own money for LTC, (2) tap their home equity to purchase quality LTC in the most appropriate setting for their care, and (3) in time, in order to avoid the new objective reality of a previously nonexistent Medicaid spend down liability, they’ll buy LTCI products in droves . . . even without simplified products, reinsurance pools, and other tinkerings that address only symptoms rather than causes.
Identify correctly the cause of the ostensible market dysfunction and correct it in this way and you’ll not only unleash the LTC insurance market, but you’ll preserve Medicaid as an LTC safety net for the genuinely needy.