Bullet: How to Fix LTCI in California
Friday, April 4, 2014
LTC Comment: Private long-term care insurance in California is hurting.
Center corporate member Louis Brownstone provides a diagnosis and
prescription after the ***news.***
*** GENWORTH published its widely cited “Cost of Care Survey” for 2014
this week. The median annual cost of a private nursing home room in the
United States increased 4.4% since last year to $87,600. Cost of a
semi-private nursing home room went up 2.6% to $77,380 per year. Assisted
living monthly costs increased somewhat less, up 1.45% to $3,500.
Homemaker services surged 4.11% to $19 per hour, up substantially from an
average 1.20% five-year growth rate. Home health aide services increased
1.59%; 1.32% per year over the past five years. Click
for the full 2014 report;
for the “cost of care map”; and
here for “key findings.” As always, we’ve posted the Genworth report
in “The Zone,” the Center's special compendium of key data and information
for members. ***
*** THE AMERICAN ENTERPRISE INSTITUTE hosted another forum on long-term
care services and financing this week. Watch the full proceedings
This video is well worth a two-hour investment of your time. Six of the
most thoughtful analysts in the field comprise the panel including the
chairman, vice-chairman and one member of last year’s Long-Term Care
Commission. Besides summarizing the Commission’s work and report, the
panelists cited much of the most important recent research on LTC
financing. A couple thoughts to keep in mind as you watch this program,
however. First, not one of the presenters addressed the question of how
long-term care came to be so dysfunctional. (Nor did the LTC Commission
address that question.) It’s very dangerous to propose solutions to a
problem when you don’t know what caused the problem in the first place.
You run the risk of exacerbating the problem by administering more of what
caused the problem in the first place. Second, note that the panel
recognizes that Medicaid is important but can’t quite pin down why and
how. For example, even though it’s well substantiated that the program
helps middle class and affluent people as well as the poor, how can
Medicaid crowd out private LTC insurance if most people don’t know who
pays for long-term care? Simple: Medicaid has paid for most expensive
LTC since 1965, so the public doesn’t know who pays, but Medicaid does
pay, and that fact has anesthetized the public to LTC risk and cost.
Little progress in solving the LTC financing problem will be made until
experts like these diagnose the real cause (government interference in the
LTC market) and propose solutions that address that problem (targeting
Medicaid to the poor and using some of the savings to incentivize
responsible private LTC planning.) ***
*** READ OUR REPORT on long-term care financing in California--Medi-Cal
LTC: Safety Net or Hammock?
here or on the
here--together with today’s LTC Bullet for a fuller
understanding of the big picture in “The Golden State.” ***
LTC BULLET: HOW TO FIX LTCI IN CALIFORNIA
LTC Comment: From time to time we turn over the Center’s weekly LTC
Bullet op-ed to an expert in a field of interest to our readers.
Today, we invited Louis Brownstone to share his analysis of the long-term
care insurance market in California.
Mr. Brownstone is Chairman of
Long-Term Care Services,
and past chairman of the
(also a longtime corporate member of the Center for Long-Term Care
Reform). Get to know Louis
The following is Louis Brownstone’s “A Proposal for Long Term Care for
California,” as edited and condensed by LTC Bullets.
From what I can see, and from what others tell me, the long term care
insurance industry in the State of California is in gridlock. The
stakeholders are not speaking constructively to each other. The industry
is in danger of losing its viability. I want to stimulate a conversation
that can fix this mess.
What's at stake? Absent a solution, long term care services needs will
grow in the next twenty years to consume more than one half of all Medi-Cal
expenditures, costing hundreds of millions of dollars, that will drain
funds from a myriad of other public needs. Thousands of citizens will be
unable to afford or receive long term care services, will not be able to
care for themselves and will age poorly in place. Alternatively, we can
all come together and resume leadership in long term care planning.
Here are the problems as I see them with proposed solutions.
Problem #1: The Department of Insurance (DOI) fails to protect the
interests of the insurance carriers. It distrusts insurance carriers and
is either unwilling or unable to approve new policy filings. Maybe the
DOI has become ossified and the carriers are correct in saying that the
people in the DOI don't care. I suspect that's not true. Maybe it's a
question of an inadequate budget. Whatever the cause, I hear of many
instances where the DOI’s responses to carrier's requests are sympathetic
to their needs . . . and then nothing happens. That has to change.
It takes three to five months for carriers to get new policy filings
approved in other states, but two to three years in California. Many
carriers have adjusted their pricing in their filings to reflect this time
delay. The result is that citizens in California pay more than citizens
in other states for the same or lesser benefits. Timely approvals will
Long term care insurance policies sold in the 1990's gave policyholders
terrific value and cost about a third of what policies cost today. The
insurance carriers priced the policies incorrectly, and need price relief
so that they can come close to a breakeven on these older policies.
They're asking for huge rate increases.
They need some help . . . maybe not all that they are asking for, but some
help. It's not well known, but it also takes two to three years in
California for the DOI to approve a rate increase. This only creates
further delay and larger rate increase requests later on. Timely
approvals will help everyone in the end.
California has a history of top insurance carriers either suspending sales
or ceasing sales altogether. Allianz, Transamerica, Prudential, MetLife,
John Hancock, Mutual of Omaha, Genworth Financial . . . all large and
well-funded carriers. We need them. My greatest concern is that Genworth
will once again suspend or cease sales in California. Genworth represents
roughly half of all long term care insurance policies sold in California
in the last six months. It would be catastrophic if Genworth left.
Everyone would lose. Six months ago, Tom McInerney, Genworth's Chairman,
met with DOI Commissioner Jones. They had a meeting of minds. To my
knowledge, nothing has happened since.
Problem #2: The Department of Insurance is failing to protect the
interests of California citizens. The DOI has evolved from being a strong
protector of the interests of consumers to watching other states provide
better long term care solutions to their citizens. The main problem here
is failure to adjust to a change in the philosophy of long term care
planning and to accept the structure of new policies.
People are living longer, and when they get old, they get sick. Adverse
morbidity trends and other factors have made long term care insurance
policies far more expensive than before. Compromises have to be made to
make policies affordable to more than the very rich. The DOI has resisted
many of these compromises. The result is that people in other states are
utilizing novel inflation riders and are often paying far less in premium
than Californians. We allow our citizens to buy $25,000 life insurance
death benefits, which afford little family protection, because that's
better than nothing. Why not the same rationale for long term care
insurance? Bad regulations are hindering needed change.
An important price factor has been inflation riders. The old standard of
5% compound inflation is often unaffordable. But is it necessary? Most
folks are going to be cared for either at home or in a residential care
facility. Nursing facilities are becoming a last stop, and average time
spent in them is shrinking. If home health care inflation has been 1% to
2% and residential care facility inflation has been 3%, why should a
person need 5% compound inflation, as required by California Partnership
The industry standard for inflation riders has become 3% compound . . . or
less. We sell life insurance with small death benefits and even term
insurance which produces very few claims. Short and fat long term care
benefits can be a great help in many situations. Allow the consumer to
decide what he or she can afford.
Problem #3: Long term care insurance in California is badly in
need of new enabling legislation. The laws of the 1990's are outdated and
are not appropriate for the 21st century. They were in many ways
visionary when they were enacted, especially in consumer protections. But
they now inhibit change and prevent Californians from having choice in
long term care planning.
The theory has been that California should not adopt laws prevalent
elsewhere because California is different from any other state.
California is different, but if you look at California's six major
regions, each region has strong similarities with other regions of the
United States. We are Americans, and can learn from other Americans and
even embrace some of their laws. Our citizens are similar, and our long
term care problems are similar.
Many of the consumer protections in our laws have been adopted by other
states. They have not caught up to us, but they're close. Some
thirty-seven states have banded together to create an “interstate
compact.” Is it time to change our laws sufficiently to enable us to join
them? This would be a far simpler solution than beginning from a zero
base, and should be considered.
The National Association of Insurance Commissioners has adopted long term
care insurance standards and is presently working on a set of even newer
standards. We are engaged with this process. Again, the reasons for us
to be different have decreased. The Legislature needs to immediately
review and possibly adopt these new standards when they have been
The Legislature should enact new legislation which will change the laws to
give insurance carriers the product flexibility they enjoy elsewhere.
This will give consumers more choice and, importantly, more affordable
long term care insurance options. Policies in California are now
primarily being sold to the wealthy. Future Medi-Cal costs are going to
go through the roof if policies are not sold to the middle class.
Rich Californians now utilize elder law attorneys to shield their assets
in order to qualify for long term care services and supports through Medi-Cal.
The list of exempt assets is far too generous and the look-back period
needs to be extended. Medi-Cal should be for the needy, not the rich.
These lax standards need to change.
There is a new Assembly bill (AB 1553) which would prohibit gender-based
pricing for long term care insurance. Women pay lower rates than men for
life insurance and this is as it should be. Women live longer than men
and the insurance carriers price life insurance policies appropriate to
the risk. It should be the same with long term care insurance. This bill
is unwise and should be defeated.
I hope that the Insurance Committees of the Assembly and Senate will
consider these thoughts and will engage in meaningful discussions with all
stakeholders. It's their responsibility to do so, and much needs
Problem #4: The California Partnership for Long Term Care needs a
California was one of the original four Partnership states in 1994. Its
purpose was to provide long term care protection for Californians with
moderate income and assets. This concept has now been adopted by most
other states and Partnership policies are being sold in quantity almost
everywhere. But the California Partnership is now in such bad shape that
it is really on life support.
This product is no longer saleable to its intended buyers . . . people
with moderate income and assets. Partnership policies used to constitute
about 75% of all my brokerage's sales, but I doubt if we sell 20%
Partnership policies today. Long term care insurance rates are triple
what they were in 1994. The 5% compound inflation requirements are too
stringent. Federal legislation accepts almost any kind of inflation rider
as a part of a Partnership policy. We need new Partnership legislation so
that the Partnership can be sold to a far greater audience. Otherwise,
it's of little value, and may even be a negative factor on future Medi-Cal
The Partnership program is currently a part of the Department of Health
Services. It is severely underfunded and understaffed. It seems almost
as if DHS doesn't recognize its existence. The Partnership has the
potential to save the state hundreds of millions of dollars. It needs to
be recognized as a future producer of revenue for the state, not as an
expense. It needs to be given the tools to do its job.
The Partnership was originally put under DHS because the program needs to
be coordinated with Medi-Cal. In fact, Medi-Cal has inhibited change by
insisting on the robust inflation riders discussed above. Maybe the
Partnership is in the wrong department and should be moved over to the
Department of Insurance. I would be in favor of this because it would
create fresh thinking.
could be a starting point for new legislation. A simple approach,
accepting the Compact, could get a major change done quickly. If its
regulations were unacceptable, it could at least be built upon to conform
with some of the unique California standards.
The Partnership needs additional funding in order to educate Californians
and disseminate its message. It needs to ally with other outreach
programs, such as the
3in4 Need More
campaign, and increase its public relations efforts. These PR efforts are
currently restricted by budgetary considerations. Again, the proper
promotion of long term care insurance will save the state of California
hundreds of millions of dollars.
As I said at the top, I want to stimulate a conversation that can fix this
mess. I am available to assist in any way that I can.
Louis H. Brownstone