LTC Bullet:  SOA’s LTC Monograph

Friday, December 19, 2014


LTC Comment:  The Society of Actuaries has published a monograph on long-term care and retirement security.  Excerpts and links after the ***news.***

*** SEASON’S GREETINGS:  This is our last LTC Bullet of 2014.  We’ll take a break for the holidays and we wish all of you every happiness during this joyous time of year.  I’m glad we can close 2014 with an overview of new and hopeful ideas for better long-term care financing in the future.  We sense fresh enthusiasm for policy reform and possibly a more receptive political environment for desperately needed policy changes.  The Center for Long-Term Care Reform will continue our unstinting efforts in 2015 to document the need, provide the evidence, make the arguments, and advocate the solutions with the help of all our allies in this great mission to “ensure quality long-term care of all Americans.” ***



LTC Comment:  The Society of Actuaries’ (SOA) Committee on Post Retirement Needs and Risks in partnership with the Long Term Care Section has published a series of articles “that explore the impact of long-term care needs and expense on retirement security from a variety of aspects.”  You can access the publication’s “Introduction,” an “Overview,” a compilation of its articles’ abstracts, and each of the complete articles here.  Recordings of these papers’ formal presentations at the 2014 SOA Annual Meeting are available free of charge to SOA members here

Congratulations to the Society of Actuaries and to each of the publication’s contributors for this valuable contribution to the literature on long-term care financing.  What follows is a list of the articles in the monograph with excerpts from their abstracts and links to the full paper.

The Impact of Long-Term Care Costs on Retirement Wealth Needs,” by Vickie Bajtelsmit and Anna Rappaport.  “Abstract:  This paper provides an overview of the risks and costs of long-term care (LTC), including a discussion of who bears the risk, and the advantages and disadvantages of various funding mechanisms for long-term support and services. A summary of recent simulation studies provides evidence regarding the size of the risk and the impact on household financial wellbeing. We conclude that advance planning for LTC risk is critical for low- to middle-income households. For other than the wealthiest households, the cost at the retirement date of any LTC financing strategy will likely be prohibitive and may deplete household emergency funds. For those with greater wealth and income, paying for LTC costs as they are incurred may be a workable option.”

How American Society will Address Long-Term Care Risk, Financing and Retirement,” by John Cutler.  From the abstract:  “This paper uses a literature search and reflective analysis of current programs and policies to lay out a path … . The review covers Medicare, Medicaid, health insurance, LTC insurance (including life and annuities), Social Security, pensions, housing and reverse mortgages as well as family, caregiving and the workforce. What is clear is that a variety of approaches, both public and private, are currently available to address LTC risks. In fact, it might well be that we ARE seeing LTC reforms underway but too incremental (and fragmented) to be obvious.”

Improving Retirement by Integrating Family, Friends, Housing and Support: Lessons Learned from Personal Experience,” by Anna Rappaport, FSA, MAAA.  From the abstract:  “This paper provides insights about choices made with regard to housing and supportive services based on personal experience with family and friends. The first experience is about my mother and her choices that involved a move into independent living, assisted living, and ultimately a nursing home. The second story is about an individual interested in a continuing care retirement community (CCRC) and that individual’s attempts to investigate CCRC options. The third story relates to people who live in a community where residents help each other out. All of the stories offered insights, most of which were not obvious to me, and which so far as I know, are not easy to find in the literature. Additional insights come from discussions with friends who have been involved.”

The 65-Plus Age Wave and the Caregiving Conundrum: The Often Forgotten Piece of the Long-Term Care Puzzle,” by Sandra Timmermann, Ed.D.  From the abstract:  “Both family caregivers and those who work as paid caregivers are the backbone of the long‐term care system, but are often the forgotten link in the long‐term care financing discussion.  …  Paid caregivers are a critical element in the care continuum, both in the home and in facilities, but with low wages and few opportunities for advancement, the jobs are difficult to fill, turnover is high, and the potential for elder abuse is always present. …  The paper provides an overview of the situation, including current data, in each of these four areas; highlights some innovative programs and initiatives that are underway by communities, employers and policymakers; and offers some ‘blue sky’ strategies and solutions for both the public and private sectors to bring these issues to the top of the national agenda.”

Home Equity and At-Need Annuities—A Dynamic Long-Term Care Funding Duo,” by Steve Cooperstein, FSA.  From the abstract:  “This paper describes the LTC funding problem, including weaknesses of reverse mortgages and Medicaid … and how …  an at-need annuity/home equity combination can offer ‘late-in-the-game’ additional insurance leverage. An extensive anecdotal example is provided describing how this option can be effectively used to maximize care outcomes by building on other funding. Cash flow analyses of alternatives are discussed, as well as sensitivities involved and the need to focus on risk/reward choices. The potential and broader implications for practical layered funding of LTC costs, which this possibility facilitates, are also discussed.”

Long-Term Care Benefits May Reduce End-of-Life Medical Care Costs,” by Stephen K. Holland, MD; Sharrilyn R. Evered, PhD; and Bruce A. Center, PhD.  From the abstract:  “This study explores whether personal care services for functionally dependent or cognitively impaired individuals paid for by a long-term care (LTC) insurance policy can reduce health care utilization and costs at the end of life. …  Claimants using LTC benefits experienced significantly lower health care costs at end of life, including 14% lower total medical costs, 13% lower pharmacy costs, 35% lower inpatient admission costs, and 16% lower outpatient visit costs. They also experienced 8% fewer inpatient admissions and 10% fewer inpatient days. The presence of dementia at the end of life moderated these effects. This study suggests that use of insurance-based LTC services measurably reduces health care expenditures at the end of life. (Population Health Management 2014;17:332–339)” 

An Overview of the U.S. LTC Insurance Market (Past and Present):  The Economic Need for LTC Insurance, the History of LTC Regulation & Taxation and the Development of LTC Product Design Features,” by Larry Rubin, FSA, CERA, MAAA, et al.  “Abstract:  We provide reasons for why U.S. individuals should save for and buy private long-term care (LTC) insurance in the context of demographic trends and increasing cost and coverage constraints on Medicare, Medicaid and the federal budget. Then, we review the history of national regulation (including the recently repealed CLASS Act), especially with respect to pricing and rate review processes. We also examine the U.S. tax code, as it has affected LTC insurance, with specific focus on distinguishing between qualified and non-qualified LTC policies and the lack of a cash surrender value, non-forfeiture clauses, and marketability due to long waiting periods. Next, we examine the LTC insurance market from the early years (1980s and 1990s) through today, with emphasis on the inadequacy of the level-premium structure, dissatisfaction with core LTC products from both consumers and insurance companies, and which carriers have either left the market or persisted into 2014. Finally, we contrast the primary features of LTC product design (so far) to what is needed to make LTC insurance viable going forward, with specific discussion on benefit triggers, coverage portability, non-forfeiture provisions, initial price levels and contract language, all as they help better align the interests of policyholders, regulators and insurers.”

Can Long Term Care Protection in Other Developed Countries Provide Guidance for the United States? Germany as an Example,” by Doug Andrews, FCIA, FSA, FIA.  “Abstract:  This paper presents comparative research with respect to a number of developed countries regarding the adequacy and sustainability of programs for care and support of the elderly of which long-term care (LTC) is one component. It may provide guidance to those in the United States by helping to place the adequacy and sustainability of their programs for care and support in an international context. It suggests that the approach to LTC used in Germany of mandated social insurance provided by private sector insurers would be worthy of consideration for implementation in the United States.”

Financing Future LTSS and Long Life through More Flexible 401(k)s and IRAs,” by Karl Polzer.  From the abstract:  “This paper proposes and evaluates changing 401(k) and individual retirement account (IRA) rules to help address two major risks facing participants in defined-contribution (DC) retirement accounts: 1) the risk of outliving one’s savings; and 2) the risk of having to pay substantial amounts for long-term services and supports (LTSS). The proposal would allow retirees to invest a portion of their DC retirement savings in a special retirement account for longer without penalty than under current tax rules and could provide additional tax incentives for money drawn from the accounts used to pay for LTSS or long-term care insurance (LTCI).”

The American Long Term Care Insurance Program (ALTCIP),” by Paul E. Forte. “Abstract: The American Long Term Care Insurance Program (ALTCIP) proposes a public-private partnership for financing long‐term services and supports (LTSS). At once an exchange that offers consumers greater access to affordable products and a mechanism for ensuring ongoing quality, the ALTCIP could increase the number of persons with private LTSS coverage in the next 10 years, thus relieving government spending, while giving insurers themselves protections not available in the open market. A paper on the ALTCIP detailing its regulatory structure and operations was submitted to the Commission on Long-Term Care in 2013. An abbreviated version was published in Contingencies (January 2014) under the title ‘Fresh Thinking on Long Term Care.’”

Home Equity: A Strategic Resource for Long-Term Services and Supports” by Barbara R. Stucki, Ph.D.  From the abstract:  “The house is a unique and complex asset that serves as both a place to live and as a store of wealth. It is also becoming the primary setting for the delivery of health care and long-term services and supports (LTSS) in later life. Until recently, however, there has been little discussion about using home equity to pay for LTSS beyond reverse mortgages. This paper examines the diverse body of economic and social research on the magnitude, timing, and motivations for decumulating housing wealth in retirement to pay for LTSS. The aim is to provide a more nuanced framework for incorporating housing wealth in efforts to support older people and family caregivers. The study also reviews new data that show how the use of home equity could change in response to the economic and social pressures of our aging society.”

An Affordable Long-Term Care Solution through Risk Sharing,” Kailan Shang, Hua Su, and Yu Lin.  From the executive summary:  “In this paper, we propose an LTC product that has an investment-risk-sharing mechanism between the insurer and the insured. The investment risk will be partially transferred to the clients with a guarantee that is much cheaper than those provided by traditional LTC products. The insurance risks are still borne by insurers. The benefit is adjustable with a floor, and the premium is flexible. Policyholders can choose their own investment strategies according to their risk tolerance depending on ages, levels of wealth, and other factors. The benefit of the risk-sharing arrangement is three-fold: (a) the risk of the new product is lower for the insurers, (b) the price of the product is flexible and affordable, and (c) more risky investment strategies can be used at the discretion of the policyholders to address the rising LTC expenses.”