LTC Bullet: Update on the California LTC Partnership
Friday, August 3, 2018
LTC Comment: Thanks to the indefatigable efforts of Louis H. Brownstone, the California Partnership for Long-Term Care has a new lease on life. Details after the ***news.***
*** MEA CULPA. Last week’s, “LTC Bullet: SOA Delivers on LTCI Again,” mistakenly reported that the two concepts tested came from the “Land this Plane” effort. They actually arose during an October 2015 Think Tank meeting.
Further clarification from analysts representing the report: There is no current facility that enables a conversion from term life to LTC later in life, in the same policy. By combining them in this way, with the original issue age, our analysis shows that consumers will save about 1/3 on premiums versus buying the products separately. Given how affordability is such a big issues for LTC, we think that’s important. Benefit levels and the premiums are designed to stay the same when the conversion occurs, which helps account for the ease of understanding seen in the research. The “Retirement Plus” proposal assumes that the “retirement account” would NOT be excluded from assets considered for Medicaid eligibility. Because the term life ends when the LTC begins (65 or older), the product that consumers would have when they apply to Medicaid would be LTC which we believe will count as an asset in most states. ***
LTC BULLET: UPDATE ON THE CALIFORNIA LTC PARTNERSHIP
LTC Comment: Center-corporate-member Louis H. Brownstone has spearheaded a years-long effort to salvage the nearly defunct California Partnership for Long-Term Care. In today’s guest Bullet, he describes the challenge he and his co-reformers faced and the success they are having. We congratulate Mr. Brownstone for his proactivity, persistence, dedication and impending victory.
the California Partnership for Long-Term Care
There has been significant progress in reviving the California Partnership for Long-Term Care. The Partnership is still in intensive care; its sales are non-existent; and it’s barely on life support. But changes are likely to occur which could bring the plan out of its critical condition and into rehabilitation.
As you may recall, California Senate Bill 1384 was passed in September, 2016. It allowed for inflation options in Partnership policies besides the formerly mandated 5% compound. It also required the formation of a Task Force of interested stakeholders to advise and assist in implementing reforms to the Partnership.
That Task Force is composed of some fifteen members of various state departments and a dozen outside consultants. This group has now met seven times. Its purpose is to mitigate the coming tsunami of Medi-Cal long-term care expenses when the baby boomers reach their eighties and need long-term care. Its main objective is to create new and innovative Partnership policies that would be affordable to the middle class.
That goal required coming up with a policy structure that would achieve it. A subgroup was formed to recommend a structure to be presented to the Task Force, which was done on February 6th.
There are two major impediments to creating an affordable Partnership policy:
1. The heretofore compulsory 5% compound inflation rider; and
2. The requirement that the minimum facility benefit be 70% of the average nursing home cost in California, now $310/day, 70% of which is $217/day.
A subgroup of the Task Force recommended two measures to address these impediments. First, it proposed a 3% compound inflation rider, in compliance with SB 1384, which all by itself cuts the premium by about half. Second, it recommended that the 70% requirement for the average nursing home cost factor be removed entirely.
The subgroup recognized that future nursing home claims will probably be less than 10% of all long-term care claims. Therefore, it believed that basing future requirements on nursing home costs would be an outdated guideline, and that it was far more pertinent to base future protection on far less expensive residential care facility and home care costs where the vast majority of care would be received. It also noted that new robot and sensor technology would change the caregiving dynamic, especially in the home.
Next, the question became what structure would be both meaningful protection and affordable to the middle class. There was serious debate on the answer to this question, but in the end, the subgroup agreed and recommended the following:
1. That the minimum benefit would be $100/day, or $3,000/month, in all settings;
2. That the minimum lifetime benefit would be $73,000.
3. That required elimination periods would be up to 30 calendar days for one and two-year benefit limits and up to 90 calendar days for benefit limits of three years or more.
The subgroup decided that these would be its only requirements in a policy, giving the insurance carriers maximum flexibility in their policy design. Carriers would be encouraged to file structures currently in their non-Partnership policies in order to ease their filing process and obtain speedy approval. For example, they could file either a lifetime benefit of $73,000 over two plus years with a daily benefit of $100 or a lifetime benefit of $73,000 with a daily benefit of $100. Or they could file a lifetime benefit of $73,000 over one year with a daily benefit of $200, or a two-year plan with a lifetime benefit of $109,500 and a daily benefit of $150.
Industry studies have concluded that the market for long term care insurance would be substantially larger if premiums would be at or under $100/month. This was the premium goal of the Task Force. The subgroup anticipated that a two-year plan at $100/day with a lifetime benefit of $73,000 with 3% compound inflation would create premiums at or under $100/month for males and for each individual of a married couple in their mid-fifties. Premiums would be somewhat higher for unmarried females, but still under $150/month.
Of course, a $100/day benefit with a $73,000 lifetime benefit would only constitute partial coverage in many scenarios. But these benefits could be a big help to claimants, and could be coupled with Social Security income and other income to fully cover costs in many cases. The assumption here was that the market for Partnership policies was not appropriate for the lower 50% to 60% of the population, which would have to rely solely on their own resources and on Medi-Cal. But the top 40% to 50% of the population would have other income and assets they could utilize to cover the balance of the costs of care. Long term care insurance is currently primarily being sold to the top 10% of the population in income and assets, and it would be a major step forward to increase the marketability of the product to the top 40% or 50% of the population.
For citizens with moderate income and assets, such plans could in effect offer lifetime protection. For example, if a person had $73,000 in assets, he or she could purchase a partnership plan with a benefit limit of $73,000. Once that person became sick, he or she could use up the benefits in the policy, apply for Medi-Cal, protect the $73,000 in assets, and be covered for the rest or his or her life. With Medi-Cal waivers, he or she may be able to stay at home for at least most of the period of care. That’s what we all want in a long-term care insurance policy…lifetime protection, preservation of assets, and possible home care. Perfect!
The Task Force then considered whether to wait for revised regulations from the California Department of Health Care Services or attempt to pass an urgency statute through the legislature. The revised regulations approval process of DHCS was deemed too slow, and the legislative approach was endorsed.
This structure was introduced to the legislature as SB 1248. That bill has been endorsed by both political parties. It was passed by the Senate easily, and we expect the Assembly to pass it in August based on the Assembly Appropriations Committee’s recommendation. Governor Brown will most likely sign the bill by the end of September.
In addition, the bill requires the various departments to “adopt emergency regulations … necessary for the immediate preservation of the public peace, health, or safety.” The intent is for all departments, including the Department of Insurance, to approve new Partnership filings within 90 to 120 days, assuming such filings would be submitted very shortly after the bill becomes law.
Whew! Sacramento works in strange ways. I have a political science degree from Stanford, but I was never taught the intricate machinations that occur inside our state government. I don’t pretend to understand completely what goes on. The good news is that I probably don’t need to, and that some folks in the Task Force are passionate and want to push this process on to a conclusion.
The Task Force has made significant progress, but this would only begin the process. As its immediate goals, the Task Force also needs to:
1. Convince the insurance carriers that such Partnership policies could be filed expeditiously and with minimum expense;
2. Convince the insurance carriers that such policies could be saleable in volume and be flexible enough to ensure future profitability;
3. Educate the public with a major campaign on the need for long-term care protection.
4. Convince agents that they can create a new long-term care market and sell what is essentially lifetime coverage, based on premiums a client can afford.
5. Educate agents and get them excited enough to sell Partnership policies again.
Long-term care expenses are going to skyrocket in about ten years when the baby-boomers begin to reach their eighties. Billions of dollars of Medi-Cal expense can be saved if this new Partnership program works. It can also be duplicated in other states. Anyone want to join in this effort?
Louis H. Brownstone is Chairman, California Long-Term Care Insurance Services, Inc., past-Chairman of the National LTC Network and Government Relations Chair of NAIFA SF-Peninsula. Reach him at firstname.lastname@example.org