LTC Bullet: Reimagining LTC Financing

Friday, June 14, 2024

Seattle—

LTC Comment: See long-term care financing more clearly through a new theoretical lens, after the ***news.***

*** JOIN the Center and receive all our LTC Bullets and LTC E-Alerts. Become a premium member and get our daily LTC Clippings as well. Your Center for Long-Term Care Reform exists to promote policies that deliver quality LTC to all Americans. We conduct research and pursue advocacy toward increasing private financing and relieving public LTC spending with the goal to improve funding and quality for all levels and venues of long-term care. Join our campaign here. Check out all the individual and corporate membership options here. Read our 1383 LTC Bullets, organized by topic and chronologically here. Following is a sample LTC Clipping in which we take poor, biased reporting on LTC insurance to task. Help continue to good fight. Support the Center for Long-Term Care Reform.

*** LTC CLIPPING SAMPLE:

6/8/2024, “Soaring premiums, denied benefits, delayed payments show crisis in long-term care insurance,” by Jeremy Olson, Star Tribune

Quote: “The Minnesota Department of Commerce has to approve any rise in premiums, but it's proving impossible for the agency to balance its goals of protecting consumers from massive monthly bills and keeping private insurers in business. … A key miscalculation by insurers: They didn't anticipate the five-year rise in U.S. life expectancy since 1980, so they underestimated the number of people surviving long enough to need long-term care. Many plans also came with inflation adjustments that exponentially increased the value of their benefits, especially as policyholders outlived projections. Insurers also overestimated the proportion of policyholders who would cancel their plans. … Policyholders can cut premium increases by agreeing to reduced benefits — waiving future inflation growth or capping the dollar amount of benefits or the number of years they can be used. … Denials of benefits are increasingly common as policyholders beset with disabilities or dementia — or adult children taking on new care-giving roles — struggle with insurance paperwork.”

LTC Comment: Hit pieces on LTC insurance are nothing new. I remember one especially virulent article that the New York Times brought to press on opening day of the 7th annual Intercompany LTC Insurance Conference in Dallas (see LTC Bullet:  Sucker Punched in Dallas, April 10, 2007). Just once, it would be nice to find some balance in media coverage. Maybe compare how miserably Medicaid and Medicare have done in managing LTC financing. Or mention the Federal Reserve artificially dropping interest rates to zero and crushing returns on carriers’ reserves. Or how about recognizing how well and creatively the LTC insurance industry has managed its challenges, creating new hybrid products and dealing with premium increases responsibly, unlike the government programs that cannot pay future claims but have done nothing to adjust. It would be nice to see some recognition that the vast majority of complaints about failure to pay claims turn out to be specious, based on expecting carriers to pay when contractual policy conditions are unmet. Don’t hold your breath. But do soldier on fellow fighters for LTC reform! ***
 

LTC BULLET: REIMAGINING LTC FINANCING

LTC Comment: People are living longer often in need of extended help with basic activities of daily living due to frailty, chronic illness or cognitive impairment. Such care is expensive. Most people cannot afford it. Currently, Medicaid, a means-tested public assistance program, is the dominant LTC payer.

If Medicaid’s means test really required people to pay their own way before relying on the public program, it would operate in keeping with wholesome principles of independence and personal responsibility. But that is not how Medicaid LTC benefits work.

Income rarely prevents Medicaid LTC eligibility because private medical and LTC expenses are deducted from income before a low income standard is applied. Nor do large resources obstruct eligibility because most big assets, such as home equity and IRAs, are exempt from spend down requirements.

Easy access to Medicaid LTC benefits while preserving personal wealth for heirs created a moral hazard that discouraged early and responsible planning for LTC risk and cost. Medicaid’s availability for most Americans’ LTC needs over decades enabled their denial of personal responsibility.

The resulting excessive dependency on Medicaid caused LTC’s deficiencies, including nursing home bias, insufficient home care, and poor provider reimbursements that led to caregiver shortages, access and quality problems. Understanding what caused these dysfunctions is the key to fixing them.

That key is to remove Medicaid as the dominant LTC payer and replace it with private financing at market rates. That will enable and incentivize nursing homes and home care agencies to supply the kind and quality of care consumers prefer and will demand when they pay their own way. How can we achieve that objective?

Theoretically, this is the easy part. Eliminate all Medicaid rules that enable people with high incomes and assets to qualify for benefits. But politically, that’s the hardest part. Although it will save Medicaid for the poor, enabling the program to pay market rates for more and better care, it would leave the middle class and affluent with huge LTC liabilities that Medicaid no longer alleviates.

The political challenge therefore is to show prosperous people how they are better off without the option to ignore LTC and rely on a poverty program. On the plus side, if they pay privately at market rates, they will have better access to higher quality care in the venue—home care, assisted living or nursing home—that best satisfies their need and preference.

But that is small consolation if they must pay out of pocket for services that Medicaid financed before. Most cannot afford that now and they lack the incentive to safe, invest or insure against the future risk and cost. But with Medicaid removed as an option, that incentive will develop far stronger than ever before.

So the essential ingredient is to give people a reason and a way to save, invest or insure for LTC early in life at a time when LTC planning competes with other priorities. How can families keep up with car and house payments, save for children’s education and their own retirement, and still prepare for LTC?

Some creative public policy changes could replace the current slippery slope onto Medicaid dependency with positive incentives to prepare for LTC. Step one is to set the planning goal at an achievable level. Instead of expecting people to prepare against the small risk of a catastrophically expensive LTC cost, set the expectation on each to meet their average risk. For the average American, setting aside $70,000 by age 65 would suffice according to recent research.

How could people meet that new, lower level of preparation? In “Long-Term Care: The Solution” we identified seven “LTC Choices” that public policy might offer to ease the way. These include … lower premium LTC insurance policies covering reduced average risk; new, tax-advantaged savings accounts; and especially, creative methods to carve out funds for LTC from other savings, such as home equity, retirement savings, life insurance, and estates, if and only if LTC becomes necessary.

With Medicaid removed as a late-life LTC financing source, people will plan early to prepare for LTC risk and cost. With new LTC Choices, they will be able to meet their expected LTC risk and cost without having to come out of pocket at a time when other financial responsibilities are pressing. When the time comes that they do need LTC, they will have the resources to purchase the kind of services they prefer in the private market.

If and when their LTC needs do exceed their funds available, the genuine Medicaid safety net, relieved of covering too many people, will be available to provide services of equal quality. With all their revenue coming at market rates, both for private and Medicaid patients, LTC providers will be relieved of the caregiver shortages caused by low reimbursements.

LTC Comment: For a fuller development of these ideas, see the Paragon Health Institute’s “Long-Term Care: The Problem” and “Long-Term Care: The Solution.”