Report, Findings, and Recommendations of the Working Group on Long-Term Card
November 14, 2000
The Working Group Report, Findings, and Recommendations, submitted to the ERISA Advisory Council on November 14, 2000, was approved by the full body and subsequently forwarded to Alexis M. Herman, Secretary of Labor for the United States of America. The Advisory Council on Employee Welfare and Pension Benefit Plans, as it is formally known, was established by Section 512(a)(1) of the Employee Retirement Income Security Act of 1974 to advise the Secretary with respect to carrying out his/her duties under ERISA.
Chair: Michael J. Stapley
Vice Chair: Patrick N. McTeague
Eddie C. Brown
Judith Ann Calder
Michael J. Gulotta
Catherine L. Heron
Judith F. Mazo
Rebecca J. Miller
James S. Ray
There are only four kinds of people in this world. Those who have been caregivers, those who are care givers, those who will be care givers, and those who will need care givers.
Rosalynn Carter, Former First Lady
Joyce Ruddock, Vice President
The prospects for individuals who will need different types of in-home or institutional care assistance is going to climb dramatically as a result of each and every life extension success from our medical research
Dallas Salisbury, President and CEO
I think that the fundamental problem we have with long-term care insurance in general now is that for the elderly population it is basically unaffordable.
Joshua M. Wiener
Long-term care is the greatest uninsured risk Americans face.
Joyce Ruddock, Vice President
This nation has no long-term care policy
Donna Shalala, Secretary
There is a potentially future serious long-term care (LTC) crisis in the United States. It is important that policy makers pay attention to this potential crisis and take specific preventive action to avoid it. Virtually every aspect of the LTC system is affected. Baby boomers and their parents are requiring LTC services in record numbers. At present LTC consumes approximately one-eighth of national health expenditures, about the same proportion as prescription drugs. The total amount of LTC costs is expected to increase significantly during the next 40 years. Conservative estimates are that the elderly population requiring LTC services will more than double in the next 30 years to more than 70 million. As America struggles with this unprecedented challenge to find ways to pay for these LTC services, it seems apparent that there will be a funding shortfall that will challenge the capacity of the public sector. Serious shortfalls in financing resources will occur that could potentially restrict access to needed LTC services.
While LTC is commonly associated with care provided to older people in nursing homes, in reality most LTC services are provided in the home informally by family members. Concerns arise when individuals require more intensive LTC services than family members or friends are trained to provide or which are clearly beyond the skills they can easily obtain. Many people are misinformed about where LTC financing will come from. They think that Medicare, Medicaid, group and individual medical insurance or disability insurance will fund their LTC needs. Medicare, the current foundation for protecting retired Americans, only provides for up to 120 days per illness of institutional LTC benefits which are only available after discharge from an acute care hospital. The federal Medicaid program does provide extensive coverage for LTC services, but is only available to those who meet certain income and resource requirements. Many American workers who have labored all of their lives to provide for a financially sound retirement end up spending themselves into poverty in order to qualify for Medicaid. Others are surprised, if not shocked, to learn that their employer-sponsored medical plans provide only very limited coverage for LTC services.
Long-term care is overwhelmingly a woman's issue. Women live longer than men. They become primary caregivers for LTC service and in the end they are the primary recipients of LTC. Women also have more financial barriers to LTC than men.
Long-term care insurance is one of the fastest growing private insurance products in the nation today. The growth in the number of policies has doubled in the last five years to 6 million. In the 10-year period from 1987 to 1997, the market grew an average of 21 percent per year. Nevertheless, overall coverage levels remain very low, and LTC is the greatest uninsured risk Americans face. More employers are offering LTC coverage, but most find that the pick-up rates are lower than anticipated. However, there is some indication that employers who positively and actively promote LTC insurance experience significantly higher enrollment than those who do not. Employment-based LTC insurance may provide the best opportunity for expansion in coverage. Expansion of coverage may be further increased through employer subsidies for employee LTC insurance. In order for LTC insurance coverage to expand, it may be necessary to provide additional tax incentives for employers and individuals. Such tax incentives and employer subsidies may be the catalyst that is necessary to cause individuals to take more responsibility for their LTC needs.
There are concerns about the stability of the private LTC insurance market. However, the experience of large insurance carriers, as well as recent initiatives by the National Association of Insurance Commissioners, demonstrate that there are viable methods for stabilizing the LTC insurance market and insuring its long-term viability.
There are also concerns in the LTC provider industry. Market capitalization of LTC providers has declined significantly since 1997. Many nursing homes are in a state of bankruptcy. There is also concern that government funding through Medicare and Medicaid is inadequate to support quality health care. There are questions about the current regulatory system and whether or not it is accomplishing its intended purpose. There is a belief that far more effective coordination between federal and state governments is needed in the regulatory process and that the process needs to become less adversarial and more cooperative. Finally, there is a projected shortage in skilled caregivers to support the LTC industry and to ensure a solid foundation for the provision of quality care.
The multifaceted problems discussed above require broad-based, well-coordinated policy initiatives that address all of the components of this very difficult problem. The Working Group's assignment was to improve understanding about LTC in general, the need for LTC service at the present and into the future, and identify the barriers to the improvement of LTC access to adequate LTC services, including indemnification. In the end, the Working Group unanimously recommends to the Secretary of Labor that:
The purpose of the Working Group on Long-Term Care (LTC) is to improve understanding about LTC in general, the need for LTC services at the present and into the future, and identify barriers to the improvement of long-term access to adequate LTC services, including indemnification. This report summarizes the insight the group has gathered from testimony of expert witnesses called to share their experience and opinions on this subject.
Chapter One discusses the background and analysis of LTC, what it is, how it is measured, and how many people it impacts, as well as common misunderstandings concerning LTC.
Chapter Two analyzes the present sources of LTC financing, including Medicare, Medicaid, and other public and private funds. It identifies who provides care most often for those with LTC needs and the impact on the caregivers. It also discusses how LTC impacts women and identifies the financial barriers to receiving LTC.
Chapter Three reviews the history of private LTC indemnification, current trends, types of LTC policies, and factors influencing LTC insurance coverage.
Chapter Four identifies the consumer protection issues associated with LTC including adequate disclosure, lapse rates of policies, premium stabilization, and the NAIC model rules on LTC insurance.
Chapter Five is devoted to a discussion on the current tax treatment of LTC insurance and expenses, the effects that HIPAA has had on LTC insurance pick up rates, the differences between tax deductions and credits, and a discussion of receiving benefits through a Section 125 plan.
Chapter Six analyzes federal policy considerations on initiatives to expand LTC indemnification. Included in this chapter is a review of the new Long-Term Care Security Act recently signed into law by President Clinton. Also discussed are proposals for tax credits and deductions from the administration, the two major presidential candidates, and Congress. This chapter also discusses the impact of initiatives on Private LTC Insurance and on public programs and retirement, including benefits to individuals who own LTC insurance policies.
Chapter Seven discusses the corporate response to LTC indemnification, and identifies the key role that employers play in sponsoring group LTC insurance programs for their employees.
Chapter Eight discusses the problems with the LTC provider industry, including market capitalization, reduced Medicaid reimbursement, governmental regulations, and shortages of skilled providers.
The final section contains the Findings and Recommendations of the Working Group.
If you look into the future, the changes in the population structure will have a very big impact on demand for long-term care services. Over the next 50 years or so, the 85 and older population, that group that has a high level of disability, is projected to increase by 355% .
Joshua M. Wiener, Ph.D.
"No matter how many surveys we have looked at from different services, we find that people think that long-term care is long-term disability and that Medicare pays for long-term care."
David S. Martin
What Is Long-Term Care?
Long-term care (LTC) comprises a broad range of supportive and health services for persons of all ages who have lost the capacity to care for themselves because of physical or mental illness or impairments. While it is not easily defined, and it is often difficult to draw the boundaries between what is LTC and what is acute care, LTC encompasses a whole host of services, the most common of which are nursing home care, assisted living facilities, home care, home health, adult day health care, respite care, and personal care services.
How Is Long-Term Care Measured?
Typically, LTC is measured along two standards, activities of daily living (ADLs) and instrumental activities of daily living (IADLs). ADLs are those activities necessary to carry out basic functions, including bathing, dressing, eating, toileting, and transferring from a bed to a chair. IADLs are those tasks necessary for independent living including shopping, light housework, money management, meal preparation, and medication management. IADLs are sometimes used to measure mental or cognitive disabilities associated with strokes or Alzheimers disease.
Misunderstandings Concerning Long-Term Care
Broad-based misunderstanding exists in the American population about LTC indemnification. Many Americans believe that the current Medicare system substantially covers their LTC needs and/or that LTC is covered by their group or individual health or disability plans. Others believe that if all else fails, Medicaid will be there to protect them. Furthermore, younger Americans are not sensitive to the fact that they may need some form of LTC indemnification that may not be accessed for 30 to 40 years in the future. They are simply unaware that the lack of some form of indemnification can severely impact their retirement security because they may end up spending retirement resources for needed LTC services. Many Americans are unaware of, or choose to ignore the fact that LTC is a serious concern and that LTC services are very costly.
The Long-Term Care Population
When most people think about LTC and people with disabilities, they most often think of the older population. However, people of all ages including children and young adults with disabilities may need LTC. The LTC population includes people with a wide range of conditions such as birth defects, developmental disabilities, mental illness, AIDS, Alzheimers disease, spinal cord injury, stroke, muscular degeneration, broken bones, surgical recovery, or accident victims.
A very significant portion of the disabled population, approximately 45 percent, is under the age of 65. Even within the elderly population, there are different levels of disability. As a result, it is important to distinguish between the various age groups within the elderly population. According to a 1994 national LTC survey those age 65-74 had a relatively low disability rate. Only about 8.4 percent had a problem with an activity of daily living or lived in an institution. This rate increased for those age 75-84 to 21.4 percent and for those over 85 years of age, the disability rate skyrocketed to 52.7 percent. Those having problems with ADLs or IADLs often require LTC services for many, many years. For example, studies show that individuals suffering from Alzheimers disease require, on the average, 6+ years of LTC services.
In 1995 there were about 13.1 million Americans with disabilities, either problems with the ADLs or the IADLs, including cognitive impairment. Of this number, approximately 1.6 million were severely disabled and resided in nursing homes, while an additional 2.2 million, who were also quite disabled, resided in the community in their own homes or with someone else. Of the total 13.1 million Americans with disabilities, approximately 3.8 million had disabilities severe enough that they required some level of custodial care. This number is expected to significantly increase over the next 50 years. Because of continual medical advances resulting in the prolonging of life, the chances of having to deal with a disabled family member are much higher now than at any other time in history. In fact, LTC may become an issue that individuals are going to have to deal with as part of the normal course of life.
Quality of Care
The overall quality of nursing home care is better now than it ever has been. Nevertheless, as a Nation, we have had significant problems with quality of care in nursing homes, with a large portion of nursing home facilities having major deficiencies. Governmental entities have responded to these deficiencies by increasing the number and types of regulations relating to nursing homes, which some contend has actually resulted in reduced quality of care.
From a policy perspective, much of the interest in expanding home and community-based services is founded on the notion that quality of life and quality of care in the home setting would be better than in an institutional setting. However, from a research perspective, it is difficult to monitor the home and community-based services in order to determine the quality of services provided. On the home care side, a lot of what has motivated the expansion of home and community-based services is the notion that LTC patients fare better in their own home where they are in a familiar environment. There is a further belief that LTC patients receive better quality of care in their home through both formal and informal caregiving. However, because of the difficulty in identifying and measuring the quality of home care, particularly by informal caregivers, there is insufficient data on the quality of home care LTC patients receive.
"The [number of] individuals who will need different types of in-home or institutional care assistance, is going to climb dramatically as a result of each and every life extension success from our medical research
Dallas L. Salisbury, President & CEO
In the current LTC system, the federal government is the primary source of financing. In 1998, it was estimated that between Medicare, Medicaid, and other programs, the federal government paid $74 billion, or 64 percent, of LTC expenditures in the United States. LTC spending ranks eighth in national health expenditures, about the same as prescription drugs. Presently, the vast bulk of the money spent on LTC is for institutional care, rather than home care, even though most people prefer to stay at home if at all possible. As medical advances continue to extend life, the cost of LTC services are expected to continue to rise.
Because of the competing demands for tax funds and the extensive resources required to stabilize the Social Security Trust Fund and the Medicare Trust Fund and to expand Medicare to cover prescription drugs, it is uncertain that the federal government alone will provide sufficient resources to support the expanded need for LTC services in the future.
Medicaid is presently the single largest source of funding for LTC services. Medicaid is the federal/state health care program for the low income/low resource population. Medicaid covers only those who have depleted most of their assets and have very low incomes. With the cost of nursing home care exceeding $50,000 a year on average, most people have great difficulty paying for that care over a long period of time. Medicaid provided 44 percent of nursing home spending in 1998 and supported, in part or in full, about two-thirds of all nursing home residents.
To qualify for Medicaid, individuals must meet its categorical income and asset requirements. Many individuals do not become Medicaid qualified until after they have been admitted to skilled nursing facilities and their assets have been depleted in paying for their care. Some individuals impoverish themselves in what is called spend down, where they sell or dispose of their assets to become Medicaid eligible. Despite the fact that Medicaid is the single largest source of public financing for LTC services, the fact is that millions of Americans simply do not qualify for Medicaid because their income and assets are not low enough to meet Medicaids requirements.
Approximately 10% of all LTC costs come through Medicare. While the Medicare program assures the elderly have access to short periods of LTC services associated with acute health conditions, Medicare was never intended to cover nonacute LTC needs.
Medicare covers nursing care, short-term care, and post-hospital care for up to 120 days, with an average length of coverage stay of 30 days. Medicare finances LTC only tangentially through its limited skilled nursing facility and home health benefits, and then only after the patient first meets the requirement of a minimum 3-day hospitalization. For homebound persons needing part-time skilled nursing care or physical or other therapy services, Medicare may pay for home health care, including personal services provided by home health aides.
Disabled persons under age 65 are only eligible to receive Medicare benefits after they have received Social Security disability benefits for at least two years. Once LTC needs become too substantial for informal care, individuals rely on their own assets, if any, to pay for formal care. And after these assets are exhausted, they rely on their Medicaid safety net to meet the cost of LTC. Medicare expenditures for LTC services have decreased about 45 percent since 1997 as a result of the passage of the Balanced Budget Act.
The nature of treating acute illnesses has shifted significantly during the past two decades from an inpatient to an outpatient setting. Unfortunately, the Medicare requirements for a minimum of a three-day stay in an acute care facility have not kept pace with current medical practice. Individuals who would have qualified for Medicare LTC services in the 1960s, 1970s, and 1980s no longer qualify simply because of the shift in surgery practice from an inpatient to an outpatient setting. For example, in 1980 outpatient surgeries represented 16 percent of total surgeries. By the 1990s, nearly 62 percent of all surgeries were done on an outpatient basis. This treatment pattern has reduced LTC expenditures for Medicare but has also limited access to LTC services.
Other Public Funds
Other programs pay only a limited amount of LTC expenses. For example, other public programs, including the Veterans Administration and Social Services Block Grant, account for only 2 percent of the total nursing home and home health expenditures.
Within nursing homes, approximately 25 percent of the residents have care financed directly out of pocket. Private health insurance pays only about 6 percent of the total expenditures for nursing home and home health care. As a practical matter, neither medical nor disability policies provide significant coverage for ongoing LTC needs. The fact that 25 percent of LTC costs are paid directly by patients reflects the problems associated with the present financing structure where LTC is provided only after people are impoverished.
Informal Caregivers (Family & Friends)
Over the last 10 years, the nursing home population ratio has dropped by about 10 percent. Relatively speaking, only a small portion of people with disabilities are in fact in nursing homes receiving formal LTC. The vast majority of people suffering from disabilities receive informal LTC in their homes by unpaid volunteers made up of family members, relatives and friends. Of the unpaid caregivers, 91 percent are family members (41 percent adult children, 24 percent of spouses, and 26 percent other relatives). Only 9 percent of the unpaid caregivers are non-relatives. According to a 1996 AARP survey, 73 percent of informal caregivers are women, and 12 percent of informal caregivers are over the age of 65.
In fact, it is estimated that the value of LTC services provided by family members exceeds the cost of nursing home care by about 170 percent. About 57 percent of disabled individuals in this country are cared for by unpaid caregivers. While 36 percent rely upon a combination of both paid and unpaid caregivers; 7 percent rely solely upon paid caregivers. Family members and close friends continue to be the primary caregivers for LTC services and will likely continue to be an important source of caregiving in the future. It is estimated that there were 25.8 million informal caregivers in the United States in 1997. The economic value of informal caregiving is enormous. In 1997, it was estimated to be $196 billion, or 18 percent of the total national spending for health care.
Women and Long-Term Care
LTC is overwhelmingly a womens issue, since women are the majority of care recipients and caregivers. It is estimated that:
Women have a longer life expectancy than men, outliving males by an average of seven years. Women who reach age 65 can expect to live an average of 19 more years to age 84. Among those who reach age 85 or older, 75 percent are women. With advancing age, disabilities are more prevalent and the need for LTC services increases. For women this is particularly significant since:
Impact On Those Who Provide Informal Long-Term Care Services
The overwhelming majority of persons with disabilities live in their homes or in the home of a child or other family member. There is a heavy health and economic impact on caregivers, the vast majority of whom are women:
Economic costs may include lost wages and benefits, loss of discretionary income and reduced leisure time. In a 1999 study by the National Alliance for Caregiving and the National Center for Women and Aging at Brandeis University, it was found that over their lifetimes, caregivers lost on the average $659,000 in lost wages, Social Security benefits, and pension benefits while providing LTC to a family member. A 1997 study estimated that employees who are caregivers cost U.S. employers between $11 to $29 billion annually in lost productivity, time off, etc. Noneconomic costs may include stress and exhaustion, or the decrease in physical or mental health that may lead to increased health care resources being devoted to the caregiver as well as to the patients and may exacerbate family destabilization and impoverishment. The costs (both economic and noneconomic) associated with informal caregiving are not insignificant.
Financial Barriers To Receiving Long-Term Care
Compared with the rest of the population, persons who need LTC have disproportionately low incomes, are very old, and live alone or with relatives other than a spouse. They also incur substantial costs for acute care services. Only 33 percent of the home-dwelling disabled population ages 1864 with LTC needs qualify for Medicare coverage. About 50 percent have either private health insurance (28 percent) or Medicaid (25 percent). Ten percent of the LTC population between 18-64 have no health insurance whatsoever. Because many of the individuals with LTC needs are on low, fixed incomes and have trouble covering their own health care costs, they have little, if any, ability to pay for their LTC.
LTC services are costly. The average cost for a nursing home is about $56,000 per year. The average cost of a one-hour home care visit for nursing or physical therapy is about $78. Three visits a week for a year would total about $12,000. Home health care aide services cost, on average $55 per visit. Three visits a week would total more than $8,000 per year. Millions of individuals simply cannot afford these types of out-of-pocket expenses for LTC services because of their low income. Studies show that the median income for those over age 65 is $10,483 for unmarried women, $13,733 for unmarried men and $27,944 for married couples. This impacts elderly women more than men, since 58 percent of women over age 65 are not married, as opposed to only 25 percent of men. For many elderly individuals requiring LTC services, the simple fact is that they barely make enough to subsist and to pay for their own health and medical costs, let alone have funds left over to provide for their LTC needs. Thus individual income and financial limitations form significant barriers to receiving the proper LTC services that they require.
If we look at the demographics, the graying of America is about to generate an unprecedented need for long term care services that will impact nearly every family in the nation. Many experts agree, elder care will be to the 21st Century what child care has been to the past few decades.
Joyce Ruddock, Vice President
History of Long-Term Care Indemnification
Just four or five decades ago, there were few if any nursing homes and home health care nurses and services were unheard of. When those in the elderly population became unable to care for themselves, they were cared for by family or friends. Those with the most serious disabilities, either physical or mental, were placed in mental institutions or state-run hospitals, where they stayed until they died. The 1960s and 1970s brought nursing homes as an alternative for care for the elderly disabled population. With these nursing homes came the advent of supplemental insurance to assist in defraying the cost of care. From this, LTC insurance has evolved to meet the changing manner in which the elderly and disabled receive care.
The history of private LTC insurance as we know it today is less than 25 years old. The first private LTC insurance or indemnification policies were written in the mid to late 1980s. As would be expected, the number of LTC policies initially issued was quite low. Despite the fact that nearly 50 percent of the disabled population requiring LTC of some kind is under age 65, LTC insurance is still thought of by most as a post-retirement issue. As public awareness has increased about the potentially devastating costs associated with LTC, the number of policies issued has grown.
From an insurance standpoint, private LTC insurance today is one of the fastest growing insurance products in the nation. The number of policies sold has doubled in the last 5½ years to approximately 6,000,000. Over the 10-year period from 1987 to 1997, the LTC insurance market grew on average 21 percent per year. A recent study by the Life Insurance Marketing Research Association showed that new sales in the employer LTC market jumped 120 percent in 1999. The total number of employers offering LTC plans increased by 36 percent in 1999 to 3,066 and the total number of participants under employer plans grew by 24 percent to 800,000. Despite these increases, the current levels of private LTC insurance in the United States are extremely low. In 1998, it is estimated that only 2 percent of the total population had any kind of LTC insurance. This could result in a serious funding shortfall for needed LTC services during the next several years.
Participant rates in employer plans average around 10%, but are influenced by employer support contributions, and promotion. For example if payroll deduction is available, participation is higher. If the employer pays a portion of the premium, the participation rate also rises. The higher the age, education or income level of the employee, the greater the rate of participation in LTC insurance.
Types of Long-Term Care Insurance Policies & Benefit Levels
There are several types of LTC policies that individuals can purchase. One type of policy covers nursing home expenses only. Other types of policies only cover certain types of home nursing, therapy or associated expenses. The most popular type of LTC policy being sold today is what is referred to as a comprehensive policy, covering qualified expenses associated with home health care, as well as those associated with institutional or nursing home care.
Most LTC insurance policies have a maximum benefit amount that will be paid out over the life of the policy. LTC insurance can be purchased to pay benefits anywhere from $50 to $300 per day for qualified services or expenses. However, the most popular types of LTC plans provide benefits of $100 to $150 per day for qualified services or expenses for up to 4 or 5 years. To calculate the maximum lifetime benefit available under an LTC insurance policy, you simply multiply the daily benefit times 365 days for one year and then multiply that number by either 4 or 5 years.
Because LTC insurance is not anticipated to be used for several years after its purchase, there is some concern that inflation will erode the value of the benefits purchased. To protect against inflation, most LTC policies offer an inflation protection provision which offers some guarantee toward the value of the benefits purchased. Presently inflation protection provides for an average of 5% compounded increase in the value of the daily benefits purchased. This inflation protection does not come cheap. In most instances it doubles the amount of the premium of LTC insurance.
Cost of Premiums
There are many variables affecting the cost of LTC insurance premiums including the amount of daily coverage purchased, the number of years of coverage, the length of the qualification or elimination period which can be anywhere from 20-90 days, the compounded rate of inflation protection, and whether there is some type of nonforfeiture benefit in the event an individual dies before using his/her LTC insurance.
Average annual LTC insurance premiums for leading LTC insurance sellers in 1997* were as follows:
*Premiums are generally for a $100/day nursing home care, at least $80/day assisted living facility care and at least $50/day home care, four years of coverage, and a 20-day elimination period.
Source: HIAA LTC Survey, 1999.
However, the premiums are reduced somewhat (between 5 percent-15 percent) if the LTC insurance is purchased on a group basis through an employer as opposed to an individual policy only.
Who purchases Long-Term Care Insurance and What Do They Purchase?
On average, active employees who purchase LTC insurance through their work place, do so at age 43. Among retirees and individual LTC buyers, the average age of purchase is 64. Married couples comprise about 60 percent of all buyers. The male/female split is about 40 percent male and 60 percent female. The average annual income of the buyers before retirement is around $40,000. The median income of elderly post-retirement households is $21,729.
Of the plans being sold today, most people purchase between $100 and $150 a day worth of coverage. Seventy-five percent of those buying LTC insurance purchase comprehensive plans that would include coverage for both facility care and home health care. Furthermore, more than 50 percent of the people purchasing policies from a major LTC insurer are also purchasing inflation protection.
Some LTC policies have a nonforfeiture provision that will pay reduced benefits, even if the policy were to lapse. One large insurer reported that 65% of their group LTC certificate holders have a nonforfeiture benefit.
Most major companies offering LTC policies have a built-in portability provision, which allows an employee who purchased a group LTC policy to be able to keep the policy in place even after termination of employment. Often, the only difference to the employee is that he/she is now making a premium payment directly to the insurance company, instead of having the premium automatically deducted by their employer from their paycheck.
Presently, companies offering LTC insurance engage in some type of underwriting. The purpose of underwriting is to promote a stable premium by excluding individuals or increasing premiums for those most likely to need LTC services. Companies use demographics, including age, health and income to price their products. In some instances, underwriting for employer groups prevents an LTC product from being offered, resulting in workers having to purchase individual policies which are more expensive.
Factors Influencing Long-Term Care Coverage
There are tremendous barriers to the concept of indemnification for LTC. Knowledge is one of them. Individuals wrongly believe that Medicare will pay for long-term care and nursing home expense. The one thing that the government might do most quickly to help change the dynamics regarding LTC would be to begin telling the American public repeatedly that the United States Government does not and will not provide LTC or nursing home expenses, except for those few who become Medicaid eligible or otherwise qualify for Medicare coverage, which at best is very limited. LTC insurance can be deemed inheritance or asset protection. At the present time, most LTC insurance policies are being purchased by individuals to buy protection for their parents, as opposed to protection for themselves, in order to help protect their parents' assets. This is particularly true with higher income individuals.
For all practical purposes, many of the nations retirees have a single cash income source, Social Security. The median total financial resources for this group are just $10,125 annually. Thus this group has no financial resources to purchase LTC insurance. At best, only 5 7 percent of the retired population have the resources to purchase private LTC insurance.
Why People Purchase Long-Term Care Insurance
The primary reasons people purchase LTC insurance are:
Why People Do Not Purchase Long-Term Care Insurance
Factors influencing people not buying LTC insurance include:
I think rate increases for policies covering long-term care insurance are something that should be the very, very last resource.
Tom Foley, Director, Accident and Health Division
One of the important consumer concerns associated with LTC care is proper disclosure of not only what services and expenses are covered, but what triggers the benefits, whether the premium is level, and whether any portion of the premium is nonforfeitable. Nonforfeiture basically means that if a consumer never uses all of his/her LTC insurance benefits, a portion of the premium paid for LTC insurance is returned. Other issues of disclosure should include the companys history of claims, history of premiums, and any premium increases that have been made. Because of the relative newness of this market and associated products, it is somewhat difficult to predict whether premiums are or will be adequate.
Companies offering LTC insurance are focusing their marketing efforts on younger workers and individuals. By so doing, the companies are ensuring their long-term viability, presuming that the younger a buyer is, the longer it will be before he/she will make a claim for LTC insurance. On average, individuals purchase LTC insurance 12 years before they use it. Nevertheless, the premiums for LTC insurance are still fairly high, even for younger purchasers. While LTC companies report their lapse rate on policies purchased to be around 5 percent, regulators believe the rate is or could be much higher, thus impacting not only the stability of the rates but also the long-term solvency of the companies selling these products. Regulators actively support proactive measures, including consumer education to assist in reducing lapse rates for LTC insurance policies.
Premium Rate Stabilization
The large successful companies offering LTC insurance have had a good history of rate stabilization. One of the key components to rate stabilization is claim costs. Claim costs are determined by the average amount of the claim. This can be fairly easily calculated and estimated. However, what is more difficult is determining the frequency of the claims. There has not been a tremendously long history associated with LTC insurance, and therefore, the frequency with which claims are submitted is more difficult to ascertain. For life insurance, the claim curve is relatively flat until people get into their 70s. By the time people reach their 80s, this claim curve increases dramatically. However, with LTC insurance, the claim curve is not necessarily associated with age and it could increase at any time.
One of the key components to rate stabilization and affordable premiums is to ensure that only catastrophic coverage is purchased. Adding a lot of the bells and whistles to LTC policies to cover many of the IADLs could result in hard to predict premiums. Relying upon family members to provide assistance with IADLs and having consumers purchase catastrophic LTC coverage only would assist in keeping the premium affordable and stable for consumers and would also assist LTC companies in remaining solvent and viable. However, such coverage requires individuals to financially prepare for the noncatastrophic expenses excluded under such policies. While the insurance industry has faced some criticism because of rate increases from a few companies, the majority of insurance companies have not raised rates on LTC policies. Stability in group and individual premiums is essential to encourage purchase of private LTC insurance.
Model Rules On Long-Term Care Insurance
The National Association of Insurance Commissioners recently adopted amendments to their model regulations to address consumer concerns about premium stability in the LTC insurance market. The model rules:
This proactive approach by NAIC, in conjunction with state regulators, should assist in promoting adequate consumer protection issues in the LTC insurance market.
Loss Ratio/Solvency Of Companies Selling Long-Term Care Insurance
Some concern exists that companies marketing LTC insurance will not be able to remain solvent, due to a potentially high volume of claims. To remain solvent, viable, and competitive, companies are required to set adequate premiums. Companies selling LTC insurance report spending an average of 60 percent of the collected premiums for individual policies and 70 percent of the collected premiums for group policies. In other words, the companies are retaining 30-40 percent of the premiums on the policies that have been sold for reserves, expenses, and profit. In time, it is expected that these retentions will become smaller as the market matures. It is also expected that group policies will have lower retentions than individual policies. It is important that these retentions be reduced in order for policy makers to justify further tax incentives for LTC products.
Consumers may have some concern that the company from which they purchase an LTC insurance product will be solvent when they require LTC services in 25-50 years. The large insurance companies offering LTC have priced their LTC products through actuarial analysis in such a manner that the premiums have been stable and the rate history is within acceptable margins. Furthermore, state regulators are heavily involved in the LTC market to help ensure the long-term viability of LTC plans and the solvency of the companies offering LTC insurance.
Qualified long-term care is treated generally like medical care under current law.
Bill Bortz, Attorney Advisor
Individual Premiums and Expenses
For tax treatment, qualified LTC expenses that exceed 7.5 percent of a taxpayers adjusted gross income, including premiums for qualified LTC insurance policies, are deductible for income tax purposes. The deduction for the premiums is subject to an age-graded annual dollar cap that is adjusted periodically for inflation. The dollar cap constrains the tax subsidies so that they are limited to modestly priced policies. The dollar cap also has the effect of serving to keep policy costs down.
Effects of HIPAA
The Health Insurance Portability and Accountability Act of 1996 (HIPAA) clarified that for federal income tax purposes, LTC insurance is to be treated essentially the same as major medical insurance. More specifically, HIPAA provided that:
HIPAA clearly raised awareness of the value of private LTC insurance. While HIPAA seemed to have a positive impact on employers attitudes about LTC insurance, it had no significant impact on coverage growth rates or the reduction of future government financing of LTC services.
Tax Deductions vs. Tax Credits
Current tax law provides for an itemized deduction for qualified LTC premiums and expenses. This means that no tax benefit is realized until qualified medical expenses, including LTC premiums, exceed 7.5 percent of adjusted gross income. Historically, when a tax benefit is offered in the form of a deduction, it primarily benefits individuals who are in higher tax brackets. This is because of the very nature of Americas progressive tax system. In situations where Congress is concerned about a specific tax deduction, it has phased out the deduction for higher income-bracketed individuals, as is currently done for personal exemptions and itemized deductions. Of course, the purpose of tax subsidies is to advance the purchase of goods/services that serve a social objective to make them less expensive than other consumption goods that individuals might otherwise purchase. Deductions become more valuable as an individuals income bracket raises. The present below-the-line deduction requires taxpayers to file itemized medical/dental schedules. Since less than 5 percent of taxpayers itemize their medical/dental claims, this deduction is available to very few individuals. By comparison, tax credits are of similar value to all taxpayers, as long as they pay taxes in an amount that is equal to or greater than the amount of the credit. Proponents of tax credits believe that they are a more fair way of providing incentives to taxpayers.
Through the use of tax incentives, Congress has advanced certain important social policy initiatives. Examples include expenses for medical coverage and payments for tax qualified retirement payments. The tax incentives approved by Congress have resulted in more Americans being able to afford and thereby purchase health insurance and the current voluntary retirement system was largely developed because of tax policy. Some believe that by comparison, the same social objectives exist for Congress to make LTC insurance more affordable by providing an incentive for the purchase of LTC insurance.
Under current tax law, individuals must be chronically ill to receive benefits under a qualified LTC insurance contract and to have deductible qualified LTC expenses. Proponents of the above-the-line tax deduction would similarly limit the deduction currently proposed to premiums paid under a qualified LTC insurance contract or to qualified LTC expenses incurred on behalf of a chronically ill individual. Qualified LTC expenses are limited to certain types of expenses (i.e., necessary diagnostic, preventive, and therapeutic expenses) that are incurred on behalf of a chronically ill individual and included in a plan of care prescribed by a licensed care practitioner. Generally, living expenses do not qualify under this definition. Furthermore, proponents of an expanded tax deduction believe that LTC insurance does not have the inherent problems associated with health insurance such as adverse selection or exclusion, thus justifying enhanced tax subsidies.
Opponents of an enhanced tax deduction for LTC insurance have concerns about the relative newness and immaturity of the LTC market, the difficulty of predicting the LTC market, the possibility for rate increases, and the potential for policy lapses. The recent passage of the Long-Term Care Security Act (P.L. 106-265 ) allowing federal workers, retirees, and their families to purchase qualified LTC plans at discounted rates would seem to suggest that the government has confidence in the LTC market. Furthermore, recent information from the American Council of Life Insurers, Long-Term Care Insurance, The Life Insurance Fact Book, 1999, indicates that the termination or lapse rates for in-force and new LTC policies has reduced. In 1997, the LTC policy lapse rate was 5.4 percent, based upon actual experience. In recent years, the average termination rate for long-term care insurance has declined. In the individual market, 2 percent of policyholders voluntarily lapsed or replaced their policies in 1997 vs. 6 percent in 1992. Group terminations fell from 8.5 percent in 1995 to 7 percent in 1997. Some argue that allowing for an above-the-line deduction and for inclusion in Section 125 plans could have the result of reducing the lapse rate by making qualified LTC insurance more affordable to many individuals. Others stated they believe allowing LTC premiums to have an above-the-line deduction and be included in Section 125 plans is inherently regressive.
Cafeteria Plans And Flexible Spending Accounts
Some believe that HIPAA should be modified to allow for LTC insurance premiums to be made available to employees through cafeteria plans and flexible spending accounts, like health insurance. Cafeteria plans and flexible spending accounts are different than deductions in two ways. First, they do not benefit the population base as a whole, but rather only those individuals working for companies with qualified plans. Second, the benefit realized through a cafeteria plan or flexible spending account is slightly greater than a typical tax deduction, because there are no FICA or Medicare withholdings on monies placed in cafeteria plans or flexible spending accounts. Other advantages to Section 125 plans include:
Regardless of the way in which LTC costs or insurance premiums may be presently treated, changes are sure to be considered as the American population ages and LTC becomes a more important issue.
This will by far be the largest employer sponsored long-term care offering that this nation, or I imagine, the world has ever seen. (Referring to The Long-Term Care Security Act, H.R. 4040)
The whole purpose of a tax deduction is to provide, to try and induce people to undertake what public policy makers or politicians believe is socially desirable behavior.
Marc Cohen, Ph.D.
Politicians are focused on health and senior issues as never before. While the greatest attention has been paid to healthcare reform, Social Security, Medicare, and prescription drug benefits for seniors, some attention has also been focused on LTC caregivers. The reason for the focus on caregivers now is simple demographics. There are tremendous numbers of caregivers in America. Eighty-eight percent of all people who receive LTC are receiving services in the community. Sixty percent of seniors receiving help in the community rely exclusively on unpaid relatives. Seniors themselves make up more than 50 percent of all the current estimated 37 million caregivers in America today, with half of these senior caregivers describing their own health as fair to poor. To address the present and future needs of society, several proposals and recommendations have been made and one has been recently signed into law.
Long-Term Care Insurance For Federal Workers and Retirees
On September 19, 2000, President Clinton signed into law The Long-Term Care Security Act (P.L. 106-265). Under this Act, the Office of Personnel Management is authorized to negotiate discounted rates with private insurers for qualified LTC insurance plans, and to otherwise provide LTC insurance for federal workers, retirees, and their families. In referring to this new law, President Clinton said, Our hope is that, by making high-quality private long-term care coverage available to the Federal family at negotiated group rates, we will continue to serve as a model to other employers across the Nation. This new law will allow up to 13 million people to purchase LTC insurance at discounted rates, although it is estimated that only 300,000 will initially participate in the program. While the employees will be required to pay 100 percent of the premiums for the LTC insurance under this law, premiums will be deducted from their payroll. While far short of clear national policy on LTC, this new law is a positive first step.
Current Presidential Proposals
In conjunction with the signing of The Long-Term Care Security Act, President Clinton also urged Congress to pass a $3,000 tax credit for formal and informal LTC for people of all ages with three or more ADLs or a comparable cognitive impairment. This proposal is expected to help about 2 million people, including 1.2 million seniors. The administration estimates the costs for this proposal to be about $8.8 billion over 5 years. The President has also called for reauthorization of the Older Americans Act and funding for a caregivers program under the law. That proposal would cost $1.25 billion over 10 years and would support a nationwide program of support for families who care for elderly relatives with chronic illness. It is estimated that 150,000 families would receive help under this proposal. In addition to President Clintons proposals, Vice President Gore has proposed a caregiver tax credit, and Governor Bush has proposed an above-the-line deduction for LTC premiums.
Current Congressional Proposals
There are several pieces of proposed legislation in Congress that deal with the LTC issues. One of these is the National Family Caregiver Support Grant Program. Basically, this proposal would establish a state grant program to provide caregivers, particularly seniors, with information about services, assistance in gaining access to those services, individual counseling, support groups, training for special care needs, respite care, and then supplemental services to augment what caregivers are providing themselves. To qualify, individuals would need to be caring for a senior who required assistance with at least 2 activities of daily living (ADLs) and who also have some type of cognitive impairment. Priority for the program would go to low income and minority seniors. The estimated cost is $1.25 billion over 10 years.
Another proposal is to help caregivers by providing a $3,000 tax credit to cover LTC expenses. To qualify, a physician must certify that the individual needs help with at least three ADLs. Under the proposal, this credit would be phased in over four years and would be reduced for higher income individuals. The estimated cost is $35 billion over 10 years.
Another proposal before Congress calls for an above-the-line tax deduction for LTC expenses. An above-the-line 100 percent tax deduction for LTC insurance premiums would effectively reduce the net premium costs for policies. Since price is a major consideration in the purchase of LTC insurance, some believe that an above-the-line tax deduction which effectively reduces the cost of LTC insurance premiums should encourage growth in the market. Others believe an above-the-line deduction is regressive. In the first year in 2001, individuals would be able to deduct 60 percent of their premiums, with a 10 percent increase per year until it reaches 100 percent. An accelerated schedule would apply to those over age 55, who would be able to deduct 60 percent of the cost of their premiums the first year, with a 15 percent increase per year until they reach 100 percent. This deduction would be capped at base age deduction levels that are currently in the Tax Code which is $2,000 for individuals ages 61-70 and $2,500 for those over 70. This legislation would also allow employers to include the deduction provision for LTC policies in cafeteria plans and flexible spending accounts.
The most comprehensive proposed legislation by, among others, Senator Bob Graham of Florida (H.B. 3872 & S. 2225), includes all of the previous proposals, plus a few other things, including consumer protection issues and a public awareness campaign to educate people about what Medicare will and will not cover, patterned after HCFAs present public awareness campaign.
Each of these bills has become stalled in Congress and it is unknown which, if any, of them will be passed in the remaining session. Based upon present public awareness, the bills that have been introduced this Congressional Session, and the enthusiasm expressed by the presidential candidates for some type of LTC tax incentive, the future prospects look promising for some type of LTC legislation providing a tax credit or a tax deduction.
Impact of LTC Insurance on Public Funds
Some believe that increased growth in the LTC insurance market would reduce Medicaid and Medicare expenditures since those with LTC insurance would be less likely to access or rely upon Medicare or Medicaid. Some estimate that every 100 individuals with LTC insurance saves Medicare $20,647 annually. If there was widespread employer-sponsored and either subsidized or paid LTC insurance for employees, the number of people dependent on Medicaid could drop by 16 percent and Medicaid expenditures could decline by 18 percent by 2018.
Some researchers estimate that an above-the-line tax deduction would result in an increase in the purchase of LTC insurance policies between 16 percent and 26 percent, resulting in Medicaid savings of $.80 to $.90 for every $1.00 in tax expenditures. Other researchers suggest that such a tax deduction would have no impact on the senior and retired population since many of them pay little, if any taxes. These researchers further suggest that the cost of such a tax deduction would be very significant, and that there would not be any corresponding reduction in Medicaid long-term care expenditures.
Other Social Policy Considerations
In addition to potential Medicaid savings and increased enrollment in LTC insurance, other social policy reasons exist for an above-the-line tax deduction. In addition to the peace of mind of knowing that there will be sufficient resources to pay for LTC, if needed, private LTC coverage can bring significant improvements in quality of life. Studies of policyholders, claimants, and informal caregivers suggest that the presence of LTC insurance can:
A prerequisite to widespread employee ownership of LTC insurance is widespread employer sponsorship of LTC Plans.
Employer-Sponsored Long-Term Care Insurance: Best Practices for Increasing Sponsorship
"What affects participation? Certainly the endorsement of the employer is very important."
David S. Martin
What I would like to put before you is the time has come to incorporate long-term care planning as a crucial component of an overall sound retirement plan.
Barbara Stucki, Consultant
Employment-based LTC insurance may offer the best mechanism for broad expansion of LTC indemnification at affordable rates. However, the data suggests that employer-based availability of LTC plans is relatively rare, especially among smaller employers. In addition, employer-based availability will not materially change without significant investments in employer education and new incentives.
Percentage of Companies Offering Long-Term Care Insurance
Relatively few U.S. employers currently sponsor group LTC plans for their employees. The United States Bureau of Labor Statistics estimates that 7 percent or less of all full-time employees in America were offered LTC plans by their employers. While the total number of employers offering LTC plans increased in 1999 to 3,099 employers, only 0.2 percent of employers with 10 or more employees sponsor LTC coverage. Large employer sponsorship of LTC coverage increases to 0.7 percent, but this figure is still very low. Because the market is so large and virtually untapped, smaller employers provide the greatest potential for expansion of LTC indemnification.
Different Types of Employer Participation
Most employers offering LTC plans to their employees do not contribute to the cost of the plans themselves. Rather, they negotiate a group premium rate and then make the plans available to the employees who must pay the entire cost of the premium. A limited number of companies pay the premium for a base level of coverage, allowing employees to purchase such additional coverage, as they desire. An even smaller number of companies pay a larger percentage of the premium for LTC policies for their employees, usually made up of key executives. Overall, less than 28 percent of employers who offer LTC insurance coverage to their employees contribute toward premiums.
Factors Affecting Employee Participation
Employers who positively and actively promote LTC insurance, and those who tailor plan design, education, marketing, and enrollment to the needs of their employee population experience a significantly higher enrollment rate than those who do not. Employers who agree to allow employees pay the LTC premium through payroll deductions also experience a higher enrollment rate. Proponents of LTC insurance suggest that LTC insurance enrollment rates for employees will remain low until employers start to contribute to coverage rather than offering it as a noncontributory benefit. While LTC insurance should be closely tied to employee retirement planning, studies strongly suggest that the increase in employee enrollment is closely related to employer involvement. Obviously the more active role an employer plays, the more likely it is that the employees will enroll in LTC insurance. As such, the benefits of employer participation cannot be overemphasized.
LTC as an Important Retirement Planning Component
LTC planning and insurance are integral components of an overall retirement plan, without which traditional retirement plans are incomplete. Over the last several years, we have seen very significant changes in our nation's retirement system. The time is passing when retirees can depend on their employers to provide defined benefit plans as the foundation for their retirement income. Instead, a lot more individuals these days are participating in defined contribution plans, which of course, means that they are having to take on a lot more of the risk of ensuring that their savings are adequate for retirement as well as protecting their savings against potential loss. The time has come when retirement planning includes not just accumulation, but also protection of their retirement savings.
The greatest risk to excess loss in retirement savings today is unanticipated LTC costs. Many people are unaware of the high cost of care, either in an institution or in their home, until such services are required for themselves or their family members. The cost of a part-time home health aide that today is between $12,000 to $16,000 annually, could increase to as much as $68,000 annually within thirty years. By comparison, nursing home costs could be as much as $190,000 annually in thirty years. These are very substantial costs that clearly represent a significant threat to an individual's retirement nest egg. Obviously, most workers are simply unable to save the amount required to cover their LTC expenses, in addition to the amounts they are already saving for retirement.
Although LTC costs pose a significant threat to the loss of retirement savings and the resulting diminishment of quality of life during retirement, LTC insurance could mitigate, if not eliminate this threatened loss. The cost of LTC insurance is significantly less than the amount of money an individual would have to save, in addition to any retirement savings, to cover the cost of post-retirement LTC services. Individuals can take more responsibility for their LTC needs by incorporating LTC insurance into a retirement plan. By so doing, workers can be assured that their retirement savings will be protected and will not be diverted from normal expenditures to pay for LTC services, should that need ever arise.
Long-Term Care is one of the most regulated industries in America next to nuclear energy and nuclear waste.
M. Keith Weikel
The Working Group on LTC was not able to comprehensively address the issues raised by the LTC provider industry. However, the Working Group believes there were issues raised that merit further analysis. The LTC provider industry identified several conditions which negatively impact the viability of the LTC provider industry and the quality of LTC services offered in America, thus raising questions about the future of LTC services, particularly in light of the huge anticipated increase of projected need. These issues are discussed below:
Market Capitalization And The Balanced Budget Act Of 1997
The market capitalization of the LTC provider industry has declined 80 percent since 1997, from $14 billion to $2 billion. The Balanced Budget Act of 1997 resulted in reductions in Medicare spending for skilled nursing facilities that will exceed estimates of the Congressional Budget Office by $15.8 billion by 2004. This unexpected and significant shortfall in Medicare reimbursement and the reduction in market capitalization has played a significant role in the bankruptcy filings of five of the largest national nursing home companies. Nearly 1,900 skilled nursing facilities that care for more than 225,000 patients are in some state of bankruptcy. This represents 11 percent of the total beds in the United States.
Reduced Medicaid Reimbursement
Present Medicaid reimbursement rates are low ($4 per patient hour for all services related to patient care). This rate must cover all services related to patient care including room, board, certain therapies, food, facility overhead, nursing care, linen, and caregiver salaries. This low reimbursement rate raises significant concern as to the quality of care and the financial viability of the LTC industry.
Over the years, the federal, state and local governments have implemented various regulatory and inspection requirements for nursing homes and other LTC provider facilities. Not surprisingly, LTC provider facilities now undergo numerous time-consuming and often duplicative inspections and surveys by these various governmental entities. Witnesses before the Working Group expressed concern that the lack of effective coordination between the governmental entities in the regulatory and inspection process has resulted in inefficiency and confusion. Witnesses also stated that even the number of deficiencies reported by inspection and survey teams varies significantly from state to state and even from team to team.
The regulatory and inspection process has increased in response to claims of poor patient quality care, resulting in what some believe to be over-regulation of this industry. The regulatory and inspection process has become so adversarial that it is counter-productive and demoralizing to the actual caregivers. Many of these regulatory processes, inspections and surveys appear to be outdated and do not improve the quality of care offered. Rather they increase costs and reduce the quality of care that is able to be provided. The caregivers and provider facilities have claimed to have dedicated so much time and resources to responding to the various regulations, inspections, and surveys that they cannot provide the quality of care they desire to give to those actually in need. These excessive regulations have affected the LTC provider facilities financially. Many are unable to pay their skilled nursing and assistant staff competitive wages. As a result, caregivers are becoming more and more discouraged with the regulations and leaving the field altogether, seeking higher paying employment in traditional medical facilities.
Shortages of Skilled Long-Term Care Providers
This Nation is presently suffering from a shortage of nurses and nursing assistants, which is only expected to get worse. A 1992 study by the Bureau of Health Profession within the Health Resources and Services Administration estimated that the need for registered nurses in the labor force to care for persons age 65 and older will increase from 110,000 in 1991 to 184,000 in 2020. The number of Licensed Practical Nurses needed would grow from 197,000 in 1991 to 338,000 in 2020, and the need for nurses aids will increase by 69 percent to 1.12 million.
Nevertheless, enrollment in college nursing programs has steadily declined over the past five years by more than 20 percent and the number of registered nurses in the workforce is expected to peak in 2007 and decline thereafter. In addition to a nursing shortage, there is also a shortage of gerontologists, geriatricians and nursing assistants. This shortage is exacerbated by LTC provider facilities' inability to pay competitive wages. It is estimated that certified nursing assistants are paid 16 percent less in nursing homes than in hospitals. Furthermore, the stringent and pervasive regulatory process in LTC facilities makes the work environment unattractive.
In addition to the expert witnesses, the Working Group, the Report, Findings and Recommendations also rely upon the following:
Adams, Stephanie, Heather Nawrocki and Barbara Coleman, Women and Long-Term Care, AARP Public Policy Institute (American Association of Retired Persons, 1999).
Arno, Peter S., Carol Levine and Margaret M. Memmott, The Economic Value of Informal Caregiving, Health Affairs Vol. 18, No. 2 (March/April 1999)
Cohen, Mark A., Ph.D. and Maurice Weinrobe, Ph.D., Tax Deductibility of Long-Term Care Insurance Premiums: Implications for Market Growth and Public LTC Expenditures, Health Insurance Association of America (March 2000)
Coronel, Susan A., Research Findings: Long-Term Care Insurance In 1997-1998, Health Insurance Association of America (March 2000)
Feder, Judith, Harriet L. Komisar, and Marlene Niefeld, Long-Term Care in the United States: An Overview, Health Affairs, Vol. 19. No. 3 (May/June 2000)
GAO, Long-Term Care Insurance: Better Information Critical to Prospective Purchasers (GAO/T-HEHS-00-196, Sept. 13, 2000)
GAO, Long-Term Care: Current Issues and Future Directions (GAO/HEHS-95-109, April 13, 1995)
Graves, Natalie R. Long-Term Care Fact Sheet, AARP Public Policy Institute, (American Association of Retired Persons, 1997)
Long-Term Care: The Presidents FY2001 Budget Proposals and Related Legislation (CRS Report for Congress, March 28, 2000)
Long-Term Care Insurance Model Regulation
National Association of Insurance Commissioners, A Shoppers Guide to Long-Term Care Insurance (1996)
National Association of Insurance Commissioners, Long-Term Care Insurance Model Regulation (2000)
Pincus, Jeremy, Employer-Sponsored Long-Term Care Insurance: Best Practices for Increasing Sponsorship, EBRI Issue Brief no. 220 (Employee Benefit Research Institute, April 2000).
Pincus, Jeremy, Voluntary Long-Term Care Insurance: Best Practices for Increasing Employee Participation, EBRI Issue Brief no. 221 (Employee Benefit Research Institute, May 2000).
Working Group on Long-Term Care: Issues and Options
An impending long-term care (LTC) crisis exists in the United States that requires serious public policy attention. The crisis is multi-faceted and relates to virtually every aspect of the LTC system. Clearly, the need exists for a broad-based, well-coordinated policy initiative that addresses all of the components of a difficult problem. Serious shortfalls in financing resources will occur that will severely restrict access to needed LTC. This could undermine the viability of the current system for providing LTC services.
Serious problems also exist in the LTC provider industry. Market capitalization of the LTC provider industry has experienced significant declines and there is projected to be a serious shortfall of properly credentialed gerontologists, geriatricians, nurses, nurse assistants, and other caregivers that will be needed to provide quality LTC services in the future.
The issues associated with LTC will only become aggravated in the future as the population continues to age and the demand for LTC services increases. Another major problem is that there are significant misunderstandings in the general population that need to be corrected about the availability of LTC support services in Medicare, Medicaid, and private health insurance policies. Finally, it is clear that the long-term care problem has a disproportionate impact on women, both in terms of their role as caregivers and as recipients.
The Working Group on LTC: Issues and Options has received testimony from expert witnesses, research groups, insurance regulators, the LTC insurance industry, LTC providers, professional associations, and the federal government. Based on this testimony, information submitted by witnesses, and relevant research, the Working Group makes the following specific findings:
General Findings: The Significance of the Long Term Care Problem
Long-term Care is a Significant Issue For Women
The Federal Government's Role in Financing Long-term Care is Significant But Will be Inadequate. Additional Tax Incentives for the Private Sector and Individuals May be Necessary
Long-term Care Insurance Can be Affordable But Coverage Levels are Low
Employment-based Long-term Care Insurance is Rare, But May Provide the Best Opportunity for Expansion of Coverage
A Significant Misunderstanding Exists About Who is Covered by Long Term Care Insurance and the Need for Long Term Care Indemnification
Stability of the Long-Term Care Insurance Market
Family Members Are A Significant Source of Long-term Care Giving, Sometimes at Significant Cost
Concerns of the Long-Term Care Provider Industry
Shortages of Skilled Providers to Support the Long-term Care Industry
Working Group on Long-Term Care: Issues and Options
The findings of the Working Group document several issues associated with long- term care (LTC) that should be of significant concern and must be proactively and aggressively addressed to avoid a major crisis. Consistent with these findings, the Working Group makes the following recommendations to the Secretary of Labor. These recommendations have a relationship to policy makers in the Executive and Legislative Branches of the Federal Government, to policy makers and other officials in state governments, and to affected parties in the private sector. As the Secretary determines appropriate, he/she may choose to relay these recommendations to affected parties outside of the Department of Labor.
Policy Development and Implementation
Tax Incentives and Expenditures to Expand Long Term Care Insurance and to Compensate Voluntary Caregivers
Educating America About Long-Term Care
Employer-Sponsored Long-Term Care Insurance
Premium Stability and Solvency of Long Term Care Insurance Providers and Other Regulatory Initiatives
Stability of the Long-Term Care Provider Industry
Improving Access to Long Term Care Services Through Medicare
The Working Group recognizes there are conflicting policy objectives with respect to determining Medicare coverage. There is always a desire to expand the services that are covered competing against the need to manage the budget. Within this context the Working Group suggests that The Department of Health and Human Services consider modernization of Medicare rules and regulations to eliminate the requirement for a three-day hospital stay before accessing needed skilled nursing facility services. This change might be structured so the shift from inpatient to outpatient surgery does not result in an arbitrary and unintended access limitation to skilled nursing care. In developing the amendment to rules and regulations, a general standard might be applied so that medical eligibility for skilled nursing care would be consistent with what it was at the inception of the Medicare program.
Long Term Care Working Group Index - 2000
May 8, 2000: Long-Term Care: Issues and Solutions
Chair: Michael J. Stapley
June 1, 2000: Long-Term Care: Issues and Solutions
July 17, 2000: Long-Term Care: Issues and Solutions
August 14, 2000: Long-Term Care: Issues and Solutions
September 11, 2000: Long-Term Care: Issues and Solutions
October 12, 2000: Long-Term Care: Issues and Solutions
U.S. Department of Labor ERISA Advisory Council
Working Group Meeting
Dallas L. Salisbury, President and CEO, Employee Benefits Research Institute
Mr. Salisbury made the following significant points in this testimony:
Joshua M. Wiener, Ph.D., Principal Research Associate, Urban Institute
Mr. Wiener provided an extensive factual background on the issue of long-term care. He also provided significant insights to the problem of long-term care and the difficulties involved in reaching any comprehensive solution.
Mr. Wiener made the following points:
Working Group Meeting
Thomas Foley, Director of Accident and Health Division, Department of Insurance, State of Kansas
"I am not sure that we are going to have enough skilled people to provide all the care that we are going to need."
"I feel very strongly and this is the social issue, that what we are going to have to do in this country is provide custodial care on a voluntary basis. It takes the pressure off of the insurance mechanism."
Mr. Foley is a regulatory actuary and is primarily concerned with the adequacy and soundness of long term care insurance policies. He gave a brief description of long term care policies, which included:
One of Mr. Foley's major concerns is premium increases. He noted that several major insurance companies who have been in the long term care business a long time have never requested a rate increase. However, some aggressive companies have had cumulative rate increases of several hundred percent. This obviously is unfair to policy holders who may not be able to afford such increases. Based on what he sees (expansion of services), he is concerned that there will be too many rate increases in the future.
Mr. Foley argued that long term care insurance should be focused on catastrophic care, rather than custodial or "convenience" care. He defined catastrophic care as skilled care in bonafide facilities with benefit triggers that are rigorous (tight benefit structure). He felt that otherwise, costs would be prohibitive and that there might not be enough skilled people to provide all of the care which will be needed. He felt that much of the custodial or "convenience" care needs to be done on a voluntary basis (by the family or community). When questioned on the implication that this forced people unnecessarily into nursing homes, he clarified that we need to find innovative ways to design policies so that people who really need care, can get it in appropriate places.
Mr. Foley commented that long term care insurance is not going to solve the great social need because a relatively small portion of the population can afford it. He felt that Americans need to be provided with accurate information about long term care and with all of the choices available, so people would be aware of the need and plan accordingly.
Joshua M. Wiener, Ph.D., Principal Research Associate, Urban Institute
Mr. Wiener made the following significant points in his testimony:
We have studied the issue of affordability of LTC insurance and its impact on potential expenditures for Medicaid. The basic assumptions are that disability and utilization rates of our projections into the future for nursing home care and home care are going to stay constant. In our microsimulation model, we assume that LTC inflation is one and one-half percent greater than general inflation and mortality rates generally follow those in the midline Social Security Administration assumptions. The study and simulations were based on very generous assumptions about the willingness of people to dig into their pockets to pay for long-term care insurance and are the upper bound estimates of the best of all practical worlds.
Our study consisted of five different options or scenarios.
The results of the study simulations are as follows for 2018:
The results of the study simulations are quite clear. If you look at the first three options which are basically geared towards the elderly population, there is very little projected Medicaid savings. However, if you look at the last options, the story does change fairly substantially if we had wide-spread employer-sponsored and either subsidized or employee paid products, assuming of course a generous willingness for people to pay for LTC insurance premiums. In such situations Medicaid expenditures could decline by 28-32 percent in 2018, and the number of people dependent on Medicaid could drop by 16-17 percent by the year 2018. Clearly employer-sponsored and employer-subsidized LTC insurance could have a dramatic effect on the number of the elderly with private LTC insurance.
The study simulations also analyze the impact of tax incentives for LTC insurance on Medicaid savings. Using generous assumptions, it was determined that even for employee-paid, employer-sponsored and employer subsidized insurance the tax loss in 2018 would be 3.9 times as great as any Medicaid savings that could be realized.
Studies that have been performed by others on this same subject include a study by Marc Cohen, Kumar and Wallach in 1994. This study looked at people who bought private LTC insurance in 1990 and then simulated what their future LTC use might be. This study concludes there could be as much as a 29 percent reduction in Medicaid expenditures with LTC insurance, although that rate falls substantially if there is a significant annual lapse rate. A second study performed by Marc Cohen and Tom McGuire in 2000 concluded that Medicaid savings for "above-the-line" tax deduction could exceed tax loss by six percent. However, there is insufficient methodological information to evaluate effectively this study. A third study that has been performed by Barbara Stucki and Mulvey in 1998 and 2000 has also done an analysis finding that private LTC insurance could reduce Medicaid expenditures by 30 percent in the year 2030. More optimistic assumptions about individuals' willingness to pay were used in the study than in the simulated studies by Josh Wiener, and adequate methodological information is lacking to evaluate the study and the results.
An above-the line tax deduction has serious policy flaws. First of all, tax deductions are regressive. People in upper income brackets get a higher tax break than those in lower income brackets. Second, half the elderly population pays no income tax at all so there would be no benefit to this group. Third, the above-the- line tax deduction would be very costly, resulting in a billion dollars a year in lost tax revenue.
Tax deductibility is already in place for employers under HIPAA. There has and continues to be a decline in retiree health insurance, resulting in an unfunded liability for retirees' health benefits making it unlikely that employers will want to contribute.
Allowing LTC insurance premiums to be paid through cafeteria plans would be inconsistent with current tax policy since cafeteria plans were designed for the purpose of providing benefits that are to be used within the calendar year, thus excluding LTC insurance which is a deferred benefit.
Long-term care insurance premium should not be paid through flexible spending accounts. Flexible spending accounts are equivalent to a tax deduction which are regressive, and there could be a concern with participants switching their preferences over time particularly in light of anticipated policy lapses. Again, like cafeteria plans flexible spending plans were not intended to provide deferred benefits.
Allowing 401(k) funds to be used to buy LTC insurance would certainly fit within the notion of retirement planning and it might be a way of getting some employer money as a contribution. However, this would reduce the amount of money that people would have through their 401(k) plans for their own retirement needs.
The conclusions reached through our study and analysis are that the current numbers of people with LTC insurance cannot have an impact on Medicaid.
Joyce Ruddock, Vice President of Long-Term Care, MetLife
Joyce Ruddock is a gerontologist and is the Vice President in charge of MetLife's long term care insurance business. Ms. Ruddock joined MetLife in 1995 from Travelers where she managed the individual long term care business. Prior positions include Director of Marketing for the Visiting Nurses Association of Rhode Island, and manager of Brown University's Long Term Care Gerontology Center. She has an MPA, and an MED from Syracuse University and is the author of Care-giving and You: Resource Guide for Long Term Care. A well known professional in the field of aging/and long term care, Ruddock has been interviewed by CNN, ABC, and the New York Times, and other media including several trade publications. She has presented at national conferences for such organizations as the America Society on Aging, the National Association of Senior Living Industries and the Washington Business Group on Health.
Introduction. The graying of America is about to generate an unprecedented need for long-term care services that will impact nearly every family in the nation. Many experts agree elder care will be to the 21st century what childcare has been over the last few decades.
MetLife. MetLife is the largest provider of group long-term care insurance in the United States with fifteen years experience providing products to many of the nation's largest employers and associations. MetLife is the endorsed carrier for AARPs long-term care insurance program which is marketed on a direct basis to AARP members. In 1998 MetLife began providing individual long-term care insurance through MetLife agents.
MetLife and LTC Research. MetLife has conducted research to help increase public awareness of caregiving and long-term care. A 1999 Juggling Act Study was done in partnership with the National Alliance for Caregiving and Brandeis University. The study focused on the lifetime financial losses as in wages, Social Security Benefits, and pension benefits experienced by caregivers. A 1997 study conducted by MetLife focused on employer losses that are incurred because of caregiving responsibilities of employees.
Long-Term Care Insurance. Long-term care is one of the fastest growing insurance products in the nation today. This is not surprising since LTC is the greatest uninsured risk Americans face and market penetration is still low. There is good news about long- term care insurance. The number of policies sold is increasing steadily; with large numbers of baby boomers the potential for continuing growth is huge; market opportunities exist with small and medium-sized employers; and, more tax incentives may be on the way, including an above-the-line deduction for LTC premiums. There is also bad news. Long-term care is a complex product and sales do not come easy, and there is still low public awareness about long-term care risk.
What is covered by long-term care insurance policies? A recent HIAA report indicated that most long-term care policies cover nursing home care, home health care, assisted living facilities, hospice care, and respite care. Additionally, coverage is typically provided for Alzheimers disease and there are options for inflation protection. Standardization of policies has occurred largely due to HIPAA. An HIAA study indicated that average annual premiums for a policy with a $100-a-day benefit and a four year duration with a 20-day waiting period is $274 a year at age 40, $385 a year at age 50, $1,007 at age 65, and $4,100 at age 79. These rates do not include inflation protection.
Who purchases long-term care insurance and what do they purchase? For employer- sponsored coverage, the average purchase age is about 43. For individuals, the average purchase age is about 64. Married couples comprise about 60 percent of all buyers. The male and female split is about 40 percent male and 60 percent female. The average annual income of buyers is $40,000. The most common reason that individuals state for purchasing LTC insurance is to obtain financial protection and to maintain their independence and control over what happens to them in their later life.
What Types of Plans People Purchase and Why they Purchase Them?
What people purchase is strongly influenced by agents, financial advisors and/or employers. The most typical plans are those with 4 and 5 year duration with common daily benefit amounts of $100 to $150 although the range is often from $50 to $300 per day. Seventy-five percent of buyers purchase comprehensive plans as opposed to facility only plans. Most employer plans are voluntary where the employee pays the entire premium.
Common reasons for not purchasing long-term care insurance include a feeling of lack of urgency. There are also significant misunderstandings with respect to what is covered by major medical plans, disability plans, and Medicare. Finally, there are many people who believe they will never become disabled to the extent they will need long-term care services, and they believe LTC insurance costs are more than they actually are.
Experience in the employer market. A recent LIMRA study showed that new sales in the employer long-term care market jumped 120 percent in 1999, and the total number of employers offering long-term care plans increased 36 percent during the same period. The annual premium for a new participant was $379. Participation rates in employer plans average around 10 percent with the lows at less than 5 percent and highs up to around 26 percent. Participation is influenced by employer support, payroll deduction, demographic characteristics of the group, and the employer communication program. In large and middle size employer groups, policies are typically issued on a guarantee basis.
Claims experience. Leading causes for claims include dementia, Alzheimer's disease, followed by stroke, heart disease, fractures, and cancer. About 60 percent of the claims are for facility care. Most people who need benefits are in a crisis. To respond to this MetLife has developed a team of geriatric nurses who help people at this time in their lives.
Rate Stability. Rate stability is an important issue for the industry and has received considerable attention by the NAIC. Some companies have raised rates, many have not and in some cases companies have reduced rates. It is important that consumers be protected from companies that will low ball initial rates to gain market share.
What Can Be Done to Stimulate Growth for Long-Term Care Insurance? There needs to more tax incentives, including an above-the-line deduction and the inclusion of long-term care insurance in Section 125 plans. There is also a need to promote awareness and change cultural attitudes, develop simpler plan designs which focus on catastrophic coverage, expand accessibility to coverage through employers and the internet, and create urgency among young buyers, including strategies to make it easy for them to purchase. A new program for federal employees that is anticipated to be authorized by Congress will go a long way towards promoting the need for long-term care insurance.
Summary. The industry is generally pleased with how the market has evolved. However, increasing the number of people who are actually covered by long-term insurance will require the best thinking from everybody involved to initiate the next generation of long- term care insurance plans.
Working Group Meeting
David Martin, General Director for Long-term Care at John Hancock Insurance
David Martin is General Director for Long-Term Care at John Hancock, a large long-term care indemnification provider for employer groups. He also chairs the ACLI Long-Term Care Committee in Washington, which represents companies that write long-term care insurance, as well as accelerated death benefits.
Interest in long-term care insurance as an employee benefit has increased, including among smaller companies, driven by competitive pressure brought by large employers such as General Motors, and Chrysler now offering this benefit. At the end of 1998, 955,000 group certificates were in place. Further, there is now the prospect of the federal government putting in a federal long-term care plan.
Endorsement by the employer is very important in increasing enrollment. About 28 percent of group policies have some form of employer contribution. Where employers are in a competitive hiring market, they often pay the entire premium.
A recent National Council on Aging report says that 45 percent of Americans know someone who has needed long-term care. That's a big lead-in to making a decision to purchase long-term care. People who need care want to do "aging in place"--or staying in the home. More and more people in the mid-fifty age range are electing "early" retirement. That's when they typically will look at long-term care insurance options. The average employee "issue age" for long term care policies in the employer market is about 43 years. This is a younger age than is found in the individual market which may be due to increased awareness of the benefits of this kind of coverage, and the fact that it's much less expensive when you're younger. The average "issue age" in the individual market is about 63.
Because women are more likely to be the caregivers and are more likely to live longer, they have a higher interest in long-term care insurance. Having to care for a spouse can deplete the survivors' assets quickly. The longevity of women combined with the advanced age makes the need for this kind of coverage higher for them.
A typical long-term care insurance policy purchased by those in the group market might include these features:
People often choose not to have the total anticipated long-term care bill covered through insurance in order to keep premiums down. Premiums are also lower when purchased at a lower age. In addition, insureds can elect to buy inflation protection.
For a basic $100 per day benefit and depending on other plan attributes, annual premiums for people in these age ranges would be in the following ranges:
People can buy a policy with inflation protection built in or can periodically purchase inflation protection. Policies with built in protection are more expensive and thus less popular. At least 50 percent of John Hancock's group long-term care population elects to take inflation protection on a voluntary basis. This is more popular option because it's more flexible. Hancock has been writing long-term coverage since 1962.
In the employer market, a partial return of premium at death benefit is common. If this benefit is purchased and the insured dies at age 65 or 70 without ever having received benefits, some portion of the premium would be returned.
A voluntary lapsed benefit is not common. It's expensive and companies; regulators and consumers don't like it. It allows policy owners to cash in the policy. As the expense of premiums continues into older age when income is decreased, the inducement to lapse and to receive a pot of money increases.
About 65 percent of Hancock's certificate holders purchase a non-forfeiture benefit. This means that if they were to let the policy lapse, depending on how long they've had the insurance, there would be some residual benefit. It keeps a percentage of the policy in force. The policy would pay based a reduced benefit.
Modified underwriting or "bona fide guaranteed issue" is done based on a series of questions that can be answered electronically or on a short form. This might be used for groups with a higher likelihood of claims initially, such as state and association groups.
Group long-term care insurance is portable so employees who move can take coverage with them as long as they continue to pay premiums. So far, premiums have been stable. However, potential purchasers should look at the ratings of insurance companies, the financial strength of the companies and the pattern of rate increases, if any. When employers send mailings and e-mails, no insurance agents or commissions are involved.
People want a policy to pay when it should pay. But if the underwriting isn't proper, if the pricing is too low, coverage may not be there when needed. Passage of the Health Insurance Affordability and Accountability Act required certain consumer protections be written into long-term care plans. Employers don't offer non-tax-qualified policies. They look at long-term care insurance as if it were an ERISA plan. They feel fiduciary responsibility to their employees. In a survey 92 percent of respondents through that further favorable tax treatment for long-term care premiums would be helpful. Although there has been lots of consolidation in the market, that should not be looked at as relevant to solvency, State regulators must approve insurance before it's transferred.
One way to keep premiums lower and stable is to limit long-term care insurance to catastrophic coverage, but that will be more attractive to people who can afford to wait a year or two years. However, such a plan instead of a broader policy with a 90-day waiting period could financially devastate some people. Catastrophic plans that would be cheaper and less likely to have as much claim activity, are not currently available in the market.
Tax-qualified plans permit two out of six activities of daily living to trigger eligibility. It is catastrophic when a period loses two activities of daily living. It is debilitating if a person can't bathe or dress himself, or is prone to wander, or has some type of dementia or Alzheimer's.
Insureds get to choose where they get benefits. They don't want someone from a managed care program to be able to put them in an assisted living facility or a nursing home. Federal law requires that a plan of care so be created. The plan of care could recommend home care visits each week, a mix of adult day care or nursing home care.
A person with no insurance who spends down his assets would qualify for Medicaid and have fewer choices for continuing care. Depending on the policy purchased, an insured person might have a flexible home and community based care benefit that might not be available through Medicaid.
There is a potential problem with some insurers having lax underwriting standards and offering low initial premium rates (low-balling) in order to sell policies and gain market share. This could cause them to have to raise rates to policyholders. So far most plans have been able to never raise rates to policyholders. For the 104 employer plans, there are no insurance salesmen or agents. Employers treat all of those as if they were ERISA plans. Lack of agents makes it harder to sell a product that is not good for the consumer. Also, there is a degree of oversight by employers in picking the plans they offer. There is no difference in terms of reliability of the premium between the employer group market and the individual market. Tom Foley and the NAIC are trying to pass legislation to make initial premiums more reliable, trustworthy and reasonable.
There is a low incidence of unfairly denied claims in the industry. For example, since 1988, John Hancock has had two appeals. One was upheld and one was ruled in favor of the insured.
There is an issue if, over time, state or federal government law changes cause policy benefits to be no longer usable, such as doing away with the asset forfeiture in Medicaid. In such a case, policyholders would want benefits to be increased or premiums to be reduced.
Bill Bortz, Attorney Advisor, U.S. Department of Treasury
Bill's comments focused on the tax treatment of long-term care insurance and costs, issues people have raised in connection with long-term care insurance, and the Administration's proposal relating to long-term care. The aging of the baby boom generation has focused great attention on the challenge of caring for the frail elderly. Currently, once the long- term care needs become too great for informal care, people rely upon their own assets, if any, to pay for formal care, and once these assets are exhausted, they rely on the Medicare safety net. There is great interest in increasing the role of privately purchased long-term care insurance. Advocates for the government offering favorable tax treatment for long- term care insurance argue that by increasing the options available for those covered will reduce the cost to government of payments via Medicaid and Medicare programs.
With respect to tax treatment, qualified long-term care is treated generally like medical care. Qualified long-term care expenses that exceed 7.5% of a taxpayer's adjusted gross income, including premiums for qualified long-term care insurance, are deductible for income tax purposes. The deduction for the premiums is subject to an age-graded dollar cap, which constrains the tax subsidies but also serve to keep policy costs down. Other tax law aspects pertaining to long-term insurance are: (1) employer contributions are excludable from taxable income and employment taxes, (2) long-term care insurance may not be purchased through a cafeteria plan nor can expenses be reimbursed through a flexible spending account, (3) benefits are not included in taxable income when paid. Bill reviewed concerns, both tax and nontax, that people have raised about long-term care insurance. The tax concerns are: (1) the deduction favors high tax bracket individuals, (2) long-term care insurance doesn't have the kinds of problems that warrant tax subsidies (e.g., the adverse selection associated with health insurance. The average lapsed time between the time a person purchases long-term care insurance and actually need it is about 12 years.), and (3) expansion of tax subsidies is likely to cause individuals to consume long-term care services of less value than other consumption goods. The nontax concerns are: (1) considering the high lapse rates, a tax deduction might induce individuals to buy insurance they cannot afford, (2) Medicaid savings due to an above the line deduction is not likely to be enough to pay for the tax cost associated with the above the line deduction. The reasons have to do with the group of individuals that benefit the most or least from the tax benefits versus ability to afford long-term care insurance, versus Medicaid costs of the likely users without tax benefits, (3) companies have difficulty establishing sustainable premiums because the cost is hard to predict far in advance, (4) many people don't understand the value of Medicaid benefits, and think it is simply a program for poor people, (5) even though premiums for long-term care insurance are cheaper at a younger age, considering the time before they'll need the benefits, people often don't evaluate whether they'd be better off putting the money into an IRA. For many younger people having the tax-free compounding in an IRA would be a more secure way of protecting themselves for future long term care needs.
Lastly, the highlights of the administration's caregivers tax credit proposal regarding long term care were summarized as follows--A tax credit of $3,000 is allowed. The individual for whom care is given has to be a tax dependent (requirement, must have lived with person claiming the credit for at least half the year), care for individuals age six or younger would be eligible if they are unable, for at least six months, to perform at least three ADL's without substantial assistance, or require substantial supervision for at least six months due to severe cognitive impairment, or they are unable to perform one or more ADL's, or cannot engage in age appropriate activities. There would also be a special rule for children two to six and under the age of two.
In response to questions, Bill made the following points:
Frank Titus, Assistant Director of Insurance Programs, Retirement and Insurance Services
Working Group Meeting
M. Keith Weikel, Ph.D., Senior Executive Vice President and Chief Operating Officer, Manor Care, Inc.
Mr. Weikel made the following significant points in this written statement and oral testimony:
His company is a large owner and operator of long-term care centers. It has about 52,000 employees, 300 skilled nursing centers, 45 assisted living facilities, 90 out- patient rehabilitation clinics, and about 40 home care offices.
Several interrelated actors are seriously challenging the company's ability to provide long-term care and sub-acute care services. Long-term care providers need an adequate revenue stream (including adequate Medicare and Medicaid funding), an adequate supply of skilled workers, an end to the erosion of leadership, and a more understanding regulatory scheme that is based on clinical care outcomes.
The first challenging factor is that Medicare is paying for fewer stays in skilled nursing centers. This is due in large part to the growth in out-patient surgery relative to in-patient surgery. Medicare will pay for a skilled center stay only if it is preceded by a minimum of three full, billable in-patient days in an acute care hospital, not counting any portion of the stay in an emergency room or observation area. Out- patient surgery patients do not qualify for Medicare paid stays, nor do patients whose three-day hospital stay includes time in the emergency room or observation area; nor do patients who are not transferred to a skilled nursing center until more than 30 days after discharge from the hospital. Medicare costs could be reduced dramatically by selectively waiving the three-day rule; even more could be saved by repealing the rule.
The second factor jeopardizing access to skilled nursing care is the reduction in Medicare reimbursement under the Prospective Payment System rolled-out in 1998- 99. Medicare spending for skilled nursing care in 2000 has been reduced by $2 billion rather than increased by the promised $300 million. The unexpected shortfall in Medicare funding has played a significant role in the bankruptcy of five large national nursing home facilities. Despite some recent relief from Congress and HCFA, still more needs to be done so that skilled nursing centers will have adequate resources.
The third challenging factor, which exacerbates the reduction in federal funding, is low Medicaid reimbursement rates (about $4 per hour for patient care).
The fourth challenging factor is the erosion of market capitalization of long-term care companies-80% decline (from $14 billion to $2 billion) over the past two years. This limits companies' access to working capital needed to maintain facilities and to invest in new technology.
The fifth challenging factor is the proliferation of frivolous litigation and related costs, especially in Florida and Texas.
The sixth challenging factor is excessive, adversarial, stringent government regulation of nursing homes, including a proliferation of burdensome surveys. Excessive scrutiny is driving skilled employees from the industry and discouraging qualified individuals from joining the industry.
The seventh challenging factor is the increasing acuity level of patients, which has increased the centers' need for qualified licensed nurses and the ancillary costs to provide more complex, expensive care.
The eighth challenging factor is that the long-term care industry is at a disadvantage in competing for nurses against acute care facilities, particularly with respect to wages.
The ninth challenging factor is the declining pool of nurses and nursing assistants available for employment in the industry. The nursing corps is aging and there are fewer nursing school graduates. This shortage could be eased by loosening immigration laws. The recruiting burden could also be eased by the States' adoption of a universal, cross-trainable employee.
Dr. Barbara Stucki, Special Consultant, The American Council on Life Insurers,
John Cutler, Office of Disability Aging and LTC Policy, DHHS
Mr. Cutler is with the Office of Disability, Aging and Health for Long Term Care Policy, US Department of Health and Human Services. For 3 1/2 years, he has been the lead HHS person for long term care issues. Previously, he handled compliance and regulatory issues for AARP.
People buy commercial long-term care insurance to:
Long-term care insurance pays from the first dollar unlike major medical insurance, which has deductibles and co-payments.
Most coverage currently is paid solely by employees. Many buying long-term care insurance don't buy inflation protection. That means if they buy at age 42 and don't have inflation protection, by the time they use the policy at age 70 or 80, coverage will be inadequate.
Medicare does not pay most long-term care expenses. If Congress amends Medicare to pay for more coverage, prescriptions drugs will likely be a higher priority than adding long-term care benefits.
Unum offered a product that covered disability until you retired at 65 and then turned into long-term care insurance. Unfortunately, nobody bought it. Some carrier could offer long-term care insurance that was also disability coverage so that a younger person with long-term care insurance would have disability coverage as well.
Long-term care insurance is purchased:
After congressional cutbacks, 20,000 home health providers went out of business.
Hospitals could shift costs from Medicare, Medicaid and indigents to private pay patients and third party commercial insurance payers. This is more difficult for long-term care facilities. Some are totally Medicaid or totally Medicare. Those with several types of beds are not able to cost shift very easily, and it may be fraudulent to do so.
People shouldn't be self-insuring unless they have $800,000 or more in assets to withstand 12 years in a nursing home.
The private sector cannot solve this issue. The Government has to do it.
Future steps could be:
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Marc A. Cohen, Ph.D., Vice President, LifePlans, Inc.
Dr. Cohen made the following significant points in his written and verbal testimony:
Brandt Chvirko, Congressional Fellow from Center for Disease Control and Presidential Management Intern
Summary of Comments
Described history and current status on National Long-Term Care proposals in helping caregivers and preparing for the baby boomers.
General statistics - care givers
Huge burden on baby boomers -- 1/3 to 2/3 have conflicts with their employers.
Rationale to get baby boomers to take LTC -- higher divorce, less children -- on one to take care and cost more to the government.
Can cause problems in giving access to services.
The following is a summary of the testimony by Brandt Chvirko:
Mr. Chvirko was asked to first describe both his current position as a congressional fellow and his background prior to his appointment as a presidential management intern.
Mr. Chvirko described the history and current status of major long-term care legislation proposals being considered by Congress. These proposals are primarily focused on helping caregivers and in preparing for the aging of the baby boomers. His testimony included general statistics on the tremendous number of caregivers providing long-term care in their community. He stated many of the caregivers themselves are hurting. Over 50 percent are seniors whose own health is fair to poor.
Long-term care is also a huge burden on baby boomers when they have to balance care giving with employment. Over 2/3 have conflicts requiring them to quit work or turn down promotions. Of significance is that these same baby boomers will not have the same support network Th today's retirees enjoy because many baby boomers have a higher divorce rate and fewer children. This will result in a significant increase in out-of-pocket costs and government costs to provide long-term care.
A summary of the long-term care proposal follows:
In general, the long-term potential for these bills looks good. Both presidential candidates have in different ways backed the proposals. There may be pressure to hold off on these issues this year because they impact very power constituents, women, seniors and baby boomers. It may be a good strategy to wait and campaign for these proposals next year.