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November 14, 2000
INDEX
Working Group Members
The Issue
Expert Witnesses
Executive Summary
Introduction
Chapter 1 - Background and Analysis
Chapter 2 - What is The Present Source of Long-Term
Care Financing?
Chapter 3 - Long-Term Care Indemnification
Chapter 4 - Consumer Protection Issues Associated with
Long-Term Care
Chapter 5 - Tax Issues Associated With Long-Term Care
Chapter 6 - Federal Policy Considerations on
Initiatives to Expand Long-Term Care
Indemnification
Chapter 7 - Corporate Response to Long-Term Care
Indemnification
Chapter 8 - Concerns of the Long-Term Care Provider
Industry
References
Findings
Recommendations
Attachment I - Long Term Care Working Group Index
Attachment II - Testimony Summaries
Report, Findings, and Recommendations
of the Working Group Studying Long-Term Care
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.
Members of the 2000 Working Group
Chair: Michael ?J’ Stapley
Deseret Mutual Benefit Administrators Vice Chair:
Patrick N. McTeague
McTeague, Higbee, Case, Whitney & Toker, P.A.
Rosemary Abelson
Council Vice-Chair
Northrup Grumman Corp.
Eddie C. Brown
Brown Capital Management
Judith Ann Calder
Abacus Financial Group, Inc.
Carl Camden
Kelly Services, Inc.
Michael J. Gulotta
Council Chair
Actuarial Sciences Associates, Inc.
Catherine L. Heron
Capital Group Companies (CGC) of Los Angeles
Judith F. Mazo
Segal Company
Rebecca J. Miller
McGladrey & Pullen, LLP
James S. Ray
The Law Offices of James S. Ray
Richard Tani
Retired, William M. Mercer
THE ISSUE
“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
(Hardship into Hope – The Rewards of Caregiving;
Connie Goldman Productions,
Audiotape, 1999)Joyce Ruddock, Vice President
MetLife
June 1, 2000 (Tr. pp 43)
“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
Employee Benefits Research Institute
May 8, 2000 (Tr., pp 68)“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
Urban Institute
May 8, 2000 (Tr. pp 43)“Long-term care is the
greatest uninsured risk Americans face.” Joyce Ruddock, Vice President
MetLife
June 1, 2000 (Tr. pp 46)
“This nation has no long-term care policy” Donna
Shalala, Secretary
U.S. Department of Health &
Human Services
May 1, 2000
(Speaking at event hosted by Congressman Rush Holt, at
Seabrook Village, Trinton Falls, New Jersey) EXPERT WITNESSES
Joshua M. Wiener, Ph.D.
Principal Research Associate
The Urban Institute
(May 8, 2000 & June 1, 2000)
Frank Titus
Assistant Director of Insurance Programs
Retirement and Insurance Service
U.S. Office of Personnel Management
(July 17, 2000)
Dallas L. Salisbury
President & CEO
Employee Benefits Research Institute
(May 8, 2000)
M. Keith Weikel
Senior Executive Vice President & COO
Manor Care, Inc.
(August 14, 2000)
Tom Foley
Director, Accident & Health Division
Kansas Department of Insurance
(May 8, 2000)
Barbara Stucki
Special Consultant
American Council of Life Insurance
(August 14, 2000)
Joyce Ruddock
Vice President of Long-Term Care
MetLife Insurance Company
(June 1, 2000)
John Cutler
Office of Disability, Aging & LTC Policy,
Office of Assistant Secretary for
Planning & Education
U.S. Dept. of Health & Human Services
(August 14, 2000)
David S. Martin
General Director, Long-Term Care
John Hancock Life Insurance Company
(July 17, 2000)
Marc A. Cohen, Ph.D.
Vice President
LifePlans, Inc.
(September 11, 2000)
William Bortz
Associate Benefits Tax Counsel
U.S. Department of Treasury
(July 17, 2000)
Brand Chvirko
Presidential Management Intern,
Centers for Disease Control
Staff Member, U.S. Senator Bob Graham
(September 11, 2000)
EXECUTIVE SUMMARY
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:
A national policy on LTC be developed which articulates
a comprehensive and coordinated strategy responsive to all of the many
dimensions of the LTC problem, carefully defining the roles of the federal
government, state governments, and the private sector.
Within the context of judicious tax policy
consideration be given to the following:
an above-the-line tax deduction for LTC insurance
premiums for qualified plans,
payment of LTC premiums (for qualified plans) through
IRC Section 125,
a tax credit for voluntary caregivers that provide LTC
services to individuals who have at least two limitations in activities of
daily living or who have severe cognitive impairment.
A comprehensive and well focused educational program be
developed to educate Americans about LTC and LTC financing, included but
not limited, to the following:
that public funding for LTC may expand but will likely
be inadequate for LTC services for all Americans in the future;
that Medicare was never intended to pay for extended
LTC and should not be considered as a dependable resource to meet LTC
needs;
that while Medicaid may provide financial resources for
certain people who can meet categorical eligibility, income, and resource
requirements, it cannot be considered a reliable resource for meeting
every American's LTC needs;
that most employer-sponsored individual disability and
medical plans do not cover LTC services; and,
that LTC should become an integral part of retirement
planning for all Americans.
Employers should be encouraged to integrate LTC into
the benefit programs they make available to their employees.
A system be developed to allow individual Americans to
purchase LTC insurance through the newly established program for federal
workers.
States be encouraged to adopt the model regulations
developed by the National Association of Insurance Commissioners for LTC
insurers.
The current regulatory process for LTC providers be
reviewed.
Current reimbursement practices for Medicare and
Medicaid be reviewed to make sure they are at appropriate levels and do
not compromise quality care.
The Medicare rules be appropriately modernized to
balance the need for LTC services with budgetary constraints.
INTRODUCTION
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.
CHAPTER 1 – BACKGROUND AND ANALYSIS“ 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.
Principal Research Associate
Urban Institute
Washington, D.C." 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
General Director, Long-Term Care
John Hancock Life Insurance Company
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
Alzheimer’s 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, Alzheimer’s 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 Alzheimer’s
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.
CHAPTER 2 – WHAT IS THE PRESENT SOURCE OF LONG-TERM
CARE FINANCING?" 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
Employee Benefits Research Institute
Washington, D.C.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
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 Medicaid’s requirements.
Medicare
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.
Private Payment
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 women’s issue, since women
are the majority of care recipients and caregivers. It is estimated
that:about three-fourths of nursing home residents are women;
two-thirds of home care consumers are women;
more than seven in ten unpaid caregivers are women;
the average woman can expect to spend 17 years caring
for a child and 18 years caring for a parent.
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:
women are 83 years old on average when admitted to a
nursing home;
at age 85 or older, women account for four out of five
individuals receiving help for two or more disabling conditions.
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:
four-fifths of those who give constant care are women;
on average, caregivers provide 18 hours of LTC per
week;
one-fifth of the caregivers provide at least 40 hours
of care per week;
one-third of caregivers who provide more than 40 hours
of care per week report suffering from physical or mental health problems
as a result of their caregiving;
more than one-half of employed caregivers have made
changes at work to accommodate caregiving, such as flexible hours, or
working fewer hours;
one/half of all caregivers employed while involved in
caregiving gave up work either temporarily or permanently by retiring
early or quitting. Over one-half of these caregivers took a leave of
absence from their employment.
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.
Non-economic 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 non-economic) 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 18–64 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.
CHAPTER 3 LONG-TERM CARE INDEMNIFICATION
“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
MetLife
Westport, CN
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.
Current Trends
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.
*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.
Nonforfeiture Provisions
Some LTC policies have a non-forfeiture 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
non-forfeiture benefit.
Portability
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.
Underwriting
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 nation’s
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:
for financial or asset protection;
to not be a burden on their families;
to maintain independence and control over what happens
to them later in life;
the history and financial strength of the company
selling the LTC insurance.
Why People Do Not Purchase Long-Term Care Insurance
Factors influencing people not buying LTC insurance
include:
lack of urgency--many people take two or more years to
purchase LTC insurance after initially requesting information;
misunderstanding or misconception that they have LTC
coverage through their major medical plans or disability plans;
belief that Medicare will pay for their LTC needs;
belief that their LTC needs will be met by Medicaid;
denial that they will need LTC insurance;
affordability;
misconception that it costs more than it actually does;
competing financial obligations (mortgage, college,
etc.);
lack of planning--most people under age 50 have not
seriously planned for their retirement, let alone their post-retirement
health and LTC needs.
CHAPTER 4 – CONSUMER PROTECTION ISSUES ASSOCIATED
WITH LONG- TERM CARE“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
Department of Insurance, State of Kansas
Topeka, KS
Disclosure
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 non-forfeitable. Non-forfeiture
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 company’s 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. Lapse Rates
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 non-catastrophic 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:
contain disclosure requirements aimed at informing LTC
insurance applicants of the potential for future rate increases, including
the rate increase history of the insurer on the particular policy;
stipulate that insurers must reimburse rate increases
that are later found to be unnecessary;
provide for review of administration and claims
practices;
provide for an option to convert LTC policies
experiencing rate hikes;
require actuarial certifications for those who price
policies; and
authorize the state insurance commissioners to ban
companies from the marketplace that frequently file for rate increases.
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.
CHAPTER 5 – TAX ISSUES ASSOCIATED WITH LONG-TERM CARE“
Qualified long-term care is treated generally like medical care… under
current law.” Bill Bortz, Attorney Advisor
Associate Benefits Tax Counsel
Department of Treasury,
Washington, D.C.Individual Premiums and Expenses
For tax treatment, qualified LTC expenses that exceed
7.5 percent of a taxpayer’s 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:
benefits from private LTC coverage generally are not
taxable;
employers can deduct the cost of establishing an LTC
insurance plan for employees and contributions toward premiums;
employer contributions to LTC premiums are excluded
from the taxable income of employees; and
LTC insurance premiums and out-of-pocket costs for LTC
services can be applied toward meeting the 7.5 percent threshold in the
federal tax code for medical expense deductions. (Limits, based on the
policyholder’s age, are still placed on the total premium amount that
can be applied toward the 7.5 percent threshold).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 America’s
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 individual’s
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:
they are subject to income nondiscrimination standards;
they target younger people--those still in the work
force--for whom the purchase of LTC coverage is more affordable;
the employer does the marketing; and,
the employer does the administration and the payments
are made automatically through payroll deduction.
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.
CHAPTER 6 – FEDERAL POLICY CONSIDERATIONS ON
INITIATIVES TO EXPAND LONG-TERM CARE INDEMNIFICATION“ 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)Frank Titus
Assistant Director of Insurance Programs
Office of Personnel Management
U.S. Government
“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.
LifePlans, Inc. 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 Clinton’s
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 HCFA’s 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:
allow individuals to live in their homes longer;
provide more choice or control over their care;
delay or prevent institutionalization;
enable easier access to home care and/or assisted
living;
provide a greater choice of LTC services and providers;
ease the financial, physical, and emotional burdens on
families providing care in the home; and
preserve assets for heirs.
CHAPTER 7 – CORPORATE RESPONSE TO LONG-TERM CARE
INDEMNIFICATION“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,
Jeremy Pincus, EBRI Fellow,
EBRI Issue Brief Number 220 page 5, April
2000."What affects participation? Certainly the endorsement of the
employer is very important."
David S. Martin
General Director, Long-Term Care
John Hancock Life Insurance Company
“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
American Council of Life Insurance
Washington, D.C.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.
CHAPTER 8 – CONCERNS OF THE LONG-TERM CARE PROVIDER
INDUSTRY“Long-Term Care is one of the most regulated industries in
America next to nuclear energy and nuclear waste.”M. Keith Weikel
Senior Executive Vice President
And Chief Operating Officer
Manor Care, Inc.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.
Government Regulation
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.
REFERENCES
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 President’s 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
Shopper’s 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 forIncreasing 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).FINDINGS
WORKING GROUP ON LONG-TERM CARE:
ISSUES AND OPTIONS
FINDINGS
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
The LTC problem has many dimensions, each of which
individually constitutes a serious public policy concern. Taken
collectively, the issues related to LTC affect virtually every aspect of
the long-term care system and constitute a potentially serious public
policy concern.
In the future, the problem will get significantly more
serious as the population continues to age. It is estimated that by the
year 2050, the population older than 85 will increase 355 percent.
Long-term care is not just a problem of the aged. A
majority of the severely disabled are older than 65. However, it is
estimated that 45 percent of the disabled population is younger than 65.
A majority of the population age 85 and older (52.7
percent) have problems with activities of daily living or are
institutionalized. Although disability rates have been falling during the
last 10 years, and are expected to continue to drop in the future, the
number of individuals who have problems with activities of daily living
will increase substantially.
Even though there appears to be cause for major
concern, there is not a well- articulated comprehensive and coordinated
public policy for long-term care in the United States.
A need also exists for more effective coordination
within the various agencies of the federal government in the development
and implementation of LTC policy.
It will be extremely important for the federal
government to send a strong message about the significance of the
impending LTC crisis by promulgating well-articulated and coordinated
public policy initiatives relating to all aspects of the LTC problem.
Long-term Care is a Significant Issue For Women
Long-term care is overwhelmingly a women's issue.
Because women have longer life expectancies than men, they become the
primary caregivers for long-term care services. In addition, women are the
primary recipients of LTC services. About 75 percent of nursing home
residents are women, two-thirds of home care consumers are women, and more
than seven in ten unpaid caregivers are women.
Women have more significant financial barriers to LTC
than men. Some 58 percent of women age 65 or older are widowed, divorced,
or never married compared to only 25 percent of men. The median income
level for women in this category is $10,483 compared to $13,733 for men
and $27,944 for married couples.
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
In the current LTC system, the federal government is
the primary source of financing. In 1998, it is estimated that between
Medicare, Medicaid, and other programs the federal government paid $74
billion, or 64 percent, of LTC expenditures in the United States.
Because of 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 the
federal government will provide sufficient resources to support the
expanded need for LTC services in the future.
Direct provision of LTC service by the federal
government through Medicare, Medicaid, or some other mechanism may be the
most efficient way to broadly deliver needed LTC services to the
population. However, it is unlikely that the federal government will ever
undertake such an initiative. Therefore, other options must be explored.
Because the nature of treating acute illnesses has
shifted significantly during the past several years from an inpatient to
an outpatient setting, the current Medicare requirement for an inpatient
stay before accessing long-term care services appears to be outdated.
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. This
treatment pattern has reduced LTC expenditures for Medicare.
In 1980, outpatient surgeries represented 16 percent of
total surgeries. By 1990 nearly 62 percent of total surgeries were done on
an outpatient basis.
Outpatient surgeries for the age cohort over 65 has
increased similarly.
The Health Insurance Portability and Accountability Act
(HIPAA) clarified the tax treatment of LTC insurance premiums by allowing
deductibility for premium costs that exceed 7.5 percent of adjusted gross
income and tax-free receipt of pay-outs for qualified policies. According
to an Employee Benefit Research Institute (EBRI) study, the HIPAA
clarification did have an impact on employers' attitudes about long- term
care, but it has not had any significant impact on coverage growth rates
that will expand LTC indemnification or reduce future government financing
of LTC services.
The current tax system may not create adequate
incentives for individuals to purchase LTC insurance. Without such a
system of public tax expenditures, it is less likely that individuals will
assume any responsibility for their own indemnification in a voluntary
employer-sponsored system where the employer may pay nothing or only a
small portion of the total cost.
Long-term Care Insurance Can be Affordable But Coverage
Levels are Low
Current levels of private LTC insurance in the United
States are extremely low. In 1998, it is estimated that 2.0 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.
Private LTC insurance can be affordable for many
Americans if purchased at younger ages. By contrast, policies purchased by
those age 65 and older are only affordable to those who have significant
resources. A typical policy without inflation protection purchased at age
45 has a fixed annual base premium of $274. At age 50, this increases to
$385, and at age 65, the annual cost is $1,007. With inflation protection,
these rates about double at younger ages.
Employment-based Long-term Care Insurance is Rare, But
May Provide the Best Opportunity for Expansion of Coverage
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.
Only 0.2 percent of employers with 10 or more employees
sponsor LTC coverage.
Large employer sponsorship of LTC coverage is still low
but significantly higher (0.7 percent).
Because the market is so large and is virtually
untapped, smaller employers provide the greatest potential for expansion
of LTC indemnification.
Employers who positively and actively promote LTC
insurance, and those who tailor plan design and enrollment to the needs of
their employee population, experience significantly higher enrollment than
those that do not.
Employers who agree to pay a portion of the cost of LTC
insurance experience even greater enrollment than those who do not.
To help employees appreciate the value and the need for
LTC indemnification, data strongly suggests that LTC should be closely
tied to employee retirement planning.
A study completed by UNUM suggests that working
Americans are more likely to purchase LTC indemnification through their
employer than to buy it on their own.
Individuals who effectively prepare for retirement by
optimizing participation in savings plans with other retirement resources
are better positioned to finance needed LTC services than those who do
not.
The Long-Term Care Security Act signed by President
Clinton into law on September 19, 2000, allows the Office of Personnel
Management to negotiate discounted rates for LTC insurance for federal
workers. This initiative may inspire other employers to take similar
actions.
A Significant Misunderstanding Exists About Who is
Covered by Long Term Care Insurance and the Need for Long Term Care
Indemnification
Broad-based misunderstanding exists in the population
about LTC indemnification. Many Americans believe that the current
Medicare system will meet their long-term care needs and/or that long-term
care is covered in their group or individual health plan. Others believe
that if all else fails, Medicaid will be there to protect them.
In fact, the current structure of Medicare does not
provide a source of long-term care benefits that will meet the needs of
most of the population. Medicare provides only 120 days of institutional
benefits that are available only immediately after an acute-care hospital
stay of at least three days. In addition, Medicare benefits are not
available to individuals who are deemed to be “custodial,” such as
those with Alzheimer’s disease. In the current system, Medicare pays for
only 13 percent of expenses related to LTC services.For many people,
Medicaid as presently structured will not be a good solution to their
long-term care needs. Categorical eligibility requirements, combined with
stringent income and resource limitations, make qualifying for Medicaid
highly disruptive for most Americans.
Most employer-sponsored group disability and major
medical plans have either very limited or no coverage for LTC services.
Generally, younger Americans are not cognizant that
they may need some form of LTC indemnification that will not be accessed
for 30 or 40 years in the future. They are 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.
Stability of the Long-Term Care Insurance Market
Several documented instances exist where LTC insurance
carriers have not accurately anticipated the cost of LTC services for
their insured population. This has resulted in rate instability and
solvency concerns which have undermined consumer and insurance regulator
confidence in LTC insurance products.
Responsible private insurance carriers have
demonstrated the ability to stabilize LTC premiums so they do not increase
over time. If the long-term care market is to have the confidence of
consumers and insurance regulators, it will be important to learn from the
experience of these insurers so that all carriers stabilize their premium
rates.
The National Association of Insurance Commissioners, in
conjunction with several states, has responsibly studied the LTC insurance
market and has gained considerable insight into the regulation of LTC
insurance and what is necessary to ensure rate stability and long-term
viability of LTC insurance products.
Family Members Are A Significant Source of Long-term
Care Giving, Sometimes at Significant Cost
Family members and close friends continue to be the
primary caregivers for LTC services and will continue to be an important
source of caregiving into the future.
Research by Peter Arno, Carol Levine and Margaret
Memmott, published in Health Affairs, estimated that in 1997, there were
about 25.8 million informal caregivers in the United States.
The economic value of informal caregiving was estimated
in this same study to be $196 billion annually, or 18 percent of the total
national spending for health care.
Many "voluntary" caregivers provide service
at considerable personal sacrifice. There is a well-documented toll on
many caregivers' physical and mental health. Impacts also exist in terms
of family destabilization and impoverishment. Findings from a limited
national study by the National Alliance for Caregiving and the National
Center for Women and Aging at Brandeis University concluded that
individuals who try to continue to work and also take care of elderly
friends and relatives have experienced the following consequences:
Lost wealth. Among those able to quantify monetary
impact, the lifetime loss in total wealth from wages, Social Security, and
pension benefits averaged $659,139.
Limitations on job advancement. Forty percent of
respondents reported that caregiving affected their ability to advance in
their job.
Employer cost in lost productivity. Employer also find
that caregiving reduces worker productivity and boosts turnover,
absenteeism, and early retirement. A MetLife study estimated that U.S.
businesses lose $11 to $29 billion annually due to caregiving.
In spite of the effort of family members to provide
care, there will be an increasing need for resources to support services
beyond the capacity of family and friends because of the aging of the
population and the complexity of illnesses at extremely old ages.
Concerns of the Long-Term Care Provider Industry
Several conditions may have a negative impact on the
viability of the LTC provider industry and the quality of LTC services in
the United States. In light of the projected increasing need for LTC
services, this is a major public policy concern..
The market capitalization of the LTC industry has
declined 80 percent since 1997, from $14 billion to $2 billion. This
raises serious concerns about the financial well-being of the LTC provider
industry.
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. The
unexpected shortfall in Medicare reimbursement 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 nationwide are in some state of bankruptcy. This
represents 11 percent of the total beds in the United States.
When the new Medicare payment system was introduced in
1998, it was planned that Medicare spending for skilled nursing care would
increase by $300 million in the year 2000. Instead of an increase, it is
projected that Medicare spending will reduce by $2 billion in 2000 alone.
Medicaid reimbursement rates are low ($4 per patient
hour for all services related to patient care). This rate must cover room,
board, certain therapies, nursing care, food, overhead, linens, and
caregiver salaries. This level of reimbursement may compromise quality of
care as well as financial viability of the LTC industry.
There appears to be widespread frustration with the
regulatory process which is designed to ensure that nursing home residents
receive quality care in a safe and secure environment. The LTC provider
industry believes that the current regulatory process is inefficient and
inconsistent in accomplishing its intended purpose.
A lack of effective coordination between state and
federal governments in the regulatory process results in inefficiency,
confusion, and a lack of clarity in terms of the regulatory standard.
The regulatory process seems to be very adversarial
which is counter-productive and demoralizing to caregivers who believe
they work hard to provide quality care.
The number of deficiencies reported by survey teams
varies significantly from state to state and even from team to team.
Shortages of Skilled Providers to Support the Long-term
Care Industry
There is a projected significant and increasing
shortage of nurses, nurse assistants and other caregivers who will be
needed to provide staff support for long term care services into the
future.
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 111,000 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 aides will increase by 69 percent
to 1.12 million.
Earlier this year, a study published in the Journal of
the American Medical Association concluded that the number of RNs in the
work force will peak in 2007 and decline thereafter as many RNs retire.
Enrollment in bachelor degree nursing programs has
declined consistently during the past five years. The total decline from
1995 to 1998 was 20.9 percent.
Long-term care service providers face increasing
challenges in recruiting qualified staffs. This will exacerbate the
projected workforce shortage in the future.
Compensation levels in LTC facilities are typically
well below what is paid by acute care facilities primarily because of
government reimbursement. A 1998 Buck Consultant Survey concluded that RNs
in nursing homes make 16 percent less than in hospitals, LPNs make 6
percent less, and certified nursing assistants make 16 percent less.
The stringent and pervasive regulatory process in LTC
facilities makes the work environment unattractive.
RECOMMENDATIONS
WORKING GROUP ON LONG-TERM CARE:
ISSUES AND OPTIONS
RECOMMENDATIONS
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
A White House conference should be convened to develop
a national policy on LTC that carefully articulates a comprehensive and
coordinated strategy that is responsive to all of the many dimensions of
the problem. The policy initiative should carefully define the roles of
the federal government, state governments, and the private sector in
managing the LTC problem.
By executive order, the president of the United States
should establish a Long- Term Care Interagency Coordinating Council that
includes representation from the Department of Labor, the Department of
Health and Human Services, the Department of the Treasury, and the Office
of Personnel Management. The Veterans Administration and Social Security
Administration should possibly be included as well. The council should
have the responsibility to coordinate the development and implementation
of LTC policy initiatives consistent with the structuring of a national
policy on LTC.
Tax Incentives and Expenditures to Expand Long Term
Care Insurance and to Compensate Voluntary Caregivers
The Working Group recognizes tax policy as an
acceptable vehicle to accomplish responsible social objectives. The
Working Group is also aware of several congressional proposals, some of
which have bipartisan support, that are being seriously considered at the
present time. The Working Group did not have adequate time to thoroughly
study the implications of different tax proposals that relate to LTC.
Therefore, within the context of judicious tax policy that considers both
the benefits and the cost, the Working Group recommends consideration of
the following tax policy initiatives as deemed appropriate by the
Secretary and other policy leaders in the Executive Branch of Government.
Improve the deduction for LTC insurance premiums for
qualified plans to an above-the-line deduction so premium dollars are not
subject to a percentage of income. Qualified plans are those that include
services for individuals who have at least two limitations in activities
of daily living (ADLs) or severe cognitive impairment.
The above-the-line deduction should only be available
for policies that meet the rate stabilization and other consumer
protection standards included in the NAIC model regulations.
Permit LTC premiums (for qualified plans) to be paid
through IRC Section 125 plans.
Provide a tax credit for voluntary caregivers who
provide LTC services to individuals who have at least two limitations in
activities of daily living or who have severe cognitive impairment.
State governments that have not already done so should
be encouraged to provide similar incentives in their tax codes for
purchasing LTC insurance.
Educating America About Long-Term Care
As a follow-up to the pilot educational initiatives
sponsored by the Health Care Financing Administration, a major
comprehensive and well focused educational program should be developed and
implemented to help individual Americans understand the potential LTC
problem, how it may affect them, and the specific steps they can take to
ensure their access to needed long-term care services. The educational
program should be focused on specific subgroups of the total population
that potentially can benefit most from the content of the education
initiative (i.e., 70 year old retirees on Medicare are not likely to
purchase LTC insurance). The educational program should be specifically
designed to change the behavior of the American people in a positive way.
Among other things, it should include the following:
Information that will help the American people
understand that public funding for LTC may expand but most assuredly will
be inadequate to pay for LTC services for all Americans in the future.
An explanation of the LTC services that Medicare
covers, including its limitations. This explanation should point out that
Medicare was never intended to pay for extended long-term care and should
not be considered by the American people as a dependable resource that
will meet their financial needs in the future.
An explanation that Medicaid may provide financial
resources for certain people who can meet categorical eligibility, income,
and resource requirements. But for most Americans, this will not be a
reliable resource for meeting their needs.
An explanation that most employer-sponsored and
individual disability and medical plans do not cover LTC services or that
coverage in these plans is extremely limited and will not be an adequate
resource for financing needed LTC services.
Easy-to-use information that will help individual
Americans understand that in addition to Social Security,
employer-sponsored retirement programs, and personal savings, LTC
financing will be an important part of their retirement security.
Simplified consumer information that will help
individual Americans understand what constitutes a good LTC insurance
policy, where such policies can be purchased, how policies can be compared
to determine their value, and any pitfalls that should be avoided in
purchasing LTC indemnification.
Employer-Sponsored Long-Term Care Insurance
As a part of the educational program, the Department of
Labor should take lead responsibility for providing information to
employers and workers that would help them understand the importance of
LTC financing and the importance of incorporating LTC financing into their
retirement security planning. The Department of Labor should incorporate
this theme into their Savings Matters and Health Education Campaigns. At a
minimum, the Department of Labor educational program for American
employers and employees should accomplish the following:
Emphasize that LTC should become an integral part of
retirement planning for all Americans.
Encourage all employers to offer LTC coverage as an
employer- sponsored voluntary benefit and, where possible, make resources
available to fund the cost of such plans. This educational effort should
further provide information based on research that is already available,
or which may be developed, that will help employers understand how to
optimize participation in voluntary LTC insurance coverage.
Encourage employers to integrate LTC into their
financial planning or retirement security education programs that they may
make available to their employees.
Help American workers understand the importance of LTC
financing as one of the cornerstones to financial security.
Work with the Social Security Administration to add a
message about LTC and retirement security to all of their benefit
communications, including the earnings statement.
The Working Group strongly endorses the initiative that
led to the Office of Personnel Management obtaining authorization to
provide LTC insurance to federal workers. This may serve as a catalyst in
helping other employers understand the importance of LTC insurance as a
part of retirement security. The Working Group recommends that after the
Office of Personnel Management completes implementation of the LTC program
for federal workers in 2002, the following additional initiatives should
be explored:
A methodology that would allow state and local
government workers to purchase LTC insurance through the newly established
program for federal workers.
A system that would allow individual Americans to
purchase LTC insurance through the newly established program for federal
workers.
Premium Stability and Solvency of Long Term Care
Insurance Providers and Other Regulatory Initiatives
All states should be encouraged to adopt the model
regulations that have been developed by the National Association of
Insurance Commissioners to address consumer concerns about premium
stability and solvency in the LTC insurance market. The Interagency
Coordinating Council should determine who should take the lead in this
effort.
The Department of Health and Human Services should lead
in establishing a forum wherein the process for regulating nursing homes
and other LTC providers in the United States can be rationalized to first,
protect nursing home patients; second, ensure the provision of high
quality care; third, optimize the use of available regulatory resources;
and fourth, eliminate duplication in the regulatory process.
Stability of the Long-Term Care Provider Industry
The Department of Labor and the Department of Health
and Human Services should lead in developing and implementing initiatives
that will improve the availability of needed nurses, gerontologists,
geriatricians, and nurse assistants (including home health aides and other
caregivers) to support providing LTC services into the future.
The Department of Health should complete a thorough
review of current reimbursement practices to make sure that reimbursement
for Medicare and Medicaid is at appropriate levels to ensure adequate
financing that does not compromise the provision of quality health care
services or the viability of the LTC 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.
ATTACHMENT I
LONG-TERM CARE WORKING GROUP INDEX
Long Term Care Working Group Index - 2000
May 8, 2000: Long-Term Care: Issues and Solutions
Chair: Michael J. Stapley
Vice Chair: Patrick McTeague
a) Agenda
b) Official Transcript
c) Executive Summary of Transcript
d) Draft Outline of the Study to Be Completed
e) Tentative Agenda for the Balance of the Year
f) Fact Sheet on Long-Term Care prepared by AARP and
the Public Policy Institute
g) Copies of slides used in the testimony of Josh
Wiener, Urban Institute
h) “Voluntary Long-Term Care Insurance: Best
Practices for Increasing Employee Participation” by Jeremy Pincus, EBRI
Fellow, and “Employer-Sponsored Long-Term Care Insurance: Best Practices
for Increasing Sponsorship", also by Jeremy Pincus. (Both provided
the basis for Dallas Salisbury’s remarks as he testified before the
Working Group.)
i) “Secure Aging: The New Society” from the May
2000 issue of The Jewish Healthcare Foundation of Pittsburgh Publication
Branches
j) Long-Term Care Insurance in 1997-1998, Research
Findings of the Health Insurance Association of America, March 2000.
June 1, 2000: Long-Term Care: Issues and Solutions
a) Agenda
b) Official Transcript
c) Executive Summary of Transcript
d) Revised Outline of Group’s Study and Potential
Witness Listing
e) “Long-Term Care in the United States: An Overview”
by Judith Feder, Harriet L. Momisen and Marlene Niefield, Health Affairs
19(3): 40-56, 2000 Project Hope - The People-to-People Health Foundation,
Inc.
f) Long-Term Care: Current Issues and Future
Directions, Report to the Chairman, Special Committee on Aging, U.S.
Senate, Prepared by the General Accounting Office, April 1995.
g) Written Testimony from Joyce Ruddock, Vice President
of Met Life’s Long-Term Care Group as well as “The MetLife Juggling
Act Study, Balancing Caregiving With Work and Costs Involved” provided
by Metropolitan Life Insurance’s Mature Market Institute, November 1999
and “The MetLife Study of Employer Costs for Working Caregivers”
prepared by MetLife in June 1997.
h) “A Shopper’s Guide to Long-Term Care Insurance,”
by the National Association of Insurance Commissions (NAIC).
i) “How to Judge a Policy, Don’t Let an Agent Fit a
Premium to Your Purse. A Cut-rate Policy May Not Pay as Much as You Need
When You Need It.” Consumer Reports, October 1997 pp 44-46.
j) “Caring for the Elderly: Is adequate long-term
care available?” Congressional Quarterly, February 20, 1998, pp
145-167.
k) “Long-Term Care: The President’s FY2001 Budget
Proposals and Related Legislation” updated March 28, 2000, prepared by
the Congressional Research Service: The Library of Congress.
l) “Long-Term Care Insurance for Federal Personnel”,
Congressional Research Service, May 14, 1999.
m) “Long-term Care for the Elderly: Themes of
Financing Reform” Congressional Research Report for Congress, January
15, 1999.
n) Long Term Care Insurance - Consumer Protection
Issues outline by Tom Foley, Kansas Insurance Department, for his talk
before the working group, June 1, 2000.
o) “The Potential Impact of Private LTC Insurance on
Medicaid” slides by Joshua M. Wiener, Ph.D., the Urban Institute of
Washington, DC on June 1, 2000
July 17, 2000: Long-Term Care: Issues and Solutions
a) Agenda
b) Official Transcript
c) Executive Summary of Transcript
d) Written Testimony (Copy of slides) of David Martin,
General Director of Long-Term Care, John Hancock Financial Services as
well as a 1999 Long-Term Care Survey, conducted jointly by John Hancock
and the National Council on Aging.
e) Materials provided by Bill Bortz, Attorney-Advisor,
U.S. Department of Treasury, including a page from HIAA Survey, 1999,
regarding average annual premiums for leading long-term care insurance
sellers in 1997; and General Explanations of the Administration’s Fiscal
Year 2001 Revenue Proposals, “Assisting Taxpayers with Long-Term Care
Needs".
f) “Promoting Long-Term Care for the Federal Family”,
copies of slides/remarks made by Frank D. Titus, Assistant Director for
Insurance Programs, Office of Personnel Management.August 14, 2000:
Long-Term Care: Issues and Solutions
a) Agenda
b) Official Transcript
c) Executive Summary of Transcript
d) A Survey of Employers Offering Group Long-Term Care
Insurance to Their Employees Final Report, The Lewin Group, May 31, 2000,
for the U.S. Department of Health and Human Services, Office of
Disability, Aging and Long-Term Care Policy, presented by John Cutler of
the latter office at this meeting.
e) Written Statement from M. Keith Weikel, Ph.D.,
Senior Executive Vice President and Chief Operating Officer, Manor Care,
Inc.
f) Retirement Security and Quality Health Care: Our
Pledge to America, 2000 GOP Platform, July 31, 2000.
September 11, 2000: Long-Term Care: Issues and
Solutions
a) Agenda
b) Official Transcript
c) Executive Summary of Transcript
d) Written Testimony of Dr. Barbara Stucki’s August
15 appearance and a report, Expanding Retirement Strategies with Long-Term
Care Insurance, she prepared for the American Council of Life
Insurance
e) The Impact of Private Long-Term Care Insurance on
Public Program Expenditures, overview by Marc A. Cohen, Ph.D. LifePlans,
Inc.
f) NAIC hopes to end surprise long term care price
hikes by Vicki Lankarge, insure.com, dated August 2000.
g) Long-Term Care Financing Poses Questions for
Policymakers by Elizabeth White for the Bureau of National Affairs Daily
Tax Report, August 28, 2000
h) Email from Dallas Salisbury with his personal
recommendations for government action on the issue of Long Term Care
i) Pending Long-Term Care Legislative Proposals,
Provided by Brandt Chivrko from Sen. Bob Graham’s Staff
j) Who Will Pay for the Baby Boomers’ Long-Term Care
Needs, Expanding the Role of Long-Term Care Insurance, a report of the
American Council of Life Insurance
k) Can Aging Baby Boomers Avoid the Nursing Home?
Long-Term Care Insurance for ?Aging in Place’, another study by the
American Council of Life Insurance
October 12, 2000: Long-Term Care: Issues and Solutions
a) Agenda
b) Official Transcript
c) Executive Summary of Transcript
d) Response to LTC Tax Incentive Testimony Submitted by
Philip Clarkson, Vice President and Counsel, John Hancock Life Insurance
Company
e) GAO Report of September 13, 2000: LTC Insurance -
Better Information Critical to Prospective Purchasers
ATTACHMENT II
WORKING GROUP ON LONG-TERM CARE: ISSUES AND OPTIONS
TESTIMONY SUMMARIES
U.S. DEPARTMENT OF LABOR
ERISA ADVISORY COUNCIL
WORKING GROUP ON LONG TERM CARE
ISSUES AND OPTIONS
WORKING GROUP MEETING
May 8, 2000
1:00 p.m.
DALLAS L. SALISBURY, President and CEO, Employee
Benefits Research Institute
(Summary prepared by James S. Ray)
Mr. Salisbury made the following significant points in
this testimony:
There is a substantial need for long-term care
services, and that need is growing. The portion of the population who are
age 65 or older is now 13.5%. It will be 22.4% in the future. "If one
looks at the median age of that future retiree population, plus sheer
size, then the need for these services is going to be far greater than
ever."
Much of that need is due to a fact that has not been
given due consideration in the projections for long-term care needs and
costs. That fact is that many people who would have had the opportunity to
die in the past are being kept alive today through advances in medical
technology and treatments. Further advances will prolong life for even
more people in the future. It has been suggested by some demographers
that, due to medical advances, the over-age 65 population forty years from
now will be 70% larger than projected by the Social Security and Medicare
programs.
"[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. And, I think that is one thing that has not yet
been really factored into much of the discussion."
The development and maintenance of indemnification
plans for long-term care is a difficult challenge, and will become even
more challenging over time for various reasons.
One reason is that there is a trend of shifting
responsibility for retirement income and health care to individuals.
Employer-funded defined benefit plans providing annuity retirement income
are on the decline in favor of individual account, defined contribution
plans. Employer sponsored retiree medical plans are available to declining
numbers of individuals.
A second reason is that individuals give other benefit
needs a higher priority than long term care coverage. According to EBRI's
recent benefits preference survey, the highest preference among
individuals is coverage for current acute health care needs. The second
preference is for defined contribution savings programs. Long term care
insurance was mentioned as the first benefit choice by only 2% and the
second choice by only 3% of a national random sample. When asked about
tradin and increase in pay for long term care insurance, 4% said yes.
A third reason is lack of knowledge among the
population. People overwhelming believe-wrongly-that Medicare will pay for
long term care and nursing home expenses. The Federal Government could
help by telling the American public repeatedly that the Government will
not pay these expenses, except for Medicaid eligibles who are or are
willing to become impoverished. Most of the private long term care
insurance that is being bought, is being bought by higher income
individuals for their parents as a means of preserving wealth or as
inheritance protection.
A fourth reason is the cost of long term care
insurance. The cost of this insurance is not guaranteed prospectively in
most States. Insurers refuse to do business in States that do require them
to guarantee the cost of policies. There is no sound actuarial experience
basis for guaranteeing costs.
The vast majority of individuals do not have the
resources to pay the cost of long term care insurance. Many workers cannot
even afford to pay their share of employer provided health care coverage.
Currently, two-thirds of retirees depend almost exclusively on Social
Security for retirement income. At median, a retiree in this population
has total financial resources of only $10,125.00. To be in the top 20% of
retirees today, an individual needs to make only $22,000 per year from all
income sources; $32,700 for a household.
"So, the concept of those individuals who are
living on inadequate Social Security benefits, who have no financial
resources, either having the capacity to pay long term care insurance
premiums while working, or to contemplate payment of long term care
insurance premiums once retired, is at best a wishful fantasy."
At best, only 5-7% of the population has the financial
resources to afford long term care insurance. This is true even if the
"baby boom" generation that has enjoyed the Nation's prosperity
but which will not have the benefit of employer financed retiree health
insurance.
Widespread coverage by long term care insurance would
require 100% assumption of the premium costs by a third-party-an employer
or the Government. That is unlikely to happen. Data shows that even where
a subsidy is available, a de minimis portion of the affected individuals
pick-up long term care coverage as compared with the portion of
individuals who voluntarily enroll in a subsidized health plan or
contribute to a 401(k) plan. The best subsidy case study is the State of
Alaska where the pick-up rate is two-thirds of the working population.
Another example is a long term care consortium of large, profitable,
progressive corporations underwritten by Metropolitan Life Insurance
Company. The highest pick-up rate among the corporations' employees was
11%. Small employers are unlikely to establish long term care plans
considering that only 37% sponsor employee health care plans.
"And, again, given the economic structure and
economic data, the presumption that I would reach, which is not proven,
but I think is valid, is that it is principally a wealth preservation,
family wealth preservation motivation. That makes it an extraordinarily
difficult challenge to think about extending this and having either
employers pay it or finding any set of motivations that would cause
individuals to pay for it."
It is true that long term care is a benefit that an
individual may need at any age, not only in his retirement years. But,
that risk does not translate into a broad demand for long term care
insurance. Most Americans do not believe that they will ever need long
term care. Many do not pick-up subsidized employer health insurance or
contribute to an available 401(k) plan even though they are likely to need
health care and retirement income.
Generally, individuals will not be motivated to
purchase long term care insurance.
"Tax credits won't do it in any substantial
numbers. Tax deductions won't do it in any substantial numbers. And,
education won't do it in any substantial numbers….Substantial numbers
being sufficient to mitigate in essence what is a potential long term
crisis."Given the growth in the population that will need long term
care services, it is doubtful that anyone could create a program to
rationally finance a long term care program.
"But,…long term care will be the least of the
problems that we will be facing [in the future because of the growth of
the post-age 65 population]. Since if those demographic projections are
accurate, in order to finance the Medicare benefits currently in place,
the Medicare payroll tax would have to go to 19.1 percent of payroll,
compared to the current worst case number coming out of HCFA, just 8.3
percent of payroll, and compared to the current roughly 2.9 percent of
payroll."There is a question about whether the financial structure of
the insurance industry could support widespread long term care insurance.
Pension policy and long term care are interrelated, and
the Advisory Council could help to make this point to policymakers.
Ultimately, retirement income security and long term care are about the
same issue-capital accumulation and economic security. Policies that favor
defined contribution pension plans over defined benefit plans providing a
stream of annuity income lead to less retiree income and less ability to
pay for long term care.
"The prospect of Medicaid and Medicare being
expanded to cover these in the absence of many years of 6% annualized
growth, is de minimis. And, if anything vis- à-vis state budgets, the
prospect is that Medicaid long term will pay less, not more."
Mr. Salisbury also provided to the Working Group two
EBRI "Issue Briefs" on long-term care: "Employer-Sponsored
Long Term Care Insurance: Best Practices for Increasing Sponsorship"
(No. 220, April 2000); and "Voluntary Long-Term Care Insurance: Best
Practices for Increasing Employee Participation" (No. 221, May 2000).
Joshua M. Wiener, Ph.D., Principal Research Associate,
Urban Institute
(Summary prepared by Catherine L. Heron)
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:
Although there is no established definition of
long-term care, for these purposes, it can be defined as a range of health
and social services for those who cannot care for themselves. Currently,
the number of people needing long-term care is estimated to be 13.1
million, of whom 3.8 million have significant disabilities. Approximately
45% of those needing long-term care are under age 65. By 2050, the baby
boom generation "bulge" will have moved into the over 85 age
category, and there will be fewer people in the under age 65 category--the
age group of those who are the primary long-term care providers.
The majority of people over age 65 who are receiving
long-term care are not in nursing homes or similar facilities; they are
receiving care from children, spouses, and other family members (primarily
women). Of the population in nursing homes, the typical resident is an
unmarried woman over age 85. The median income level of disabled women
over age 85 is approximately between $12,000 and $15,000. The average
annual cost of nursing home care is $56,000.
Public funding through state Medicaid programs is the
most important source of financing for long-term care. Medicaid accounts
for 44% and private insurance represents only 7.6% of long-term care
financing. States have great flexibility in designing the Medicaid
long-term care systems. Medicaid is jointly financed by state and federal
governments. To qualify for Medicaid assistance, a disabled person
generally must have exhausted all of his or her financial resources.
The problem: our current long-term care system is too
expensive and is welfare-based, requiring impoverishment for coverage.
Long-term care costs for older people are expected to increase to 2.14% of
GDP by the year 2048 (as compared with 1.21% in 1993).
Although it is commonly thought that private insurance
would be a better alternative to public funding for long-term care, this
is not a practical or realistic goal for most people. There are currently
only 3.5 million private long-term care policies in force. The majority of
these policies are sold to the elderly. For most elderly, however, long-
term care insurance is too expensive, and for most younger people
"it's a tough sell." When offered by employers, long-term care
insurance coverage typically is paid entirely by employee contributions.
The "take-up" rate for this benefit is low, typically 5-10%.
HIPAA provided limited tax incentives for private
health care insurance. Further tax incentives are not likely to
substantially increase the use of private long-term care insurance. A tax
deduction for the cost of such insurance will not affect its affordability
for most elderly, who either pay no taxes or are in the 15% bracket. The
$1 billion projected cost for an above-the-line-deduction for long-term
care insurance would be better spend on direct services to the disabled.
Despite the modest growth in private insurance,
long-term care is likely to continue to be financed with public funds.
Overall, Medicaid is a relatively inexpensive system of financing.
The issue of long-term care is by itself not a huge
financial crisis, but when combined with future social security
insolvency, it raises serious concerns about future sources of funding.
Long-term care is not likely to be an issue that is high on the U.S.
political agenda until the baby boom generation reaches their 80s.
However, the aging parents of the baby boom generation may make it an
important issue within the next few years.
WORKING GROUP MEETING
June 1, 2000
1:00 p.m.
THOMAS FOLEY, Director of Accident and Health Division,
Department of Insurance, State of Kansas (Summary prepared by Richard Tani)
Notable Quotes:
"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."
Summary:
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:
Policies have level premiums with significant reserves
built up in early years, but no nonforfeiture values, since that would add
30% to 40% to the cost of policies. Basically gains due to policy lapses
are used to pay benefits for policies which continue.
Claims are relatively low until people reach their mid
70's. Then claims escalate rapidly.
About 60% to 70% of claims are related to cognitive
based disorders (e.g. dementia and Alzheimers). If there is a cure in
these areas, claims would come down dramatically.
Policies may cover nursing home care only, home health
care only, or comprehensive care. Comprehensive care is the most
attractive, but also the most expensive. It covers skilled care in nursing
homes, intermediate care, and some forms of custodial care.
Policies were usually priced with a minimum expected
loss ratio (or benefits ratio) of 60%. If claims are higher than expected,
an insurance company may request an increase in rates. Recently, some
states have only allowed an 85% loss ratio on premium increases to
encourage companies to set adequate premiums in the first place.
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
(Summary prepared by Michael Stapley)
Mr. Wiener made the following significant points in his
testimony:
Part of the dream of expanding credible LTC insurance
is that we would create a win/win situation where we could both reduce
Medicaid long-term spending, and prevent the middle class from
impoverishing themselves as a result of needing LTC services. "The
premise for that is that many people who use Medicaid LTC services, in
fact, did not start out as being poor, but, in fact, became poor because
of the very high cost of LTC services." On average, a year in a
nursing home is about $45,000.
One of the barriers to the expansion of private LTC
insurance has been the price of the products and the whole issue of
affordability. Other barriers to the expansion of private LTC insurance
include the lack of interest by individuals and denial that they will need
LTC services or require LTC insurance.
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.
Option One - Five percent of income: Older people buy
insurance if they can afford it for five percent of their income and have
at least $10,000 in nonhousing assets.
Option Two - Partnership for LTC: Older people buy
state-approved insurance which increases level of Medicaid protected
assets by amount paid by insurance.
Option Three - Tax-Favored Insurance: Provides older
people with a 20 percent income related tax credit.
Option Four - Employee-Paid, Employer-Sponsored
Insurance: Group policies bought if two percent of income between ages
40-49; three percent of income between ages 50-59; four percent of income
between ages 60-66; and five percent of income for age 67 and older with
at least $10,000 in nonhousing assets.
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.
Long-term care products geared to older people have a
potential for a very small impact on Medicaid expenditures.
Products geared to younger people help solve
affordability problems but face major marketing problems.
Long-term care insurance is not likely to have a
significant impact on Medicaid expenses in the near future.
Full tax deductibility of private LTC insurance is
likely to have a small impact on individuals and employers.
And other options such as the 401(k), the cafeteria
plan option, or the flexible spending account option are likely to have an
even less significant impact on Medicaid savings.
JOYCE RUDDOCK, Vice President of Long-Term Care,
MetLife (Summary prepared by Michael Stapley
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
July 17, 2000
1:00 p.m.
DAVID MARTIN, General Director for Long-term Care at
John Hancock Insurance (Summary prepared by Judith Ann Calder)
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:
5-year comprehensive plan
Average benefit of $100 per day for nursing home care
Benefit of at least $50 per day for home care
Coverage in assisted living facilities
Limited "informal care" so family members can
provide incidental care such as sitting with an insured or running errands
90-day qualification period, meaning once diagnosed as
cognitively impaired or dependent in activities of daily living, the
insured's benefits won't begin until 90 days later.
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:
For 40-44, $500-600 per year
For 45-49, $600-700 per year
For 50-54, $700-900 per year
For 55-59, $900-1,200 per year
For 60-64, $1,200-1,700 per year
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 (Summary prepared by Eddie C. Brown)
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:
We need to understand that long-term care insurance is
front-end loaded. It's level premium, so you're paying much more than the
term cost in the initial years than you do later.
There is the problem of forfeiture, which is a major
challenge. In the event of forfeiture, you may get a refund of premium,
but that's it. Thus, a huge amount of money is potentially lost.
Sales costs for long-term care insurance are huge, and
the take-up rate is low, numbers have been quoted in the 10% range. The
result is agents end up overselling, and people may end up buying long
term care insurance who shouldn't be buying it.
Tax policy that addresses the long term care issue by
increasing the dollar amounts that can be contributed to retirement plans
wouldn't be helpful in Bill's view. The problem isn't with people who are
well off, but with people who aren't.
FRANK TITUS, Assistant Director of Insurance Programs,
Retirement and Insurance Services (Summary prepared by Catherine Heron)
Mr. Titus provided the background development of
pending legislation that would establish a long-term care insurance
program for employees of the federal government. He predicted a "very
real probability" of enactment of this legislation during the current
session of Congress.
The Administration's budget proposal for 2000 had a
number of initiatives relating to long-term care, including a tax credit,
an educational campaign to dispel the belief that either Medicare or
Social Security provides long-term care coverage, a proposal to
restructure Medicaid to focus more on community care, and a long-term care
insurance program for federal employees.
OPM modeled the long term care insurance legislation
after the Employees Group Life Insurance Program, which was underwritten
with one lead underwriter, with many other insurers acting as re-insurers.
It is anticipated that there will be a consortium of insurers, with one
lead insurance company.
Under the draft legislation, OPM has flexible
authority. There can be one or more carriers or a consortium of carriers.
The population proposed to be covered will be in excess of 13 million
people, including, adult children, spouses, parents and parents-in- law of
government employees (including the military and retirees). Parents and
parents-in-law of government employees would be able to buy the insurance
for themselves.
This will be the largest long-term plan in the country,
perhaps the world. The proposed plan will be tax-qualified, i.e., premium
payments by employees can be deducted to the extent they exceed 7.5
percent of adjusted gross income. The program will include a nonforfeiture
provision, meaning that if the premiums increase by a significant amount
(perhaps as much as 75 percent), there would be a residual benefit payment
if coverage lapses as the result of premium non-payment. An inflation
guarantee will also be available. The program may provide only
catastrophic coverage for those who currently have one or more ADLs.
It is anticipated that premiums will be as much as
15-20 percent below what is available in the private marketplace. However,
the program will not be subsidized by the government. It is expected to be
funded entirely with premiums, although the legislation provides the
authority to borrow from the life insurance fund. It is also anticipated
that the coverage will be flexible, adaptable and simple to understand, in
order to meet the diverse needs of the population to which it will be
offered.
The policy will offer the "pool of money"
approach, under which a single structure level premium is charged. The
benefits available are determined by multiplying the applicable rate of
365 days and then by the number of years that the rate is going to be
paid. (The rate is usually determined by reference to the daily cost of
nursing home care.) For example, if the rate is $100, $100 x 365 x 4
years=$146,000, the available pool of money to pay benefits. Once this
money is used, no additional benefits will be paid.
The legislation proposes to offer coverage for a wide
variety of types of care, such as home care, in addition to nursing home
care.
OPM has projected a take-up rate of between 15 and 20
percent for the proposed coverage.
WORKING GROUP MEETING
August 14, 2000
1:00 p.m.
M. KEITH WEIKEL, Ph.D., Senior Executive Vice President
and Chief Operating Officer, Manor Care, Inc. (Summary prepared by James
S. Ray)
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,
(Summary prepared by Catherine Heron)
Ms. Stucki's testimony focused on the need to educate
the public on the importance of preparing for the financial burden of
long-term care in retirement. She emphasized the impact that long-term
care costs can have on a retirement income adequacy.
Both nursing home and home health care costs are
substantial and are likely to increase dramatically by the time the baby
boom generation reaches old age. For example, it is estimated that it will
cost $68,000 annually for help from a home health aid 30 years from now
and $190,000 annually for nursing home care. For that reason, long-term
care planning is an essential part of retirement planning.
Long-term care insurance is critical to protect
retirement assets, and increasing numbers of employees are purchasing
long-term care insurance in recognition of this conclusion.
Long-term care in an intergenerational issue. Of those
families helping to care for aging relatives, 26% dip into their
retirement saving. Twelve percent dip into college funds.
Federal and state sources combined account for only 37%
of the costs of those receiving non-medical long-term care at home or in
assisted living. Medicaid pays the care for only 7% of residents in
assisted-living facilities.
Most Americans are unprepared for the costs of
long-term care. Less than 10% of the elderly have long-term care insurance
and the percentage is lower among younger people. As life expectancy
continues to increase, it's difficult to know how much to save for
retirement.
ACLI conducted a study of retirement planning by those
who own long-term care insurance. The study showed that policyholders are
beginning to obtain coverage at younger ages. Currently, 31% of those
holding policies bought them before age 65. There is also an increasing
trend to purchase comprehensive coverage that includes home care. Sales of
long-term policies rose 11% between 1997 and 1998.
By using long-term care coverage, retirees and
participants can keep their retirement savings invested in the market. To
have $300,000 a year at age 85 (the estimated cost for 2 years in a
nursing home in 30 years), a 55 year old today would have to save $4,400
each year. This assumes a 7% annual rate of return.
With the retirement system in transition, more and more
Americans are taking responsibility for their own future. Long-term care
insurance helps them take responsibility for their financial security and
retirement.
JOHN CUTLER, Office of Disability Aging and LTC Policy,
DHHS (Summary prepared by Judith Ann Calder)
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:
be independent of Medicare
cover home care
cover nursing home care and,
protect against financial consequences of running
through assets to pay for a long term care needs.
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:
80% by individuals at an average age of 67
10% via life insurance
10% via employers
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:
Upping the percentage of employers offering this
product and
Increasing purchase rates by employees.
Deciding whether to spend more on Medicare or offering
tax deductions for long-term care insurance purchase.
Because there will be a shortage of skilled care
providers, something could be done to the number of long-term care and
geriatric case managers.
Immigration rules could be loosened to solve the
projected shortage of unskilled care. Unskilled care is as important as
skilled care.
People could be allowed to pay for long-term care
insurance premiums from their 401(k) funds.
The US Health Care Finance Administration (HCFA) is
likely to begin educating those turning 55 about the fact that Medicare
doesn't pay for long term care.
WORKING GROUP MEETING
September 11, 2000
1:00 p.m.
MARC A. COHEN, Ph.D., Vice President, LifePlans, Inc.
(Summary prepared by James S. Ray)
Dr. Cohen made the following significant points in his
written and verbal testimony:
LifePlans provides risk management services to the long
term care industry, and undertakes research and consulting. He has spent
much of his career in the area of long term care financing. His company
has conducted a number of consumer surveys concerning LTC.
He addressed three major points:
the impact of a proposed above the line tax deduction
on the private long term care (LTC) insurance market (average premium,
demand for insurance, and projected increase in market);
the impact of LTC insurance market growth on Medicaid;
and
the potential impact of market growth on Medicare home
health expenditures.
Tax deductibility of LTC premiums affects the after-tax
amount of the premiums, and the effect depends on the person's marginal
tax rate and whether he itemizes.
The Health Insurance Portability & Accountability
Act's (HIPAA) modest LTC tax deduction and consumer protections provisions
had little effect on the LTC market because most taxpayers do not itemize
and very few itemizers take medical deductions. The main impact of HIPAA
was to raise the profile of LTC insurance among consumers and to give LTC
a government endorsement.
An above the line tax deduction would have an impact in
reducing the net price of LTC insurance. Higher income taxpayers would
receive a greater benefit under the progressive tax system.
A price reduction due to the tax effect of an above the
line deduction would increase demand for LTC insurance. A 21% price
reduction resulting from the above the line tax deduction would increase
demand for LTC insurance by 16- 26%.
There is a need to increase demand among middle class
Americans for LTC insurance. The wealthy can self-insure and, in any
event, get a larger tax benefit from deductibility. The poor have Medicaid
long term care programs.
Marketing has a positive impact on LTC insurance pickup
rates.
Medicaid is the largest public payor for LTC. It spent
$35 billion (38% of all LTC expenditures) in 1998 on LTC. It pays for 68%
of nursing home users to some extent. But, a person must be impoverished
to qualify.
There are issues concerning the impact of increasing
LTC insurance coverage on Medicaid costs, including whether there are
people who would qualify for Medicaid but for their LTC insurance; Dr.
Cohen recently completed a study of LTC insurance policyholders and
claimants, and found that about 26% of claimants would qualify for
Medicaid but for their insurance and that about 8% of all policyholders
(including claimants) would qualify for Medicaid but for their insurance.
He believes that the 8% figure is substantial. He also found.
that LTC insurance policyholders have higher incomes
than the Nation's average;
that of policyholders, 35% have incomes below $35,000;
60% have incomes below $50,000; 70% are married; most have assets in
excess of $100,000;
that of claimants, the average income is $31,000;
median liquid assets is about $100,000; 45% are married; they are spending
an average of $125 a day in the nursing home; their insurance is paying
about $81 per day;
that for every dollar in tax expenditures to encourage
LTC insurance coverage, Medicaid saves about 90 cents for persons who
maintain their LTC policies;
that for every new person induced to buy a LTC policy,
the Medicaid savings are equal to roughly 80% of the expected costs; and
that roughly half of claimants say that they would have
to seek institutional care but for their LTC insurance; but for LTC
insurance, there would be more demand on public programs.
The average age of purchasers of LTC insurance is
falling according to recent research.
Medicare is the largest public payor for home and
community based care services; services that are typically paid for under
LTC policies. The rate of Medicare use among people with LTC insurance is
about 50% of what would be expected given their characteristics. For every
100 LTC insured individuals, Medicare saves about $20,000 annually.
The pricing of LTC insurance has involved a lot of
uncertainty in the past, and insurers were conservative. But, the insurers
are now better able to price the policies based on disability triggers.
BRANDT CHVIRKO, Congressional Fellow from Center for
Disease Control and Presidential Management Intern (Summary prepared by
Rose Mary Abelson)
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
88 percent of all people who receive long-term care
rely on unpaid relations
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:
National Family Caregiver Support Grant Program -
establish a state grant program to provide caregivers and caregivers of
seniors with information about services, assistance in access to service
and counseling. Priority for program goes to low income and minority
seniors. This program is estimated to cost $1.25 billion over 10 years.
Senate Bill 1203 now evolved into Senate Bill 707.
Long-Term Care Tax Credit - provides $3,000 tax credit
to cover long-term care expenses to be phased in over four years. The
estimated cost for this program is $35B over 10 years. This bill initially
introduced by President Clinton in FY 2000. Proposal introduced by Senator
Bieas Senate Bill 2096. This proposal adds Tax Credit for long-term care
on the Child Care Tax Credit. Now evolved as Senate Bill 2225 and HR 3872
on the House side.
Long-Term Care Insurance to Federal Employees - cost is
projected at $39 million over 10 years (House Resolution 4040) passed both
Senate and House and is about to be signed by the President.
Long-Term Care Tax Deductions - current policies
provide for above the line tax deduction for the cost of these policies.
Deductions will be phased in over five years until it reaches 100 percent.
Most recent proposal will allow employers to include reduction for
long-term care insurance policies in cafeteria plans and in FSA accounts.
There are variations of this bill in both the Senate and House. Only bill
that includes Enhanced Consumer Protection Standards.
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.
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