NAIC Long-Term Care Insurance Innovations Sub-group
Long-term care Innovation
August 25, 2016
San Diego, California
Thank you for the opportunity to contribute to the discussion about the future of long-term care insurance and the challenges facing the private market and regulators.
California Health Advocates (CHA) is the leading non-profit in California focused on Medicare advocacy and education. We provide timely information on Medicare, related health care coverage, long-term care, and conduct state and national policy advocacy for consumer rights and consumer protections in long-term care insurance. We support the work of the local Health Insurance Counseling & Advocacy Programs (HICAP) with training, materials and technical assistance as they provide counseling and community education on Medicare, related health care coverage, and long-term care.
This year, the oldest baby boomers entered their 7th decade of life at a rate of 10,000 boomers a day. In 2021, at age 75 they will enter the years when the necessity for long-term care will become a reality for many. By 2030, when the youngest baby boomers are 65, the boomer population will make up 18% of all Americans. This is not a surprise. The boomer population has impacted every American institution since their birth from primary schools to colleges, from the workplace to childcare, and now retirement planning to actual retirement and lastly the need for care. The nation’s failure to plan for the care needs of such a large elderly population stands in stark contrast to the looming inevitability of this aging population.
Today the nation is faced with a steadily growing population of aging adults who will need care with no clear system to provide or pay for that care. While private insurance is expected to play a role in financing care, it’s unclear how large or how small that role will be on a national scale. State regulators however will be faced with new insurance products that have untested ideas and pricing that will take a decade or more to mature. Only then will state regulators know how well these new products have performed on their promises.
Stand Alone Long-Term Care Insurance and Linked Benefit Products
As insurers have come face to face with their past pricing errors, middle income people have for the most part been priced out of the current long-term care insurance market with no good alternative to cover these expenses. Stand-alone policies were originally built on an outdated cycle of care, with home and community care benefits grafted onto nursing home policies.
Today, care at home is not only the preferred place for personal care services its where benefits are more often being used, and increasingly where benefits are being exhausted.
Nursing home care is for many people end of life care, lasting a few months, with the exception of those with dementia who may spend years in this expensive setting. While this type of care is a necessary benefit, it won’t be used unless no other option is available.
The individuals most likely to any need long-term care are women, and they have recently been further disadvantage by the imposition of a gender premium surcharge. This makes it even more likely they won’t have benefits when they need them. These products need to be redesigned to reflect changes in the increased use of home care and in benefit packages that cover newer services and technological systems and devices. While important changes are occurring in the Medicaid program in terms of better coordination of services, and an improved focus on benefits and services for home- and community-based care, these changes have not occurred in long-term care insurance products.
Newer hybrid, or combo products that accelerate a death benefit, or annuity benefits with options to pay for long-term care expenses, appeal to high net worth buyers who have the resources to pay a single lump sum premium or to make periodic premium payments. But the benefit structure is difficult to understand and the benefits may not perform the way people expect when care is needed. The multiplicity and complexity of benefit designs linked to financial products needs closer scrutiny by regulators to prevent future problems.
Policy designs that can result in declining death benefits on which long-term care benefits are based, or lower than expected benefit payments based on the present value of a current death benefit at the time of claim, or the potential for additional premium contribution to be required in the future are each a land mine for consumers buying these products for future care needs., 
Consumers must have clear, understandable information when any option to use benefits for long-term care is combined in various ways with the traditional benefits of other products like life and annuity benefits.
Innovation: Benefits Should Reflect Newer Services and Equipment
Current insurance policies are constructed to control when, where, and how benefits are used, and don’t cover modern technological equipment or devices. An insured person’s caregiver, often a family member, has a better sense of how to use the daily, weekly or monthly benefit payment to meet their family member’s care needs. While family members often need help in finding services and coordinating care, geriatric care managers have this expertise and can fulfill an important function by finding and linking all of the public and private resources available in that individual’s community. This function should be a benefit of newer product designs to ensure that an insured person is getting care in the best, most efficient and cost-effective way possible.
Electronic monitoring and electronic sensors can be combined in many ways to ensure the safety of an impaired person living at home, and many of those devises can broadcast monitoring information or alerts to cell phones, computers, or websites and also relay medical information to medical providers. Benefits for these devices could enable a family caregiver to continue their employment while monitoring their family member’s activities and needs electronically.
Newer benefit packages should include these types of services, equipment, and devices. Expanding the potential for care at home with public or private dollars, or a combination of both, has the potential to delay or even prevent the need for care in a more expensive setting, and can delay or prevent turning to Medicaid. If newer benefits and benefit packages are developed, the value of home and community care should be recognized in those new policy designs. A new design should eliminate current distinctions on specific services and providers of care once an insured has met the benefit trigger, in anticipation of using these newer services, service delivery systems and providers.
Families should be able to make decisions about care needs and where and how those needs will be met with help from a certified care manager and with ongoing care coordination that should be part of the benefit package. Benefit periods and benefit payments should be expressed in dollar amounts not duration, and benefit statements should show the dollar amount of benefits remaining with each benefit payment.
There have been suggestions to build a cash-value or other features into long-term care insurance that could potentially increase the value of coverage when that coverage is not maintained. Given the pricing problems the industry already faces on existing coverage, it’s difficult to see how adding cash value to stand-alone long-term care insurance in the future could be successful.
Affordability and Medicaid Spend-Down
Much of the discussion about the value of long-term care insurance relies on the concept that without it, massive numbers of people will flood into state Medicaid programs. Yet, that may happen anyway and have little to do with long-term care insurance. A larger percentage of the younger boomers are entering retirement at much greater levels of poverty and disability than past generations. And a larger percentage than in the past is near poor and will be less prepared for the costs of retirement, including care at older ages. In addition, this population has fewer children and has been more frequently divorced reducing their access to family caregivers that might allow them to get their care at home.
It is also unclear how many younger boomers entering retirement in the near future can afford to pay premiums for long-term care insurance, and would be able to continue those premiums throughout their life in the face of premium increases that are certain to occur. Medicare premiums, Part D premiums and cost-sharing, and Medicare Advantage or Medigap coverage all add up to an increasing amount of post-retirement medical costs.
Retirees often have to make tradeoffs between increases in their basic expenses and their resources, leaving less room to keep or add premiums for long-term care insurance premiums. Women, in particular, face greater obligations as caregivers, greater potential of facility care when they are single, divorced, or widowed, and have less earnings and resources to cover the cost of insurance. They now also face premium surcharges because of their gender.
There is growing acknowledgement that insurance alone is not going to solve the growing problem of financing long-term care. In a recent blog post, Professor Emeritis Joseph M. Belth states his long standing belief that “…..long-term care is a problem that cannot be solved through the mechanism of private insurance.” In his blog post he reviews eight articles he’s written in his previous publication, the Insurance Forum, in which he cited the problems with long-term care insurance during the last 25 years.
An RTI International study done for the SCAN Foundation shows there is no connection between those who might spend down to Medicaid and the ability to pay a long-term care insurance premium.
The Partnership program in California demonstrates that since the beginning of the program, the majority of people who exhausted their long-term care insurance benefits (598) still did not access Medicaid benefits (497),  in all likelihood because they were still not eligible for that public safety net program.
There should be a reassessment of the Partnership concept to determine whether it still makes sense to offer asset protection in return for the purchase of a Partnership product. There might be other Partnership options to consider such as subsidized premiums, or establishing more generous Medicaid eligibility standards with a sliding scale cost-sharing option for Medicaid covered long-term care services for the population most likely to spend down to Medicaid.
Work should also be done to compare various income groups and their ability to fund various amounts of coverage and premiums for long-term care insurance over their lifetime, similar to the way that gaps in retirement needs are used to plan for retirement income. Without concrete information about planning for long-term care most people are not receptive to the need to plan for this kind of care.
“Something is Better Than Nothing.”
No, it’s not, if the “something” is not meaningful. Paying premiums for a small amount of benefits or for short durations is a waste of scarce resources for a person who would otherwise become eligible for Medicaid. It also takes advantage of a near poor individual’s lack of knowledge about the social safety net.
If people are buying small amounts of coverage because they can’t qualify for larger amounts, it may be because the premiums for the “something” they are buying are underfunded and unsustainable. With only a few months of coverage a person might be paying almost as much in premiums over time as they could collect in benefits. In addition, 360 days of coverage must meet fewer regulatory requirements than similar benefits for 365 days of coverage must meet with much more stringent requirements and far more consumer protections.
Premiums and coverage should be consistent with a person’s ability to pay premiums over time, and the amount of resources that would otherwise be at risk when long-term care expenses occur. Benefits and premiums should be tailored to the individual needs and resources of each buyer.
Reduction in Regulatory Barriers
Reducing regulatory barriers should not become a proxy for stripped down or inferior coverage, less consumer protection, or less regulatory oversight. More affordability and accessibility cannot come at the expense of consumers who will buy and use those benefits decades after they are purchased. Inflation protection for instance is critical in a benefit that is not expected to be used for decades. Selling someone a benefit that loses value every year premiums are paid is indefensible.
Disclosures are important for consumers so they can understand what they are buying and how a product will work. A disclosure shouldn’t simply contain information that only serves to protect an insurer. A disclosure shouldn’t replace regulatory requirements and relieve a regulator of prohibiting or preventing some future action by the insurer or its agent.
Benefits that pay for future care regardless of the duration, amount, or type of coverage requires careful regulatory scrutiny and oversight, particularly when multiple types of benefits are combined, when benefits can have different values or payouts depending on how a benefit is used, or when options for using coverage in different ways are sold to consumers.
The problems related to pricing assumptions and large rate increases in “legacy” products offers a clear example of the need for careful review and understanding of products with benefits that may not be used for many years. The need for long-term care services and how those needs are met is uncertain. Unlike death, the need for care it is not clear-cut and lends itself to interpretation and disputes.
A Word About Medigap and Long-term Care Benefits
A Medigap policy covers out-of-pocket medical costs. Medigap premiums increase every year because the benefits are linked to Medicare and Medicare costs. Adding a long-term care benefit to a Medigap policy would add cost to an existing premium and puts two benefits at risk when premiums increase. A long-term care benefit would drive up a Medigap premium in direct proportion to the claims experience for long-term care.
In the past, some Medigaps contained a mandatory home care benefit that was seldom used and later removed as a benefit from those plans.
People didn’t use the benefit because they didn’t understand how to use it, and confused it with Medicare’s very strict benefit for care delivered at home. Considerable caution is warranted when thinking about adding cost to existing coverage for out-of-pocket medical costs for people with Medicare.
Consumer Education and Assistance
Consumers need information about a wide variety of topics connected to long-term care. But consumer education cannot become a marketing stream for insurers. Paying for care is an important topic, both for those who can afford some amount of coverage and those who will inevitably rely on the public safety net.
Consumers also need information about services, providers, local resources, and how to utilize their financial resources to pay for care as well as paying for benefits they might use later. They need to know about local Area Agencies on Aging for information about local resources and services, including the new federal Independence at Home Demonstration if it exits locally and the State Health Insurance Assistance Program (SHIP) for help with understanding long-term care insurance.
Long-term care is usually not a predictable event. Even in cases of dementia the point at which action has to be taken tends to occur with some suddenness. When it occurs, it has a profound impact on the individual and their family, and on their resources. The type of care and the cost of care is usually not known or anticipated in advance of the need for care. With some advance knowledge and planning, families could be better prepared for a long-term care event, even when they can’t afford to buy insurance to cover that cost.
We believe that American’s need to understand the issue of long-term care in greater detail, and the lack of a national system to pay for and to provide care. We agree that public benefits of all kinds could be retooled and upgraded in various ways to help with the need for care. There are also important ways that public and private market ideas could be combined to fashion a variety of national approaches to financing care.
What Can the NAIC Do?
Regulators have two important responsibilities: 1) to ensure the solvency of the companies they regulate and the proper working of the insurance marketplace, and 2) to protect consumers. Many of the suggestions the subgroup will receive fall into two categories: reduce regulatory barriers and a plea to design and approve new, more affordable products.
Regulatory requirements exist for a reason, usually as the result of something that needed to be changed, required, or prohibited. Marketing standards and disclosures, for instance, came to the attention of regulators because of problems reported by consumers as complaints or reported by the press. Rate increases have been a once-a-decade problem for the last 30 years, each one worse than the last.
Changing or removing existing requirements or prohibitions will require careful examination to ensure that the practices they were meant to reform don’t reappear in the same or slightly different form.
Many suggestions for new products involve ways to make those benefits less expensive than existing benefits. Because these products will be for the stated purpose of helping people pay for long-term care services, any new products must have sound economic value, not price people out of coverage as they age, and provide a meaningful benefit at the time of claim.
If new products are allowed to use attained age rates, restrict coverage to a defined term, increase rates on a scheduled basis, impose vesting periods, or include a cash value, any or all of those features must be clearly explained to consumers. New products must also explain how consumers or their benefits will be affected in the future by whatever combination of choices they make for coverage now or in the future.
Thank you for the opportunity to comment. We hope to continue contributing to this discussion, and will be carefully examining any proposed changes and how consumers might be affected.
Bonnie Burns, California Health Advocates
NAIC Consumer Representative
 J.M.Belth, Ph.D., professor emeritus of insurance, Kelley School of Business, Indiana University