The Good News and Bad News for Private Financing for Long-Term Care (LTC) Needs
About the Author
Eileen J. Tell, MPH, is Principal and CEO of ET Consulting, LLC, a woman-owned business focused on long-term care and aging services. Ms. Tell has more than 30 years of experience and industry thought leadership in long term care. Areas of expertise include policy analysis, market research, product development, and program management and evaluation. Previously she was Senior Vice President for Product Development and Analytic Services at LTCG since the company began in 1990. At LTCG, Ms. Tell directed the consulting division which assisted dozens of leading insurers in the successful design and implementation of LTC insurance products. She also provided public policy research and consulting to state and federal governments. Ms. Tell provided senior leadership guidance to LTCG and won a major LTC insurance case seeking Third Party Administration and marketing support. This major case win launched the company’s transition from a consulting business to a full-service TPA.
She has extensive expertise in public policy analysis, product design, compliance, market trends, and competitive and regulatory analysis. She has consulted to both insurers and to the public sector including state and the federal governments in the US and abroad on a wide variety of long term care topics. She has been involved in public policy analysis in long term care both for states and the federal government. She played a key role in the analysis of the CLASS Act, focusing on consumer behavior and the analysis of best practices in insurance program design, including addressing issues of program integrity and risk management. She has conducted numerous consumer studies on various aspects of long term care finance and delivery. She was instrumental in the design and implementation of ‘Own Your Future,” a U.S. DHHS’s LTC Consumer Awareness Campaign, including development of the first generation of the National Clearinghouse for Long Term Care Information’s new website www.longtermcare.gov. She advices insurers in key product design and implementation areas such as policy language and product features, market entry strategy, marketing and sales, customer service training and support, regulatory and competitive analysis, compliance and market research on long term care needs and preferences in the senior market.
Ms. Tell has published extensively on a wide variety of LTC topics and has contributed as both a writer and editor to AHIP’s Long Term Care Professional Designation book series. Ms. Tell is a graduate of Tufts University and has a Masters of Public Health degree from University of Michigan.
Eileen Tell, MPH
Foreword by Jennifer E. Voorlas, MSG, CMC
The White House Conference on aging in 2015 shed significant light on maintaining the quality of life for seniors and the importance of measures taken for them to “age in place,” however one questions remains: How do the majority of seniors continue to pay for their long term care to achieve this end? Truly, this question has not only become a policy issue but an individual one, as families from differing socioeconomic backgrounds continue to struggle to afford needed care. Long-term care insurance has been one solution to this problem. In this article Eileen Tell goes into great detail to discuss the complexity of long-term care polices and what we need to know as care managers moving forward to best serve our clients.
Despite the availability of a variety of private finance vehicles to protect consumers from the catastrophic risks of needing long term care (LTC), most people do not have arrangements in place to help pay and provide for care when the time comes that they need it. New research underscores the importance of planning ahead for ways to address the relatively likely scenario of needing LTC as we age. Specifically, 50% of those age 65 and older will, at some point in their lives, have a degree of loss sufficient to require hands-on help with two or more everyday activities of daily living (ADLs) or supervision due to a cognitive impairment. The average duration of this care need is just under 4 years, with the risk of needing care and the duration of care needed higher for women than for men. Based on today’s costs of care, roughly 27 percent of us will see costs of care of at least $100,000, with costs in excess of $250,000 for about 15 percent of those who need care. These figures do not include the significant financial and emotional costs of the large portion of care that is provided by unpaid family caregivers.
While there are a variety of private finance options available to provide both financial protection and help finding and arranging for care, for a variety of reasons, few people have chosen to make this type of purchase. These options include:
- Traditional long-term care insurance;
- Hybrid or combination insurance products (combine LTCI with life insurance or an annuity);
- Short-term care insurance;
- Impaired risk annuities; or
- Reverse mortgages
Collectively, probably only about 9 million of the 40 million Americans age 65 and over have one of these private insurance options in place. This falls well below the anticipated “take-up” for what has been shown to be a highly insurable risk. In the 1990s and first half of 2000s, sales of traditional long-term care insurance grew steadily, and products improved significantly. During that time, new product variations emerged to better meet varied tastes and preferences among consumers.
So why has the private finance market for LTC protection stalled so dramatically within the current decade? There are several reasons:
- No single product option today perfectly meets either current or growing needs. Some cost more than many people feel they can pay, some provide only limited or partial protection, and some limit eligibility based on health, income, age or other criteria.
- Today’s LTC options also provide limited reach due to the challenges of raising awareness, motiving and enabling planning, and overcoming denial of the need, or the human nature to avoid thinking about and planning for a future of need and dependency. Many people prefer to “take their chances” and hope that they won’t need care or hope they will have saved enough to pay for their care needs.
In this article, we explore the good news and the bad news about the private financing of LTC needs as revealed over the nearly three decades of experience with these products. We also highlight “What Every Care Manager Needs to Know about Private LTC Insurance” to help our audience understand key elements of the product for their clients who have it.
Good News for Private Financing of LTC Needs
There have been significant improvements in the design of LTC insurance products since they first emerged. While early products were not well-suited to meet the needs of those seeking care, especially for home- and community-based services, today’s products offer comprehensive coverage in all relevant care settings. Most policies have a single pool of benefit dollars from which the insured can select whatever type and amount of care they prefer. So there is no institutional bias with private financing as still prevails with Medicaid. As new options for receiving care (like the growth of assisted living facilities) have emerged, policy design has kept pace with these changes in the delivery system. Most products have an “innovation” provision called an Alternative Plan of Care which gives the policy flexibility to maintain contemporary coverage as service delivery options change over time. Today’s products also include many important consumer protections such as early and third-party notification in case of coverage lapse, provisions to reinstate coverage if a payment is missed, a third-party independent review for claims decisions and more. While early policies relied upon an arbitrary determination of “medical necessity” for when benefits would be paid, today’s coverage is correctly aligned with accepted, reliable, and objective measures of functional and cognitive loss as used by Aging Life Care™ / geriatric care practitioners.
As a result of these important improvements in the type of care that is covered, those with private LTC insurance are more likely to be able to receive care outside of a facility which is generally the preference.
In-depth analyses of how these policies work also reveal that claimants and their families are well-served by their coverage. Roughly 95% of all claims are paid. Among those in claim:
- 94% had no disagreement with the insurer about that claim;
- 3% had a disagreement that was satisfactorily resolved.
- Most claimants say their policy benefits meet care needs; 90% feel their policy provides flexibility in service choice;
- In the absence of insurance, half the claimants feel they would have to seek facility care or not be able to afford care; and
- Most (77%) do not find it difficult to file a claim.
The figure below illustrates some of the non-financial benefits to claimants receiving care under their LTC insurance policy.
The presence of LTC insurance also improves the family caregiving experience. Individuals caring for someone with private LTC insurance are nearly twice as likely to be able to continue to work as those whose loved ones do not have LTC insurance. This working caregiver is also less likely to experience the severe stress and negative physical health outcomes associated with juggling work and caregiving.  The care management assistance provided by insurers reduces caregiver stress by providing a valuable resource for respite care, help finding services, and providing paid care when family caregiving is either not feasible or isn’t desired. But having LTC insurance doesn’t erode the important role that families play in caregiving for their loved ones; it merely changes the nature of the role in a way that reduces the burden of hands-on care and the emotional stress of round-the-clock caregiving.
From a societal perspective, an investment in private LTC insurance also pays off with regard to Medicaid program savings. A recent study estimated the projected lifetime Medicaid savings on nursing home care at just under $8,000 for each privately insured person with coverage at the levels prevailing in 2010.
Finally, the other good news for private financing of LTC needs is the emergence of a variety of new product configurations that broadens the price points and better tailors coverage to satisfy consumer preferences for different kinds of product options. Specifically, the industry has seen significant growth in the sale of combination products (LTC insurance combined with an annuity and/or a life insurance product) as well as in less costly, less comprehensive “short-term care.” Because it limits the insurance liability, these short-term care products are often available with more lenient underwriting than traditional LTC insurance. This helps broaden the reach of private coverage to those who might not otherwise be insurable with a traditional product. Industry innovation in product design and pricing means broader market appeal for those who may not feel well served by the concept of a traditional LTC insurance product.
And Now for the Bad News
The economic challenges and sustained low interest rate environment of the current decade have negatively impacted both the supply and the demand side of the LTC private financing equation. On the supply side, insurers are not able to realize the profitability on product that they previously experienced, especially given tight regulatory limits on the ability to adjust premiums based on financial and actuarial experience. This means fewer companies offering product, limited resources for education and distribution. Also, for the companies that remain in the market, premium increases, tighter underwriting, or other changes put the product out of reach of a growing number of potential buyers.
Offering coverage through sponsoring employers has been an important distribution channel for traditional LTC insurance; but with the emergence of the Affordable Care Act, and the challenging economic climate, the time and attention that employers are able and willing to give to this voluntary benefit is limited. That, combined with some insurer market exits that hit harder in the employer group market, has cut off what had been an important distribution option, especially for reaching younger buyers where affordability is enhanced.
On the flip side, consumers are seeing higher premiums for comparable coverage today compared to a few years ago as companies have needed to seek rate increases. This exacerbates an already challenging value proposition for the buyer. Fewer consumers can justify the investment at a time when portfolios and incomes are challenged in this financial environment. Also, most people who buy LTC insurance are risk-adverse and prefer more comprehensive coverage than perhaps they can afford. Also, as some companies’ attempt to offer lower premiums through reduced coverage (e.g., no longer selling an unlimited lifetime benefit); the market appeal to a primary audience of typical buyers is reduced. The typical buyer psychology isn’t currently compatible with a “some coverage is better than none” mindset, which is behind the emergence of short term care product designs. And while the emergence of a variety of new product types, including lower cost coverage options is intended to address both the affordability issue and the “use it or lose it” nature of traditional insurance, having more options across and within products adds to the complexity of a product purchase that is already seen as confusing and challenging to many consumers.
Finally, while awareness of the risks and costs of LTC has increased, and the value of planning ahead for LTC needs is gaining acceptance, most consumers still fail to plan. LTC insurance will remain a product that is sold, not bought, as long as the decision to buy or not buy is a voluntary one, and the incentives for purchase are in a “difficult to imagine” far off future for many.
Conclusion: Coming to a New Normal for Solving the LTC Dilemma
There is a growing consensus among both the private and public sector players in the battle to address this LTC financing crisis, that the most viable solution involves creative collaboration between both private and public sectors. Traditional and newly emerging private LTC finance products have an important role to play in defining solutions, but it has become clear over the last challenging decade of flat sales despite product innovation, that these private products, under even the best of circumstances, will remain a niche solution. Even with the current private industry disruption, innovation, reinvention, and redefinition currently underway, private market penetration is likely to remain small. For the first time, both public and private sector thought leaders are working together to identify the respective roles each can play in creating viable and affordable solutions. Previously, the debate about how to solve the LTC dilemma was focused on the “false dichotomy that LTC should be primarily either a public or private responsibility.” The conversation today has moved toward a collaborative perspective at least with respect to the fact that the most viable solution(s) will be those in which both private and public sector strategies are combined.
Of course, there is still plenty of room for debate, research, and rhetoric with regard to the best use of both public and private sector resources, and the right way to design products and allocate dollars to address the LTC dilemma. The fact that at both the state and federal level, policymakers and industry are talking about creative solutions, raising consumer awareness, and motivating LTC planning, is a step in the right direction. Rather than focusing on the shortcomings of either a private or a public sector solution, thought leaders are coming together to explore how to work together to create and promote affordable options.
What Every Aging Life Care Manager™ Should Know about Private LTC Insurance
- Most policies have very robust care management using a network of highly trained, local Aging Life Care / geriatric care managers. They are available to help identify care needs through assessment protocols. They also develop and monitor a plan of care suitable to the insured individual’s need and changing circumstances.
- The policy language would typically indicate the nature of the care management or care coordination benefit (See the other types of coverage arrangements sometimes offered described below). If the policy language does not specify how care coordination is provided or paid for, have the insured or their power of attorney call the insurer. With the insured’s permission, you can participate in the phone call as their Aging Life Care / care manager.
- Some older policies pay for care management, but don’t provide it, so a private Aging Life Care Manager may be able to support the family under the umbrella of their coverage. The details of whether and how the policy covers care management services is typically specified in the policy language.
- A few policies give the insured the choice of using their own Aging Life Care Manager or one affiliated with the insurer. In those situations, the policy may specify a limit (e.g., a dollar amount or number of care management visits) to that benefit when the individual chooses to use their own care manager, but may provide on-going care management as the individual’s situation changes, when they use the company’s network providers for care management.
- Almost all policies today set a total dollar limit, not a number of days, for how much coverage will be provided. For individuals who have a fixed dollar benefit over their lifetime (e.g., $250,000), a care manager is an important player in helping the family maximize the value of that private coverage. One strategy for doing this is to identify lower cost care options (e.g., one day of adult day care instead of two in-home care shifts) or days on which there can be family in place of paid care, to help stretch the fixed benefit dollars.
- An Aging Life Care Manager can also help families have lower out-of-pocket costs while they satisfy their elimination period or deductible period. Many policies count calendar days of disability, whether or not paid care is received, for satisfying this one-time waiting period. So, helping the family get lower cost care or go without paid care at the start of the disability, can help them more quickly satisfy the elimination period without a dollar outlay. If an expense is required (this is called a service day deductible), then using less costly care each day will also get the insured to satisfy that requirement with less financial impact.
- For those who are getting near their lifetime maximum dollar limit on their coverage (keep in mind that about 45% of all insured have unlimited/lifetime coverage), an Aging Life Care Manager can be important to identify affordable and appropriate care options for the transition off of private insurance. The family may still be able to maintain paying for care, may want to seek out less costly care, or, if income and assets qualify them, they may be eligible for Medicaid assistance.
- Most policies pay for respite care, so helping families provide and arrange for that type of care is important.
- Policies also pay for training for informal caregivers. Aging Life Care Managers can help loved ones identify the best ways they can learn to safely and appropriate provide hands-on care or supervision.
- Care notes are very important to the claim process under a private insurance policy. Helping the family understand the documentation that is needed by the insurer will expedite the process of approving and paying claims.
- Policies differ in terms of the requirements for paying for in-home care. Aging Life Care Managers can help the family identify providers that satisfy the specific requirements of their coverage. Some policies limit coverage to a licensed home health care or home care agency, while others may cover an independent provider (nurse, aide, or social worker) as long as they meet the training and other credentialing requirements identified in the policy. Most policies only pay for family or “informal” caregivers under very limited circumstances so families should read their policy language carefully.
- Most policies also pay for devices, equipment, and home modifications specifically to meet the need of those dealing with loss of functional or cognitive function to be able to remain safely at home. You can assist your clients who have private coverage by identifying for them ways in which technology or changes in the home can enhance their safety and care needs.
- If you are helping find care for someone with private LTC insurance, make sure you know whether their policy has an inflation provision – this means that the benefit amount paid for care increases at some pre-set rate or amount to keep pace with rising costs. If it does not, then it will be important to help families plan for the growing “gap” between coverage and costs and to help them find less costly care options appropriate to their needs. Most policies today do have automatic adjustments for inflation.
- The premiums that people pay for their LTC insurance may be tax-deductible under certain circumstances, much the way out-of-pocket medical expenses are treated. Many people are unaware of this or may not realize that they might qualify for this deduction. For those that do not have private insurance, tracking expenses they incur for LTC needs is important also since these can be included along with other medical out-of-pocket expenses for tax deduction purposes. Essentially, these items are deductible if they exceed 10% of adjusted gross income (or 7.5% for those over age 65). Other rules apply so of course clients should consult their tax advisor.
- Finally, policies differ in the protocols and policies under an Alternative Plan of Care. Most policies will not use that provision to pay for in-home care if the insured has a policy that only covers facility care. Generally, the alternative care has to be of equal or greater quality and cannot cost more than what the policy would otherwise pay. Other safety and suitability concerns must also be met. The Aging Life Care Manager should work with the insured and their insurer to understand the parameters for this provision and then help identify care alternatives that fit within that, if appropriate.