The Challenge of Long-Term Care Insurance: Can It Close the Long-Term Care Funding Gap?

Earlier this month the Senate Special Committee on Aging convened a hearing provocatively titled, "Boon or Bane? Examining the Value of Long-Term Care Insurance." Presiding over the hearing was U. S. Senator Herb Kohl, a Democrat from Wisconsin.

 

Experts estimate that two out of three Americans age 65 and older will at some point in their lives will need long-term care services - whether that be an informal, unpaid caregiver who manages their finances and takes them to the doctor, all the way to needing nursing home care 24 hours a day, seven days a week. Whether at home or in a nursing home, long-term care insurance can play a role in funding these persons' long-term care needs.

 

The average annual cost of a nursing home in the United States now exceeds $70,000. The majority of older persons in America are unable to bear this expense for more than a few months before they must turn to the Medicaid program to pay for the cost of their nursing home care.

 

"Long-term care insurance is an appropriate product for many who wish to plan for a secure retirement," Sen. Kohl said at the hearing. "But until we can guarantee that consumers have adequate information and protections, and that premiums won't skyrocket down the road, long-term care insurance is not ready to be a major part of the health care reform solution."

 

Is private long-term care insurance the answer? In her testimony presented to the Senate panel, Diane Rowland, Executive Director of the Kaiser Commission on Medicaid and the Uninsured, addressed the challenges facing the country in relying on long-term care insurance to address the funding gap.

 

Key findings of the Kaiser Commission include:

 

Cost is a key barrier to expanding the role of long-term care insurance. Surveys show that consumers cite the high cost of the insurance as the most important barrier to the insurance purchase. For individuals age 60 with no partner, the annual premiums for a typical policy averaged $2,329 across three products offered by three major carriers. For a couple the same age, premiums for the same policy design averaged $3,096 combined for the two people. If purchased at age 70, premiums would cost, on average across these products, $4,515 per year for an individual and $6,010 for a married couple.

 

Health risk can deny people coverage. Long-term care insurance is underwritten. Like health insurance, prospective purchasers must undergo health screening their application is approved. It is estimated that as many as 20 percent of applicants are denied coverage.

 

Buyers face complex product design issues. Long-term care insurance products are complex, reflecting a largely unregulated market. Some experts suggest that lawmakers should limit selection among types of long-term care policies, similar to Medicare supplemental insurance plans (insurers are permitted to sell 12 standard "Medigap" plans).

 

Time lag between product purchase and use of benefits creates problems in service use. A 50 year-old who purchases a policy may not need to use it for 30 years or longer. What will long-term care look like then? Will today's policies be relevant to tomorrow's technology?

 

Employer-based policies may be promising, but coverage may not be adequate. Youthful employees may buy long-term care insurance while in their 30s and 40s, but will their insurance coverage be adequate when they reach their 80s? What will inflation do to their policy benefits?

 

The relationship between Medicaid and private long-term care insurance. Under the Medicaid Partnership Program, the purchaser of a long-term care policy with $100,000 in benefits can protect $100,000 in assets from Medicaid spend-down. This linkage between private insurance and public benefits suggests that policymakers need to address how the Medicaid partnership program can complement and work in tandem with private insurers.

 

For more on the hearing, visit the Aging Committee's Web site at www.aging.senate.gov.