You Can't Put a Price on Dignity
(written for California Broker, November 2010)
The long-term care insurance industry is hanging in the balance - Medicaid expansion on one side making people think the state will pay, CLASS on the other side making people think the federal government will pay, and rate increases hanging over us like the “average of 40%” bombshell from a major carrier that was announced recently. The only thing I see that can make a difference fast enough is worksite sales and the Partnership provides the "lift" for producers to get this done, plus the new combo products for older clients.
To do my part, I’m completing my last live training tour on November 9th in Anaheim to teach producers how to easily offer LTCI worksite plans to younger people using individual products with underwriting concessions and to older people using true combo products – the kind that can pay after the death benefit or account value has been used up.
Some producers have told me they struggle with selling LTCI because of how upset people are about rate increases on existing policies. Carriers list valid reasons of low investment earnings, higher utilization of the benefits, and a low lapse rate as many more people keep the policies than anyone thought. I believe the biggest reason for rate increases is because we haven't sold the masses. The ratio of eight million policies inforce vs. 230 million Americans over age 18 simply isn’t enough to spread the risk enough for affordable pricing. That’s only a three percent market penetration.1 That’s why we MUST sell long-term care insurance as FAST as we can if we are going to make a difference. At 567,107, the National Association of Insurance Commissioners 2009 LTCI Experience Reports tells us that more LTCI policies have been sold in California than in any other state, but California is #33 in market penetration. A mere 1.8% of the 31 million people over 18 years old are LTCI policyholders in The Golden State.
Here is why this must change.
The nation is being engulfed by a tidal wave of entitlement mentality. The feasibility of funding long-term care with taxpayer dollars through the Medicaid program is bleak with 150 million employees vs. 58 million people on Medicaid today.2, 3 That’s a ratio of taxpayers vs. current Medicaid recipients of 2.5 to 1. However, this ratio doesn’t take into account that the Patient Protection and Affordability Act of 2010 adds an additional 16 million adults with incomes effectively under 138% of the poverty level by 2019 as well as expands Medicaid home care benefits.4
A common prediction for many years has been that the baby boomers hitting Medicaid for long-term care would be an economic disaster for state governments and taxpayers, but the recent pressure from younger, nondisabled adults winding up on Medicaid for health care adds an unexpected weight to an already staggering payment system.
High unemployment has turned many young families to Medicaid for health care, and this pressure on state budgets is exacerbated by the corresponding loss of state income tax and sales tax as the unemployed aren’t able to contribute their normal share. However, these young parents who normally work logically are in better health than many of the 16 million childless adults yet to be added. This population quadrant is among the poorest of health in our country as being victims of mental illness and chronic disease keep them chronically out of work and keep some of them homeless.
Today the elderly and disabled make up only one-fourth of Medicaid beneficiaries but consume 2/3 of the benefit dollars. Younger Americans make up 3/4 of Medicaid recipients but consume only 1/3 of the dollars.5 What will happen when the 16 million new adults are added, many with chronic health conditions that cause this mix to change exponentially so that young and old alike are consuming large amounts of Medicaid dollars?
On top of everything else, the home care expansion could induce a “woodwork” effect, as people who would only use the Medicaid nursing home benefit as the ultimate last resort become more comfortable claiming home care benefits.
What kind of tax increases will it take to support this many people on Medicaid? The workforce is projected to grow only 10% by the time these additions are complete.6
Unlike the federal government, states are required to balance their budget, which means cutting services and jobs. The Center on Budget and Policy Priorities (CBPP) says that states are making choices between funding Medicaid and funding education.7 The 2010 Fiscal Survey of the States makes it really clear where the priority lies. In 2010, California was one of 35 states that made total education cuts of $7.8 billion vs. only $1.5 million in Medicaid.8
No one is connecting the dots that positioning long-term care insurance as payer of first resort and Medicaid as payer of last resort will help tremendously to take the burden off state budgets.
Look at the budget shortfall and cuts California has already had to make to balance its budget:
California has a 21.6% budget shortfall for FY2011 and has cut public health, K-12 and higher education, the state workforce, services for the elderly and disabled and is on the list of states with tax increase activity. California has cut funding for the Children’s Health Insurance Program, nearly all funding for HIV/AIDS patients, and eliminated funding for the domestic violence shelter program. California has reduced K-12 aid to local school districts by billions of dollars and has cut funding for adult literacy instruction and help for high-needs students. The University of California increased tuition by 32 percent and reduced freshman enrollment by 2,300 students; the California State University system cut enrollment by 40,000 students. (Center on Budget & Policy Priorities, 7/15 & 8/4/10)
America has a choice to make. We can use Medicaid to pay for the health insurance of younger people or we can use it to pay for the long-term care of the baby boomers. We can’t do both. If we try, families need to know they will pay higher property tax, higher sales tax, and higher tuition and there may not be scholarship money for their children…in order to pay for Medicaid. Here’s the real kicker - after surviving the mortgage crisis, families can still lose their home to estate recovery because they didn’t plan ahead for long-term care!
This means producers have to equip themselves to sell long-term care insurance in the workplace. Selling LTCI one at a time to individuals won’t get the job done. If most employers offered voluntary LTCI as an employee benefit, we would have a chance to
reach the masses quickly with lower premium and underwriting concessions so most Americans can get it. Some carriers extend the abbreviated underwriting to spouses as well.) No employer contribution is required, so that gets rid of the cost objection.
Most employees can afford at least a small policy as premium is so much lower at younger ages. At age 25, long-term care insurance is less than a Starbucks a day! And with the right kind of education, younger employees realize that anyone could need long-term care due to an accident, stroke or other disabling illness like a brain tumor or MS. An Age Wave/Harris Interactive Survey earlier this year said the biggest concern Americans have when asked about long-term care is not to be a burden on their children.9 All we have to do is show them that the way to prevent that from happening is by buying long-term care insurance.
And yes, they will buy it at young ages…sometimes for that very reason. I’ve been able to help Blue Cross Blue Shield of Tennessee offer long-term care insurance through health insurance brokers since 2005 with amazing participation rates. Here’s a story from one of those enrollments:
Robert was 27 years old and his young wife was only 24. He called for a personal consultation for help in choosing the benefits when his employer offered long-term care insurance. When the insurance producer who took the call asked him why he was interested, he gave this compelling reply: “My father just had a stroke and moved in with us. I have a four-year-old son. I don’t want him to EVER go through this.”
The other big win from the educational process is that extended family members are eligible, which decreases the time employees have to miss work to be caregivers, and that’s the big deal for employers.
The program that makes all this possible is the Partnership for Long-Term Care. By providing asset protection equal to the benefits paid out when one applies for Medicaid, these plans pave the way for younger enrollees who can’t afford long benefit periods but understand that it is essential to start a long-term care insurance plan as young as possible. Now you have two questions:
1) Does it work?
You be the judge. Let’s look at the approximately twenty years of experience of the four original Partnership states: Connecticut, New York, Indiana and California. Of the approximately 325,000 people insured through a Partnership plan, less than 500 have actually had to access Medicaid.10
The 1st Quarter 2010 California Partnership for Long-Term Care report shows the number is only 57 out of 132,000 policies purchased since the California Partnership began. The Partnership not only works, it’s a HOME RUN.
2) Isn’t this the same thing the CLASS Act is trying to do?
Maybe, but the CLASS Act has the wrong benefit structure to accomplish this. Think about it…a small daily benefit and an unlimited benefit period results in people hitting Medicaid sooner rather than later because they can’t make up the difference in what the insurance pays and the charge for care. When they go on Medicaid, the CLASS Act benefit goes to pay for the cost of their care. They can keep 5% if in a facility and half if they are at home. However, the CLASS Act program is not Partnership-compliant so people will still have to spend down to qualify for Medi-Cal.
With 80 million baby boomers starting to turn 65 in 2011 and a 61% chance of needing the type of long-term care that will trigger benefits with long-term care insurance, we all have a significant opportunity to make a difference by funneling private pay dollars into our economy with long-term care insurance benefits which will ultimately lessen the reliance on Medicaid, the taxpayer-supported funding method.11
Most importantly, we have an unprecedented opportunity to enable our clients and their families to retain the decision making power of a private pay patient as long as possible.
If you are puzzled by that thought, think for a moment what it is like to visit a hospital emergency room with no health insurance. One radio talk show host made the observation that long-term care insurance allows people to keep their dignity when extended care is needed. IT’S OUR JOB to make sure every person we know has the opportunity to consider long-term care insurance, because you can’t put a price of any kind on dignity.
Phyllis Shelton is President of LTC Consultants, a company that has provided educational materials and producer training to the long-term care insurance industry since 1991. See www.ltcconsultants.com for a description of the 11/9/10 Anaheim training and her three books that provide a more detailed look at how the Long-Term Care Partnership plans work: Long-Term Care: Your Financial Planning Guide, 2008; Phyllis Shelton’s WORKSITE Long-Term Care Insurance TOOLBOX, 2010; The ABC’s of Long-Term Care Insurance, 2010.
1 2009 NAIC Experience Reports and Census Bureau; 2 “The Medicaid Program at a Glance”, Kaiser Commission on Medicaid Facts, June 2010; 3 “Statistics of U.S. Businesses: Number of Firms. . . by Employment Size…for US and States”, Census Bureau; 4 Ku, Leighton. “Ready, Set, Plan, Implement: Executing the Expansion of Medicaid”, Health Affairs 29:6; 5 Kaiser Commission on Medicaid Facts, June 2010; 6 Census Bureau; 7 Johnson, Nicholas, Phil Oliff and Erica Williams. “An Update on State Budget Cuts”, Center on Budget and Policy Priorities, Updated August 4, 2010; 8 “2010 Fiscal Survey of the States”, National Association of State Budget Officers; 9 “America Talks: Protecting Our Families’ Financial Futures”, a national survey conducted by Age Wave/Harris Interactive, sponsored by Genworth Financial, March 2010; 10 Most recent reports provided by Partnership Directors for Connecticut, New York, Indiana and California as of 9/27/10; 11 Kemper et al. “Long-term Care Over an Uncertain Future: What Can Current Retirees Expect?” Inquiry 42: Winter 2005/2006.