Federal Long-Term Care Insurance Plan Is Short-Term Thinking

The new long-term care insurance proposal that Democrats have included in a Senate health overhaul bill would produce about $58 billion in revenue for the government over the next 10 years, according to the Congressional Budget Office (CBO).

The $58 billion could be used to offset the cost of the national healthcare program. "Legislators must be salivating at a potential source of income with absolutely no potential for expenses for years to come," explains Jesse Slome, executive director, of the American Association for Long-Term Care Insurance, the industry professional trade organization.

Monthly premiums paid by individuals would account for the $58 billion. Premiums would vary by age but are expected to average about $65 per month ($780 a year). Under the proposed program, no one would be eligible for benefits until they have paid premiums for five years - a reason the CBO estimates the program would net revenue for the government for its first 10 years." The CBO generally does not estimate the cost of programs beyond 10 years, the period covered by procedural "pay-as-you-go" rules requiring legislation to be budget-neutral.

"When has a government entitlement program accurately estimated income and projected expenses," Slome queries. "The CBO already estimates that premiums will be insufficient and will likely need to be increased to maintain the program's solvency. The government already runs a disability insurance program through the Social Security Administration, but it is very difficult to qualify for that program and there is a backlog of people who have appealed Social Security's initial decline of their benefits."

According to the Association some 8.25 million Americans have already purchased long-term care insurance on an individual basis or through their employer. "Some 400,000 new policies are now sold each year," as more people understand the need to plan for the risk of needing care. Millions of others will be able to use the built-up value of their homes through a reverse mortgage.

"Another underfunded entitlement program where the real cost won't be known for 10 or more years simply shifts the financial obligation to the next generation," Slome says. "That's long-term care planning of the worst kind."

Comment on Congressional Budget Office Long-Term Care Proposals

Received several notes from people regarding the information posted from the Congressional Budget Office's report on Long-Term Care proposals.

I thought I would share comments (below) from one leading expert whom I respect as one of the more knowledgable LTCi industry pros. On a personal note, I completely concur that the proposals will cost taxpayers and will do nothing to keep Medicaid solvent to meet the future needs of consumers. The American Association for Long-Term Care Insurance is not chartered as a lobbying entity but we'll do our best to keep everyone apprised and if the time comes to raise our voices ... we will. My goal for this blog is to be information (not an ongoing rant) ... but I'm personally glad to see some folks have signed-up. You can post comments to the blog.

Let's keep building ... we have some wonderfully bright and passionate minds (on our side!)

Jesse Slome


One Expert Comments to the CBO Proposals for Long-Term Care

"I won't go into the problems the Medicaid suggestions raise: How does a minimally trained case worker in a county get info about expenditures made 7 years ago from anyone much less from a cognitively impaired 85 year old! But the LTC insurance piece does concern me. I'm surprised you were not more critical of the CBO report proposal.

As I look at it, it would severely impact LTCi sales opportunities and harm the public.
1. Even where a person made $100K over 40 years, a savings account of 1.2% of income would only accumulate about $53K. Scarcely adequate to buy LTCi for a 65 year old 40 yrs from now. If the client had used the 1.2% right along to pay premiums rather than put money into the Treasury account it would work, but not the way this concept is set up.

2. Second, I couldn't find anything in the report about treasury bills. Nothing in the report that says any interest would be paid which makes affordability of decent LTCi at 65 even more unlikely.

3. Why buy LTCi at all until 65 when the windfall occurs. We've fought the "Medicare covers LTC" myth for years. This would be a million times worse especially since the feds will be touting the plan. Windfall is also an appropriate word. The concept implies a single premium. There is no other way to explain the report's provision that allows funds remaining after the "best" policy is purchased to go back to the accountholder (after taxes). If the CBO authors had envisioned annual premiums, this would never come up because remaining funds would be premised on death or LTC eligibility .

4. The report says insurers would have huge opportunities to sell new products. I agree, but not the products we do today nor products that actually help our clients. CBO optimism is premised on the idea that the cost of LTCi is driven primarily by negative selection. Not so. If everyone had to buy coverage, the cost of policies would go down (maybe 15%), but not enough to make even modestly adequate coverage affordable under this plan. So, at age 65, people would find that unless they were willing to kick in a lot, their promised coverage would be next to nothing. As to insurers, our sales outside the 65 mandated group would be even less than they are today.

On the bright side, we'd have the opportunity to sell new products that matched the limited account funds. On the downside, those products are likely to be standardized (whatever that means to the CBO) products (like Medigap) but dominated by NTQ minimal indemnity coverage akin the old hospital indemnity policies."

Congressional Budget Office Recommends New Savings Program To Fund Purchase Of Long-Term Care Insurance

Congressional Budget Office Recommends Savings Program To Enable Americans To Purchase Long-Term Care Insurance

To aid the incoming 111th Congress and the Obama Administration, the Congressional Budget Office (CBO) has just released a 235-page report outlining 115 budget options for health care reform. The report expands on one the CBO's regular reports to the House and Senate Committees on the Budget. The authors claim the report presents ideas for reducing "and in some cases, increasing" federal spending on health care, altering federal health care programs and making (in again their words) "substantive changes to the nation's health insurance system.

When it comes to the long-term care section according to Jesse Slome, Executive Director of the American Association for Long-Term Care Insurance, most of the changes will increase spending adding costs to an already strained federal program.

One proposal would require workers to contribute a percentage of their pretax wages to an individual account reserved specifically to pay for long-term care insurance. In the Congressional Budget Office’s estimation, a contribution of 1.2 percent of income subject to the Social Security payroll tax would meet the option’s funding requirements. Non-wage earners, such as stay-at-home spouses, would not be covered under this option.

Under the proposed plan, the accounts themselves would be administered by a federal entity, which would invest them in Treasury securities. The money in the account would be the property of the individual and would be part of the individual’s estate if he or she died before turning 65. At age 65, the balance of the account would be required to be used to purchase the most generous long-term care insurance policy available given that balance.

Here is a summary of the other proposals and some preliminary estimated costs:

1. Increase States' Flexibility to Offer Home- and Community-Based Services Through Medicaid State Plan Amendments. This option would increase Medicaid’s spending by an estimated $2.7 billion over the 2010–2014 period and by $8.1 billion over the 2010–2019 period.

2. Make Home and Community-Based Services a Mandatory Benefit Under Medicaid. This option would increase Medicaid spending by approximately $20 billion over the 2010–2014 period and by about $90 billion over the 2010–2019 period. That estimate incorporates a reduction in nursing home spending as a result of a modest decline—compared with current law—in the number of Medicaid beneficiaries who receive care in nursing homes and a subsequent increase in the number of individuals receiving home or community-based services.

3. Increase the Federal Matching Rate for Home and Community-Based Services and Decrease the Federal Matching Rate for Nursing Home Services. This option would increase Medicaid spending by about $8 billion over the 2010–2014 period and by about $13 billion over the 2010–2019 period.

4. Clarify Medicaid's Definition of Permissible Asset Transfers. This option would explicitly define which types of transfers are permissible. Because the rules are ambiguous, states tend to interpret them narrowly. This option would clarify that the following types of transfers are permissible:
Providing financial assistance to a family member for educational expenses;
Assisting a family member with medical expenses;
Assisting a family member facing a financial crisis, including a failing business or family farm;
Assisting an individual who is a caregiver for a family member or person with whom he or she lives; or
Donating funds to a church, religious organization, or charity.
Implementing this change would increase mandatory federal spending by about $2.6 billion over the 2010–2014 period and by $6 billion over the 2010–2019 period.

5. Increase the "Look-Back" Period for Transfers of Assets in Medicaid. This option would further extend that period from 60 months to 84 months for transfers made on or after October 1, 2009. Transfers made prior to that date would be subject to the 60-month look-back period. The look-back period would increase to 84 months over time, with the option generating its first budgetary effects in year six of the 10-year period from 2010 to 2019—that is, after 60 months had passed. Therefore, this change would have no effect on federal spending until 2015; over the period from 2015 through 2019, it would reduce spending by approximately $220 million.

6. Implement Policies That Encourage the Use of Advance Directives. Provided that appropriated funds were available, implementing those activities would increase federal discretionary spending by about $60 million over the 2010–2014 period and by $110 million over the 2010–2019 period. There would be a savings to Medicare of about $30 million over the 2010–2014 period and $100 million over the 2010–2019 period resulting from the portability of advance directives.

Here is the link to access the full report click on this link or paste the following address into your Web browser. The long-term care provisions are contained in Chapter 10 that actually begins on page 193. http://www.cbo.gov/ftpdocs/99xx/doc9925/12-18-HealthOptions.pdf