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Stephen A. Moses

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Stephen A. Moses is president of the Center for Long-Term Care (www.centerltc.com). The Center promotes universal access to top-quality long term care by encouraging private financing as an alternative to Medicaid dependency for most Americans. Previously, Mr. Moses was president of the Center for Long Term Care Financing (1998-2005), director of research for LTC, Inc., (1989-98), a senior analyst for the Inspector General of the U.S. Department of Health and Human Services (1987-89), a Medicaid state representative for the Health Care Financing Administration (1978-87), a HHS Departmental Management Intern (1975-78), and a Peace Corps Volunteer in Venezuela (1968-1970). He is widely recognized as an expert and innovator in the field of long term care. He completed the “2008 National Long Term Care Consciousness Tour” traveling for a year and 28,028 miles while living in an Airstream trailer dubbed the “Silver Bullet of Long Term Care.” The LTC Tour promoted responsible long term care planning and rational long term care public policy. Moses can be reached at the Center for Long-Term Care Reform, 2212 Queen Anne Avenue North, #110, Seattle, WA 98109

Long Term Care Epiphany

Stephen A. Moses
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Long Term Care Epiphany

When I first studied the long term care issue in 1982, I sized it up quickly. People were living longer and dying slower, usually in welfare-financed nursing homes. The reason was easy to discern. Well-intentioned politicians made institutional long term care available to anyone who couldn’t afford it otherwise. They called the program Medicaid and over time it caused virtually all of the problems long term care faces today.

By making nursing home care virtually free, Medicaid locked institutional bias into the long term care system, crowded out private home care financing, and trapped the World War II generation in sterile, under-funded nursing facilities.

By reimbursing nursing homes less than the cost of providing the care, Medicaid guaranteed that America’s long term care service delivery system would have a shortage of qualified caregivers and suffer from serious access and quality problems.

By providing care of dubious quality, Medicaid incentivized plaintiffs’ lawyers to launch giant tort liability lawsuits, extract massive financial penalties, and further undercut providers’ ability to offer quality care.

By compelling impoverished citizens to spend down what little income and savings they possessed in order to qualify for long term care benefits, Medicaid discouraged accumulation and growth of savings among the poor, reducing their incentives to improve their stations in life.

By allowing affluent people to access subsidized long term care benefits late in life, Medicaid encouraged accumulation and growth of savings among the rich who could pass their estates to their heirs whether they were stricken by high long term care expenditures or not.

Medicaid discriminated against the poor and favored the affluent by allowing people and families with extra “key” money to buy their way into the better nursing facilities, and by allowing planners to help affluent clients avoid the program’s reputedly poor care.

By making public financing of expensive long term care available after the insurable event occurred, Medicaid discouraged early and responsible long term care planning and crowded out the market for private long term care insurance.

All these pieces in the long term care puzzle were clear to me from the beginning. A solution immediately revealed itself. We had to get people to worry about and plan for long term care earlier in life so they would not end up decades later in need of catastrophically expensive care with relying on Medicaid their path of least resistance.

One way to do that was to force everyone to pay extra taxes to fund a new program that would, somehow, be better than Medicaid. But using government compulsion repulsed me and besides the other programs of that kind we already had, Social Security and Medicare, were slipping toward inevitable insolvency.

So I recommended a kind of long term care social contract. We would continue allowing people with substantial income and assets to qualify for Medicaid long term care benefits, but if they chose that route their largest resource, their homes, would be liened and recovery of the cost of their care mandatory from their estates.

We got most of the long term care social contract into federal law with the Omnibus Budget Reconciliation Act of 1993, but alas states didn’t implement it fully, the federal government didn’t enforce it, and the media didn’t publicize it. So the public remained blithely unaware and continued to ignore long term care until they needed it, relying on Medicaid by default.

So here I am in 2022, 40 years later, with a flash of insight, my Long Term Care Epiphany. To fix long term care once and for all, we have to move its risk and cost forward to a time in life when people are still young, healthy and affluent enough to qualify and afford responsible long term care planning.

But how can we get their attention to this critical issue when they have so many other things pressing on their minds and their pocketbooks? Who worries about long-term care when there are car, home and credit card payments to make, plus retirement and college savings? Answer, almost no one.

Recent research has helped in this regard, however, by showing that the long term care financing problem is not as big as we feared it was. For example: “An American turning 65 today will incur $138,000 in future LTSS costs, which could be financed by setting aside $70,000 today.” That does not sound so daunting. (Melissa Favreault and Judith Dey. 2016. “Long-Term Services and Supports for Older Americans: Risks and Financing.” ASPE Issue Brief. Revised February, p. 1).

If we’re not going to use the government to force people into another one-size-fits-all government program like the WA Cares Fund or the WISH Act, what can we do? We can learn from the critical mistake WA Cares made. Instead of starting with a bad government program and allowing people to opt out of it, begin with the opt out as the way to avoid government compulsion.

Give people options to show they have met their individual responsibility to cover the long term care risk they bring into the risk pool. They can pony up $70,000 today earmarked for future long term care or show they have a plan in place to cover $138,000 of long term care costs later. How? Count the ways.

Long term care insurance could cover that risk. Earmarking a portion of home equity for long term care would also work. A new kind of individual retirement account dedicated to long term care would be a third way. Or maybe a “deferred reverse estate annuity mortgage,” that is, a legally binding and officially recorded lien on one’s estate set aside for long term care.
There are probably many other ways people could formally and legally prove they have satisfied their individual share of long term care risk and cost. All that would be needed is a private company or agency to certify that whatever the individual proposes actually does cover his or her share of the liability.

Ah, but what if someone says, “No, I won’t do my part?” Then and only then the government could step in by garnisheeing wages, reducing grants or withholding tax refunds to create a dedicated long term care account on the recalcitrant citizen’s behalf.

Covering each individual’s contribution to the long term care risk pool will not fully offset the total long term care risk across society. Some people incur far more than the average risk and cost. But by transferring so much of the long term care risk to the private sector, the residual burden on public financing would be vastly reduced and manageable.

With most people already covered for their share of the long term care risk, very few will remain dependent on public programs later on. So Medicaid, or whatever replaces it, could be a high quality provider of long term care services across the full spectrum of care paying private market rates thus raising the access to and quality of long term care for everyone.

Maybe long term care is not the overwhelming challenge it has always been considered to be. Maybe all we have to do is reconceptualize the issue, remove the perverse incentives that discourage long term care planning, and enforce long term care responsibility on the front end instead of rewarding irresponsibility on the back end as now.

The Great Long Term Care Compromise

Stephen A. Moses
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The Great Long Term Care Compromise

Everyone agrees long term care is a huge problem. Too many people need it already. Many more will need it in the future. Financing for care, whether public or private, is inadequate. Long term care threatens to overwhelm both government and family budgets.

What should be done? There have been two schools of thought historically.

One says the government should pay for care after people exhaust their own resources or agree to pay back the cost of their care from their estates. This is the deal Medicaid has offered since its inception in 1965 as amended by mandatory estate recovery in 1993.

The other school of thought, ascendant recently, says the government should require citizens to prepay long term care by means of payroll deductions in a manner similar to other social insurance programs such as Social Security and Medicare.

For decades researchers, advocates and policy makers have conducted studies, published reports, and recommended programs to require the public to participate in long term care social insurance. All of these efforts have failed. Voters rebel.

Likewise, funding long term care through Medicaid with the hope that people would save, invest or insure privately against long term care risk and cost have disappointed. Medicaid costs exploded while the private LTCI market imploded.

Could there be a way to ease the path for social insurance, enhance demand for private LTCI, and relieve the burden of long term care on Medicaid simultaneously?

What if the federal government or individual states implement social insurance programs for long term care but allow citizens plenty of time to opt out permanently by purchasing private LTCI?

We have hard empirical evidence of what would happen based on actual experience recently in Washington State. When citizens of the Evergreen State were given the choice to pay a .58 percent payroll tax for long term care or buy private insurance instead, more than 400,000 sought the latter option.

Because the state gave people a choice to opt out with too little advanced notice, however, demand for private insurance overwhelmed insurance carriers’ ability to meet it in the time available.

But done right, with plenty of time for people to obtain private insurance and with a requirement to keep the coverage in effect year after year, private LTCI could finally become a major long term care funder relieving financial pressure on both the new social insurance program and Medicaid.

Win, win, win.

Social insurance covers all who do not opt out. LTCI covers the rest. Medicaid survives as the safety net it was originally intended to be, but at much lower cost and with sufficient resources to ensure access to quality care in the most appropriate venues.

The Great Long Term Care Compromise invites social insurance advocates to relinquish their demand for compulsory universal participation. It requires free market advocates to agree with mandatory participation for all who do not opt out. If both sides can make those concessions, we can quickly get everyone covered for long term care now and for the future.

Long Term Care Irony

Stephen A. Moses
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Long Term Care Irony

“If you don’t buy long term care insurance, you could lose your life’s savings.”

We’ve heard that threat from government, private companies and the media for decades, but private long term care insurance has languished nevertheless. It wasn’t until a state government forced people to buy public long term care coverage through the WA Cares Fund that private policy sales exploded. Demand for private long term care insurance, as the only means to escape Washington State’s otherwise mandatory payroll tax, overwhelmed supply leaving many citizens of the Evergreen State trapped in a public program they would rather avoid. How ironic and contra-intuitive.

Let’s first put this puzzle into historical context and then resolve the incongruity by examining the almost universally held, but faulty premises on which it’s based.

Anyone who knows anything about long term care financing in the United States recognizes this mantra: Own long term care insurance or you may be impoverished by catastrophic care costs. Almost three of four Americans will need some long term care; one in four will face huge bills. All across the country people spend down into impoverishment until they slip onto Medicaid. That safety net only becomes available when people have been wiped out financially with no more than $2,000 left in savings and no more than $723 per month of income. Both the academic and popular media drum those warnings loudly and constantly into our ears.

Wow! How awful. You’d expect people to seek out and buy private insurance against such a risk without having to be cajoled by commissioned sales agents. But they don’t. How odd.

Finding that long term care’s high cost and Medicaid’s draconian financial eligibility rules weren’t enough to win consumers over, the state and federal governments hammered home the message with carrots and sticks. The long term care partnership program promised partial estate recovery forgiveness in exchange for buying private long term care insurance. Didn’t work. The “Own Your Future” long term care awareness campaign urged people to wake up and take action. They didn’t. Tax deductions and credits at the state and federal levels made private coverage cheaper. But even that didn’t work.

As positive incentives failed, the government tried negative persuasion. Policy makers figured making Medicaid even harder to get should sensitize consumers to the need for private insurance. The look-back penalty for asset transfers to qualify for Medicaid was lengthened and strengthened by federal legislation in 1982, 1988, 1993, and 2006. Congress and President Clinton made it a crime to transfer assets in order to qualify for Medicaid in 1996 only to repeal that “Throw Granny in Jail” a year later and replace it with the unenforceable “Throw Granny’s Lawyer in Jail” law in 1997. Medicaid estate recovery became mandatory in 1993. The home equity exemption was capped in 2006. None of these measures persuaded consumers that they should take personal responsibility to plan, save, invest or insure for long term care.

In fact, nothing worked to get the public to buy private long term care insurance until the State of Washington imposed a compulsory public program financed with a .58 percent supplemental payroll tax and promising a $36,500 lifetime benefit for state citizens. Although the state represented this program as a major contribution to solving the long term care financing problem and promised it would ease the public’s worries about long term care, as soon as a choice to “opt out” by purchasing private long term care insurance became available, Washingtonians stampeded to the exits. Private LTCI carriers were overwhelmed by the demand. Within weeks, private coverage became almost entirely unavailable in the state.

No amount of importuning, positive incentives, or negative threats prevailed. But let the government step in to force people to pay for public long term care benefits and all of a sudden private insurance enjoyed a fire sale. Is this just a one-off in Washington State or could it become a pattern as other states and the federal government experiment with compulsory public long term care programs? Should people and companies hurry to get in front of those experimental public programs by insuring privately? Will they? Or will the long term care irony prevail with denial and evasion continuing to hold sway?

It all depends on whether or not future state and federal long term care programs offer people a choice, an opportunity to opt out by purchasing private coverage. If they do, consumers will behave as they have done in Washington. If not, not. Why is that true?

The answer lies in the commonplace but faulty premises about Medicaid and long term care financing listed in the preceding paragraphs. Medicaid long term care eligibility does not require impoverishment. People can have incomes up to the cost of a nursing home plus virtually unlimited exempt assets and still qualify. Estate recovery is easy to evade. There is no evidence of widespread long term care spend down which is why the academic literature cites none. For documentation of these facts about how long term care financing really works, see Medicaid and Long-Term Care.


So here’s the answer to the “Long Term Care Irony.” People don’t buy private long term care insurance when the government pays for most catastrophic long term care costs, as it has done through Medicaid since 1965. No amount of cajoling, positive or negative incentives will get them to buy. But create a real cost for long term care by forcing them into a payroll-funded government long term care program and they’ll rush to buy private coverage if that escape hatch is available.

The lesson for state and federal central planners is this: If you must force people into mandatory payroll-funded long term care programs of dubious solvency, at least give them a way out by purchasing private insurance so we have some consumers able to pay their own way if and when the bottom falls out of the country’s many fiscally challenged entitlement programs.

The InLTCgentsia

Stephen A. Moses
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The InLTCgentsia

“What is called ‘social’ planning are in fact government orders over-riding the plans and mutual accommodations of millions of people subject to those orders.”
—Thomas Sowell, Intellectuals and Society

“Why the transfer of…decisions from the individuals and organizations directly involved–often depicted collectively and impersonally as ‘the market’–to third parties who pay no price for being wrong should be expected to produce better results for society at large is a question seldom asked, much less answered.”
—Thomas Sowell, Intellectuals and Society1

The LTC intelligentsia agrees on long-term care’s problems and solutions. To wit, more and more people need long term care. Current public programs are inadequate. Private LTCI failed. Providing “free” care stresses families financially and emotionally. So, obviously, we need government to take a bigger role in long term care, preferably with a new, compulsory, payroll-funded, social insurance entitlement program. Or, to keep it simple, just shoehorn long term care into Medicare. That’s the InLTCgentsia’s diagnosis and prescription in a nutshell.

Their remedy relies on government central planners, guided by their own sophisticated expert advice, to design, introduce, pass, implement and defend legislation impacting every individual and family in the country. How do these planners and their advisors know what millions of individuals and families who comprise the market for long term care need and want? In the absence of price data reflecting actual preferences, “polls” must suffice. People say they want more home care, fewer nursing homes, higher quality, lower costs, more control and choices. Will a big new government program deliver those benefits? At what cost? With what unintended consequences?

To answer those questions, don’t we first need to ask and answer why America’s long term care system doesn’t deliver those desired benefits already? Is it for lack of government funding? No. Medicaid, Medicare, the VA and other smaller government programs pay for most long-term care in the United States.2 Is it for lack of government regulation? No. Long term care is the second most regulated industry in the nation, after nuclear power.3 So what does explain the dysfunctionality of our long term care services and financing?

Could the answer possibly be—the same government funding and regulation that dominate long term care already? Medicaid is by far the biggest source of funding for long term care and a huge drain on state and federal budgets. Its coverage rules cause institutional bias. Its eligibility rules crowd out private financing sources.4 Its low reimbursements hamper quality. Its availability after people need care creates a moral hazard that discourages early planning and traps many on public assistance late in life. If the public funding program we already have is the principal cause of what ails long term care, why should we expect a bigger, more expensive and intrusive program to improve the situation?

Try this thought experiment instead. What if there were no Medicaid program to pay for catastrophic long term care costs? How would consumers behave? Odds are people would worry about the 25 percent probability of having a severe need for long term care in the future.5 They would save, invest, or search for private insurance to spread the risk. Unprepared people who were stricken would use their home equity to fund care as most elderly own homes.6 Spending their own money for long term care, patients and families would seek home- and community-based care instead of nursing homes. With private asset spenddown, including potentially $8 trillion of home equity,7 flowing through the long term care services industry, access and quality of care would improve for everyone. Potential profits would supercharge entrepreneurs to discover and offer new and better care options.

What I’ve just described would solve the middle market problem.8 We don’t need to worry about the wealthy; they can take care of themselves. But, what about the poor? Having removed the perverse incentives that discourage responsible long term care planning, many fewer people will end up needing long term care but unable to pay. There will be no more incentive to hire attorneys to manipulate government eligibility rules in order to self-impoverish artificially. The relatively small numbers of genuinely needy people who remain could be served by private charity and/or a vastly scaled down public assistance program funded by a fraction of the savings from ending the Medicaid LTC program.

So let’s pose Thomas Sowell’s “seldom asked, much less answered” question from the quotation above. Whom should we entrust? The InLTCgentsia “who pay no price for being wrong” or the millions of consumers, providers, and insurers who comprise the market for long term care? Why should we be subject to “government orders over-riding the plans and mutual accommodations of millions of people?” When those millions vote with their own money for the kind of long term care they prefer, we will all receive better services in preferred settings. That is the answer.

References:

  1. https://www.goodreads.com/work/quotes/8518862-intellectuals-and-society.
  2. http://www.centerltc.com/bullets/archives2020/1295.htm.
  3. http://www.isanti-chisagocountystar.com/news/talking-with-the-experts-long-term-care-facilities-highly-regulated-for-safety-but-adds-complexity/article_57b48036-9913-11e9-808e-ff0a312dfe03.html.
  4. https://economics.mit.edu/files/7890.
  5. https://www.marketwatch.com/story/a-quarter-of-65-year-old-americans-will-have-severe-need-for-long-term-care-11624896814.
  6. https://www.jchs.harvard.edu/sites/default/files/Harvard_JCHS_Housing_Americas_Older_Adults_2018_1.pdf.
  7. https://www.mcknightsseniorliving.com/home/news/business-daily-news/senior-housing-wealth-exceeds-record-8-05-trillion/?mpweb=1326-17034-3509.
  8. https://www.soa.org/resources/research-reports/2018/ltc-middle-market/.

Government Violates The Long Term Care Social Contract To Your Detriment

Stephen A. Moses
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Government Violates The Long Term Care Social Contract To Your Detriment

What is the long term care social contract? How does government violate it? And why should you care?

Congress established the long term care social contract when President Clinton signed the Omnibus Budget Reconciliation Act of 1993 (OBRA ’93). That law set up Medicaid long term care benefits to work like this. If you need more long term care than you can afford, Medicaid will pay. You can have substantial income and virtually unlimited assets and still get this deal. But if you take it the only care you’ll receive is whatever Medicaid covers (mostly nursing home care) and you have to reimburse every dollar Medicaid pays from your estate.

Wait a minute. Doesn’t getting help from Medicaid mean you have to be low income and have minimal assets? That’s what everyone says. True, that’s the common myth…or lie…depending on whether the person saying it knows how Medicaid financial eligibility actually works.

The truth is people can have virtually unlimited income and assets and still get Medicaid to pay for their long term care. Medicaid deducts private medical and long term care expenditures from applicants’ income before assessing eligibility. So if your private health care costs are high enough, as they invariably are if you’re receiving expensive long term care services, you qualify for Medicaid based on income. An easy rule of thumb to remember is that as long as your income is less than the monthly cost of a semi-private nursing home bed ($7,756, not exactly low income), you’re in.

Assets are even less of an obstacle, because most large resources seniors own are exempt, including up to $603,000 in home equity ($906,000 in nine states) plus, with no limit on their value, one automobile, prepaid burial plans, a business including the capital and cash flow, term life insurance, household goods and personal belongings, even an Individual Retirement Account if it’s in payout status as most must be by age 72 according to the latest Required Minimum Distribution rules. Those are the basic exemptions that Medicaid eligibility specialists explain when they take your application. Of course, Medicaid planning lawyers can expand financial eligibility much further for people with higher income and assets using sophisticated trusts, annuities, and qualified transfers.

If Medicaid long term care eligibility is easy to achieve, it’s no wonder so many people end up on Medicaid, in nursing homes, and vulnerable to deadly viruses. But what about the downsides of relying on Medicaid? Why would people fail to plan for long term care, neglect to save, invest or insure against the cost as soon as possible, and thus assume the risk of ending up in a Medicaid nursing home receiving publicly financed care of dubious quality which they have to pay back in the end anyway?

Excellent question and the answer explains why private long term care insurance and home equity are so little used to pay for long term care. After Congress and President Clinton set up the long term care social contract, the government dropped the ball. State Medicaid programs did not implement estate recovery aggressively; the federal government did not enforce the law; the media didn’t publicize the new estate recovery liability; so the public continued to ignore long term care until they needed it, turning to Medicaid by default when they did. To add insult to injury, the Medicaid and CHIP Payment and Access Commission (MACPAC) recently recommended that Congress make estate recovery voluntary and implement rules that would substantially reduce its potential nontax revenue for Medicaid.

That would be a terrible mistake. Without estate recovery, an enormous potential source of private long term care financing (home equity) is lost forever and Medicaid becomes a tax-payer financed windfall for heirs at the expense of program resources that should go to the poor. Unfortunately, MACPAC relied heavily on advice from Medicaid planning attorneys who make their living helping upper middle class people qualify for Medicaid and avoid estate recovery, an obvious conflict of interest. See “MACPAC Captured” (http://www.centerltc.com/bullets/latest/1302.htm).

So the questions we asked at the top are answered. OBRA ’93 set up Medicaid long term care benefits to work like a government loan. If you don’t prepare to pay privately for long term care, Medicaid will pay, but you only get what Medicaid provides and you’ll pay it all back in the end anyhow. Smart people understanding that deal would have avoided it by preparing to pay privately for long term care if the need should arise. But government reneged, delivering all the easy long term care benefits, but without enforcing the estate recovery pay back. So if you’re trying to sell private long term care insurance, that’s a major reason why so few people show interest and most of the remainder don’t buy.

What can you do about this? For one, contact your members of Congress and urge them to oppose MACPAC’s recommendation to cripple estate recoveries. For another, join us at the Center for Long-Term Care Reform fighting for long term care financing policy that properly enforces the long term care social contract and supports you.

Why LTCI Fails

Stephen A. Moses
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Why LTCI Fails

Congratulations to Carroll Golden, the Limited and Extended Care Planning Center, and NAIFA, for presenting LTC Impact Week, nine hours of online training for LTCI producers Zoomed over three days in November, 2020. Well done; keep it coming.

But two shortcomings struck me about this otherwise excellent program. Low attendance—under 200—and parochialism—it never emerged from the LTCI silo to consider the broader economic and public policy context in which private LTCI is marketed and sold.

Why the low attendance? In fact, why do so few people sell LTCI? That’s easy. It’s a hard way to make a living. The business mostly attracts people who are passionate about long term care because of a personal, usually wrenching family experience. I’ve called LTCI producers “AMGs,” altruistic, masochistic geniuses.

But why is LTCI hard to sell? That question takes us immediately out of the LTCI market silo into the larger economic and policy domains. The conventional answer is that the public is in denial about long term care.

But that tells us nothing. If long term care is such a big risk and cost, as all agents are trained to believe and say, why is it so hard to get people to take the risk seriously before it’s too late to insure?

Well, maybe it has something to do with the fact that government has paid for most high-cost long term care since 1965. After all, upwards of 90 percent of the biggest long term care expenditures come from sources other than personal asset spend down—mostly government.

But to this observation, agents object: “No, that can’t be the problem. My prospects and clients don’t want Medicaid. They’ve heard it’s no good and leads straight to a nursing home. They resent the idea they’d ever rely on public assistance.”

All right, let’s analyze that objection. LTCI prospects and clients are a very narrow sample of all potential buyers. In fact, I think LTCI producers only get to see and talk to about one in ten of the people who could, should and would buy the product if they really believed they needed it.

So why don’t consumers believe they need long term care insurance?

Don’t blame LTCI carriers, distributors or producers. They’ve warned everyone for decades that if they don’t buy the product and need long term care they’ll be wiped out financially.

Don’t blame government. It’s been telling the same scary story, implemented tax incentives at the state and federal levels, and widely promoted the Own Your Future campaign.

Don’t blame the media. Articles touting the importance of long term care planning and the risks of going bare are everywhere nowadays.

You might wonder, in light of such widespread publicity and promotion, how stupid can the American public be? They still ignore long term care risk and cost despite this constant drumbeat of warnings.

Whoa. Back up. Before you impugn consumers’ judgment, consider some economic realities that also influence their decision making.

Consumers tend to ignore warnings about long term care risk and cost because they don’t hear many tragic stories of catastrophic long term care expenditures. That’s because Medicaid pays for most expensive long term care.

So, does this mean the problem with low LTCI take up is that people know Medicaid will pay and so they count on it instead of preparing with private insurance?

Assuredly not! What’s going on is much more nuanced. Think of it in two steps, like this:

Step One: When people are still young enough, healthy enough, and prosperous enough to plan for long term care and purchase private insurance, they hear the pervasive buzz that they need protection against long term care risk and cost. But they have other priorities.

They have house and car payments. They’re saving for retirement. They’re putting kids through college, and so on. At this stage their level of concern about health in the distant future does not reach the threshold to impel them to consider, much less buy, LTCI. Long term care is a back-of-the-brain concern.

At this time of their lives, most people don’t know who pays for long term care and they don’t care. They do have a vague sense that someone must pay because you don’t see Alzheimer’s patients dying in the gutter. It’s much easier not to think about this bothersome subject in spite of the constant reminders. But then …

Step Two: Decades go by, health deteriorates, activities of daily living get harder to manage, cognitive impairment imposes. The need for long term care becomes imminent. All of a sudden, finding and paying for long term care is a front-of-the-brain issue.

The same people who evaded the issue earlier (or more likely their adult children because the elders are now impaired) begin to research long term care seriously. They get no help from Social Security or Medicare, but they find lots of information on how to qualify for Medicaid.

Medicaid financial eligibility rules are very generous. Income usually isn’t an obstacle because personal medical and long term care expenses are deducted before eligibility is determined. Most large assets are exempt and other assets are easily converted to exempt status.

Medicaid eligibility rules are also very elastic, expandable to allow even people with higher incomes and net worth to qualify with the help of Medicaid planning attorneys, whose ads are everywhere online.

People learn lots of negative information about Medicaid, such as the fact it’s welfare, pays too little to ensure quality care, and usually means nursing home care. But by the time they learn this, high long term care costs aren’t just a vague risk off in the distant future. They’re now!

When infirm elders, or, again, more likely their adult children, are staring at thousands of dollars per month for long term care, the prospect of dodging those expenses makes Medicaid look far less undesirable. People adapt. If they’re affluent, they employ “key money” to buy their way into the nicest facilities by paying privately for a while, and then, after a few months, they flip the legal switch to get Medicaid.

Such people don’t talk about how they solved the long term care problem. They’re not proud of it. So the word doesn’t get out. But the damage is done. Another generation is desensitized to long term care risk and cost and the crisis of long term care financing continues.

That’s why the public remains in denial about long term care risk and cost despite the omnipresent warnings. That’s why LTCI is hard to sell. That’s why long term care service and financing problems are self-perpetuating.

And that’s why nothing will change until we break the cycle by changing Medicaid eligibility rules either to exclude middle class and affluent people entirely or to require them to pre-pay or repay Medicaid for their care from their home equity. Only then will they perceive sufficient reason to plan early and insure for long term care.

In the meantime, LTCI carriers, distributors and producers should realize there is more to selling this product than getting sales and marketing right. They have to confront the broader economic and public policy context in which sales and marketing take place.

Health Care Reform’s CLASS Act

Allen Schmitz, FSA, MAAA, Steve Schoonveld, FSA, MAAA, Julie Gelbwaks Gerwitz, CLTC, D. Corey Rieck, MBA, CLTC and Stephen A. Moses
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So what exactly is the Community Living Assistance Services and Supports Act (known as CLASS)?
The idea behind this legislation is to make long term care type services available to all Americans in need. The specific wording is as follows:

Stated Purpose of the Bill (Section 3201)
“The purpose of this title is to establish a national voluntary insurance program for purchasing community living assistance services and supports in order to—

“(1) provide individuals with functional limitations with tools that will allow them to maintain their personal and financial independence and live in the community through a new financing strategy for community living assistance services and supports;
“(2) establish an infrastructure that will help address the nation’s community living assistance services and supports needs;
“(3) alleviate burdens on family caregivers;
“(4) address institutional bias by providing a financing mechanism that supports personal choice and independence to live in the community.”

If passed, CLASS will most likely be a program that will be offered to working people ages 18 and over who will have to choose to opt out if they do not want it.
BROKER WORLD invited several individuals who specialize in the long term care insurance business to say a few words about CLASS.

Al Schmitz,FSA, MAAA
Principal, Consulting Actuary
Milliman, Inc.

Steve Schoonveld,FSA, MAAA
Chief Financial Officer, Actuary
LifePlans, Inc.

In many respects, the Community Living Assistance Services and Supports (CLASS) Act has something for everyone—at least in the short term. It will increase overall awareness of the need for long term care (LTC) planning, provide an insurance solution for individuals not able to obtain insurance, and create opportunities for LTC insurers and LTC agents and brokers. However, the short term gains must be weighed with potential long term pain for the CLASS Act program, the industry and those we seek to assist.

The CLASS Act has the noble intention of addressing some of the difficult problems with the funding of long term care services. Perhaps one of its most important merits is the mere fact of its existence as a way of illuminating the need for financing solutions for the risk. The resulting increased awareness may cause individuals to give consideration to their own personal long term care situations.

A sneak preview of the potential increased awareness that may be created by the CLASS Act can already be seen by the attention given to this Act as part of health care reform. If the CLASS Act is indeed passed, it will increase individual and consumer awareness and encourage a greater number of Americans to take personal responsibility for planning for the LTC risk. This could ultimately create a better prepared and fiscally responsible country.

While there is significant and well-founded concern over the long term impact of potential adverse selection within the CLASS Act, the program provides an opportunity for individuals who cannot obtain LTC insurance for health or financial reasons to be covered under the program. The program is guaranteed issue with only a minimal actively-at-work requirement, such that coverage can be obtained regardless of health status. In addition, the Senate version of the CLASS Act provides a significant subsidy for students and those with income below poverty level.

An implemented CLASS Act, whether sustainable or not, presents an opportunity for agents and brokers selling both group and individual LTC insurance. First, with employers who do participate there will be that annual opportunity for individuals to be reminded of the need to address this risk. Second, there is likely to be a greater necessity than currently expected to promote the CLASS Act program so that the self-employed, spouses of employees, and employers themselves will be encouraged to participate. This may very well be the national “Got Milk?” campaign that the LTC insurance industry craves. To fulfill the potential of this advantageous environment, the industry must provide competitive products that will appeal to the middle class—the target audience that this program intends to reach.

The arrival of 2010 brings the industry an increased variety of opportunities beyond standalone LTC insurance options to assist consumers to manage their LTC risk. The Pension Protection Act has enabled life and annuity combination products to become all or a part of the solution for consumers. Furthermore, the growth in critical illness products either purchased at the workplace or individually has given flexibility to consumers. A properly designed CLASS Act may add a fourth leg to the table, but the key question is: how sturdy will such a table be? If the CLASS Act leg is wobbly, consumers may indeed fall.

Whether at the kitchen table or an employee meeting, agents who sell LTC insurance will receive a higher level of attention. There will be a comparative sale either openly discussed or in the minds of consumers. Historically, the product provisions, the financial stability of the insurer, the intensity of underwriting, and the history of rate increases have all been comparative points that require examination in either the individual or group markets. The same will take place with a CLASS Act program that, if implemented as currently designed, will provide countless comparisons in favor of private insurance. Potential policyholders of either private insurance or the public plan will compare not only the premiums but the risk pools that they are joining when purchasing a policy.

Critics who have examined the structure of the CLASS Act point out that there is a potential that individuals covered by it will falsely believe that they are covered for all of their LTC risks. While it is true that the benefit levels do provide meaningful assistance for some LTC services and support, the program structure may not be sufficient to cover all long term care needs.

Additionally, there will likely be many who use the CLASS Act program to further delay a decision. These individuals will plan to take advantage of the opt-in provisions, despite the penalties, and do so once their needs become greatly apparent. Such individuals, when diagnosed with conditions that are likely to require long term services and support, will take advantage of this ability to adversely select against the program because of the weak underwriting, despite the five-year wait period.

Proponents of the CLASS Act argue that the program will enable a public and private partnership in much the same way as programs in other countries. They also mention that the CLASS Act will enable supplemental insurance policies to be developed. What would these products look like and what difficulties would carriers face in designing and administering such products?

A supplemental or wraparound product could be developed and provide coverage for a CLASS Act program participant for the first five years of issue when the program does not pay benefits. In addition, a supplemental private insurance plan could pay benefits over and above the coverage levels provided by the CLASS Act program, with indemnity, reimbursement, or cash provisions similar to what the industry currently provides. As a supplemental payer, the premiums for private insurance may be reduced, although the expenses to administer such an insurance product would not likely decrease proportionally.

Private insurance carriers will have significant concerns while designing and pricing a program that supplements CLASS Act benefits. First, because of the lack of sufficient underwriting even at a proxy level, carriers will not be able to rely upon purchase of the CLASS Act as entry into a supplemental plan. Lack of sufficient direct or proxy underwriting to prohibit adverse selection on a voluntary program invites adverse selection.

Second, the presumptive claim eligibility provision within the CLASS Act differs from the private industry such that adjudication approaches may require private insurance programs to approve claims that differ from the underlying pricing.

Finally, the uncertain sustainability of the CLASS Act program where premiums are required to be raised and benefits decreased to maintain solvency provides uncertainty for the private market. These issues will differ in a matter of degree between the group and individual private insurance markets, but each is significant enough to cause concern for pricing actuaries.

Therefore, the CLASS Act program is likely to increase the pricing volatility within a supplemental approach because of the inconsistencies of the program with private insurance and the greater expense ratios than current LTC insurance products for underwriting, administration and claim adjudication activities. LTC insurance carriers will likely compete directly with the CLASS Act program and be cautious in their development of supplemental products.

Beyond the final provisions of a sound CLASS Act, there remain many uncertainties. Will the LTC shoppers guide require a disclosure of the availability of the CLASS Act program? Will the suitability forms required by many states do likewise? How will state partnership plans be affected? These are but a few concerns for producers that immediately come to mind.

• In the short term, the provisions of the CLASS Act are positive for many people.

• In the long run, there is significant risk of potentially harmful scenarios. It is instructive to contemplate what those might be and how those scenarios might impact clients and individuals.

If the CLASS Act does not control adverse selection and insure a reasonable spread of risk, the potential long term pain is extreme. This and specific design restrictions are the main reasons for the conclusion of many industry and government actuaries that the program is not actuarially sound and is therefore unsustainable. This should also concern consumers who are seeking to become policyholders in a risk pool that will provide benefits when needed and that is realistically designed to be sustainable.

As is required in the bill, the program must implement rate increases and/or benefit reductions if it is determined to not be financially solvent. If significant rate increases or benefit reductions are necessary, it may be determined that additional action will be necessary. The government may look to the private insurance industry and their ability to write premiums for more healthy risks at a potentially lower premium as “causing” financial instability of the CLASS Act program. Another risk to the insurance industry under this scenario is legislation that limits the underwriting, risk selection, or rating approaches that are important tools for managing the LTC risk. This would dramatically change the insurance landscape and has the potential to significantly reduce the private market. Also, given the size of the liability and dollars in the CLASS Act, there is significant risk to taxpayers that the program will ultimately need to be bailed out if rate increases, benefit reductions, and other market changes are not sufficient to offset the adverse selection that could potentially occur.

While the program is admirable for its intentions, the specific requirements contained in the legislation are not likely to provide for those it intends to assist. However, without passage of the CLASS Act, the status quo will persist and the needs of consumers will continue to grow. If the CLASS Act does not make the final cut as part of health care reform, the question will remain: Can the industry provide the answers and reach this market before the next version of the CLASS Act emerges? [AS] [SS]

Both Schmitz and Schoonveld have served on the Society of Actuaries Long Term Care Insurance Section Council and were members of the SOA/AAA team of actuaries who produced the paper titled “Actuarial Issues and Policy Implications of a Federal Long Term Care Insurance Program.” The paper can be accessed at www.actuary.org/pdf/health/class_july09.pdf.


Julie Gelbwaks Gewirtz, CLTC
Vice President, Marketing
Gelbwaks Insurance Services, Inc.

It seems that many times during the past two decades we have followed possible legislation that could have an effect in some way on the long term care insurance industry. Some of the legislation that has actually passed has had a huge impact on the way we do business. To name a few, the Health Insurance Portability and Accountability Act of 1996 (HIPAA) gave us tax-qualified long term care insurance, and the Deficit Reduction Act of 2005 (DRA) gave us partnership policies. In both cases, there were plenty of varied opinions coming from all over the marketplace on how these new guidelines would change what we all do on a day-to-day basis. Although there are always hurdles to leap and lessons to be learned, we emerge strong and continue to sell this critically important type of insurance—long term care.

Sometimes we surface even stronger than before. I wholeheartedly believe that this is what will occur if CLASS becomes part of health care reform.

At first glance, the CLASS Act looks like it would put the long term care insurance industry out of business. A government program, with no underwriting, that offers unlimited cash benefit LTC?! I can see why most of the major carriers have spent a lot of time and money fighting against it.

However, we should also “think outside the box” for a moment: Our industry severely needs a wake-up call, and I believe that the CLASS Act will give us one. We have had a terrible time getting growth out of this marketplace in recent years. Why have we not reached the more than 90 percent of the population that has not purchased this product? Well, I think what CLASS will do is get hundreds of thousands more people in America discussing the issue of long term care.

Thus, awareness is one big reason why CLASS will be a good thing for us—especially since this is an opt-out program, which means that every person who is offered the program will have to say “no” if they don’t want it. Generally, when people are required to opt out of a program, they do a bit of research first. They might check to find out exactly what it is or how much they would have to pay for a comparable benefit in the open market. This could give us a huge boost as an industry! People everywhere will be talking about LTC—what more could we want? Awareness is the key to showing sales growth.

The next positive is that most sources seem to be saying that premiums for CLASS will be much higher than premiums for a similar product in the individual LTC insurance arena. Therefore, as soon as people research it, they will realize that they can do much better on their own. Hopefully they will reach out to their independent insurance agent and get a proposal to verify this. Of course, they will not have a five-year waiting period before a benefit kicks in for a traditional LTC insurance policy as they would with the CLASS Act. This is another very big difference.

As mentioned earlier, the mainstream industry thinkers that I have heard from are against the CLASS Act. I have been told that the main reason is that they feel this benefit would confuse Americans into thinking that they had legitimate LTC coverage when the truth of the matter is that this coverage would be extremely inefficient. In addition, people are obviously already confused. That is why most haven’t bought LTC insurance! Confusion is not necessarily bad. It is what drives some people to seek advice and counsel.

I absolutely agree that a $50 to $100 per day benefit is just not adequate when it comes to covering the actual cost of a long term care situation. But don’t forget that we really do need that wake-up call. And, anyone who researches this even the slightest bit will find that the coverage they are being offered is way below the actual cost of care and most likely higher priced than anything they can find in the general industry. This, in my opinion, will cause many of those prospects to search out an agent and purchase LTC insurance outside of CLASS.

Another big plus to have the CLASS Act is the simple fact that we would be able to help uninsurable prospects that we come across. So many people are without coverage because they just cannot qualify medically. It would be terrific to have an answer for them. We also lose many sales due to an uninsurable spouse situation. With CLASS, we will be able to move forward with insurance for the healthy spouse and still have an available option for the unhealthy one.

Many people believe that doing a good deed will come back to you tenfold. Well, when your unhealthy client gets coverage (something is better than nothing) from CLASS and you in no way benefited from that—you better believe that referrals will be coming your way.

Last but certainly not least, if it turns out that the CLASS Act premiums are lower than expected and healthy people actually choose to buy into the program—once again, there is a large opportunity for the LTC insurance industry. The opportunity to sell a supplement! Yes, this dramatically shifts all that we know and how we sell product currently, but it is a wide-open marketplace for us to explore with the possibility of selling quadruple the amount of coverage that we do today. And don’t forget, the biggest benefit of all will be that more of America will have this vital insurance coverage in place for when the time comes. [JGG]

 

D. Corey Rieck, MBA, CLTC
President
LTCcompass

CLASS (Community Living Assistance Services and Support) I, introduced by the late Senator Edward Kennedy, would essentially establish a national long term care program that would, in theory, payroll deduct the premiums for its participants.

The version that has largely been discussed would pay roughly $50-$75 a day in cash benefits. The folks utilizing these services under this plan would largely be able to use the benefits in the same continuum of care, services and housing that are available with current plans sold by insurance carriers.

We are in the business of education. That said, how will this affect us? What it may do is afford us the opportunity to educate clients further on what is involved with purchasing a financial instrument such as long term care insurance from the government versus purchasing it from one of the major long term care players in the market today.

If the ceiling of the benefit is $75 a day, will that help secure the kind of care your clients desire? Certainly there is a great opportunity to talk about the cost of living as it relates to geography by utilizing one of the carrier surveys that discusses costs as they pertain to assisted living, nursing homes, adult day care, etc. Your clients will want to understand if the CLASS program will fully fund their care needs.

This is yet another in a succession of examples that further demonstrate the government’s position on funding custodial care; and that is—we have a better chance of seeing Elvis than we have for the government to pay for our custodial care.

Over the years we’ve all seen the reform that has taken place with Medicare and Medicaid. We’ve seen the impact of implementing the Partnership programs as a result of the Deficit Reduction Act. CLASS may prove to be a great opportunity to educate clients on yet another government message on the long term care issue.

It could be a significant step in the right direction. After all, there are numerous messages that have been sent by the Federal Government that basically tell us we are responsible for our own custodial care, and our choice is to pay for it with our principal, or with interest from our principal, i.e., a well-planned-out long term care plan.

We may be in a position to really help clients further once we educate them on whether the CLASS plan will secure the kind of care they wish to have when they need it—if and when it becomes available. [CR]

Stephen Moses,President
Center for Long-Term Care Reform

Has Congress got a deal for you?! It’s a new government LTC insurance plan included in both the House and Senate health reform bills. Here’s what CLASS (Community Living Assistance Services and Supports Act) proposes.

If you (1) don’t opt out of the one-size-fits-all program (you’re in automatically otherwise—no choices, take it or leave it) and (2) if you pay your $100 (or more) extra monthly payroll tax for five years (to “vest”) and (3) you remain employed (at least marginally) and (4) you need help with two, three or four out of six activities of daily living, such as dressing, bathing, eating, toileting (depending on what the U.S. Department of Health and Human Services [USDHHS] decides CLASS can afford), then (5) you may receive a benefit of $50 or more per day (again depending on what the USDHHS thinks the system can bear) for as long as you need it (no limits on the benefit which pays forever once you quality).

Now, you’re a savvy consumer. So you ask some questions just as a client might interrogate you if you were trying to sell a private insurance product.

Question 1: “I’m healthy,” you say, “I eat well, I work out. I have no more than an average risk of needing expensive long term care someday. How do I know I’m not paying higher premiums so others can pay less? How do you price my risk? How do you underwrite?”

Answer: CLASS has no underwriting—anyone, no matter how frail or infirm, can participate. Everyone pays the same premium, but only people who need services will receive benefits. Insurance professionals call this “adverse selection.”

Question 2: “I usually buy (life, health, auto, fire) insurance to replace the small risk of a sudden catastrophic loss with the certainty of an affordable premium. What will this coverage do for me if I have a stroke or get hit by a truck tomorrow and need full-time skilled nursing care?”

Answer: CLASS pays nothing until you’ve contributed premiums for at least five years and then about a quarter of the average cost of a private nursing home bed ($219 per day) if, and only if, the USDHHS decides it can afford even that.

Question 3: “I’ve heard there is nothing but IOUs in the Social Security and Medicare trust funds and their unfunded liabilities top $106 trillion. How would the CLASS Act’s trust fund protect my investment?”

Answer: Money is fungible—as long as the federal budget runs a deficit, your premiums will go to make fiscal ends meet. In fact, half the deficit reduction alleged for “health reform” comes from counting the CLASS Act’s claims reserves as available surplus revenue! The CLASS Act’s promise to pay you benefits someday is tantamount to: “Trust me, I’m from the government, I’m here to help you.”

Question 5: “This CLASS plan sounds awfully top-heavy. Is it actuarially sound?”

Answer: CLASS advocates—LTC providers who need the revenue and people who are uninsurable without it—say CLASS is sound actuarially. The American Academy of Actuaries, the actuary for Medicare and Medicaid, and the Congressional Budget Office say it isn’t. Who ya gonna trust?

Question 6: “What are my options if I opt out of CLASS?”

Answer: Private long term care insurance is available in many forms. It is priced for actuarial solvency; it is underwritten so you pay only for the level of risk you bring into the risk pool; it invests your hard-dollar premiums in solid, protected reserves; it’s regulated to ensure a guaranteed benefit; and it is a contract enforceable in a court of law. CLASS has none of these characteristics.

Question 7: “CLASS sounds like a sucker deal, just another way to transfer wealth from me to others the government thinks need my money more than I do. Right?”

Answer: Bingo! The Medicare and Medi­caid actuary estimates that only two percent will use CLASS. The people who participate will be those who know for sure they’ll need LTC someday and sooner rather than later.

The Big Question: If CLASS passes, how will consumers react?

The Big Answer: Since 1965, when Medi­caid and Medicare passed, the government has paid (inadequately) for most expensive long term care (in nursing homes). CLASS will lead careless consumers to believe a risk they didn’t think they faced anyway has been further reduced by yet another government program, one that pays for home care (they want), not just for nursing home care (they’d rather avoid).

But smart consumers will see through the CLASS Act’s smoke and mirrors. They’ll realize private long term care insurance is their last best hope to ensure access to quality long term care when they need it and in the best, most appropriate setting. [SAM]


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