• A few ideas on expanding LTC insurance

    Ron Lieber in Bucks blog hits the nail on the head regarding Long Term Care (LTC) policy:

    Pair the Class Act news with an essay in the Sunday Review section of The Times by Jane Gross on how Medicare ultimately fails so many elderly people, and you start to get a sense of the size of the problem we are facing. Plenty of people think Medicare will cover all their needs, but it doesn’t…if you want high-quality care…it can sometimes cost $100,000 a year or more.

    Sure, you could try to buy insurance via the private market. But the companies that offer it are no dummies. They see what is coming, and they are either rapidly raising prices or getting out of the industry altogether…

    So how would you solve this problem? I’m out of ideas but still enraged by the fact that nobody wants to talk about this.

    Four ideas.

    • Shift responsibility for LTC to adult children. Mark Pauly wrote a classic paper on rational non-purchase of LTC insurance that concluded the main benefit of such coverage flows to children via increased estate size. How could we incentivize children to plan ahead for the potential LTC needs of their parents? Back in 2008, I proposed forced savings in private accounts that could be used to finance the LTC of parents, but if not needed, the assets could be used for other things. Howard Gleckman outlines similar thinking in a Health Affairs blog post yesterday.
    • Change private LTC insurance premiums from level to increasing. Paul Van de Water has suggested premiums could be indexed to inflation, making them lower when persons are younger than they would be under the common practice of LTC insurance policies offering level premiums for the life of the policy.
    • Increase understanding of the cost of LTC. One reason for non purchase of private LTC may be not understanding the costs of  providing such care. Gleckman notes

    ” the government had asked for $120 million to market CLASS and to get it going. Imagine if the government spent $120 million to market the need for long-term care,”

    “The trick…is to get as close as possible to a mandate without actually having a mandate. Gleckman suggests a possible model in which private long-term care insurance options would be offered “in a highly regulated and transparent environment,” somewhat akin to Medicare Part D, with penalties in the form of higher premiums the longer one waited to purchase coverage.”

    In this way, the problems of CLASS are similar to those faced by the Republican alternatives to the ACA; the need for something functioning like a mandate to pool risk, while being able to say there is no mandate for political reasons. Gleckman notes,

     “This is the classic chicken and egg problem of insurance: If you can get a good enough risk pool, you really ought to be able to get the price down.”

    Whatever we call it, it is abundantly clear that it will take policy change to improve risk pooling in LTC and alter the status quo.

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    • Seems to me, based on the figures from another TIE post (http://theincidentaleconomist.com/wordpress/where-did-class-fit-into-ltc/) that the greatest need would be to supply LTC in the nursing home setting. Nursing homes account for 70% of total LTC costs. Elderly (65+) patients make up 87% of that population. Other than for cost, why LTC has never been an integral part of Medicare has always baffled me. Why should someone become destitute before our society deems it acceptable to cover LTC for them?

      Another idea, why not let the chronically ill spend down life-insurance policies to cover the cost of LTC?

      • @Cedric Dark
        there are combi life insurance/LTC policies…my dad is a financial planner. He doesn’t like them b/c he thinks the higher premiums make it not worth it, but they address worry about dying with no use and not “losing” all ones premiums. Regarding NH, there are two issues. Setting and who pays. There are worries that Medicaid has an institutional bias that means some are in a NH who could be cared for elsewhere in a cheaper and preferable setting. Medicaid programs tend to worry a lot about woodwork effects. And most people getting LTC are not in NH setting. My biggest question is what degree are families purposefully self insuring via informal care? If they were choosing this approach based on preferences that is one thing, but I think there are lots of worries they are “choosing” by not thinking about or addressing. The biggest thing holding back planning is that it is very easy to come up with something more appetizing on a given day than planning for your own (or your parents) LTC. It is surprising to me that conservatives don’t drive the train on LTC policy given Medicaid expense of NH.

      • @Cedric:

        You asked “Why should someone become destitute before our society deems it acceptable to cover LTC for them?”

        One could ask that the other way – why should society cover LTC for someone who has assets to pay for it themselves? There’s a certain fairness to the way things are today. Why should taxpayers support people who have means? So that their children can receive an inheritance?

        • @K Marq
          A terrific question: “why should society cover LTC for someone who has assets to pay for it themselves?”
          It comes down to where you are on the political spectrum I guess. Some people want to means-test Medicare. I for one don’t see the problem with letting Warren Buffet (if he were to have a stroke and get permanently disabled) to use Medicare to cover his LTC needs if that meant that another 99 people without the financial means to do so could get the same benefit. Just don’t have him in a nursing home with gold-plated faucets!
          @DonT
          I just found out about the hybrid policies LTC/Life form my own financial planner, thanks for the tip.

          • @Cedric Dark
            my dad doesn’t like the combi policies, but in fairness, he doesn’t really like insurance generally and is always saying the best LTC plan is $1.5Million in cash. This is undoubtedly true, but is not a population based answer. One tricky thing about LTC is how much is provided informally and getting straight what the costs of that are. I will blog a bit about that over next weeks.

    • Seems like one way to get people to consider buying insurance would be to require that LTC costs in excess of the actuarial value of someone’s lifetime contributions come out of their estate, and Medicare is first in line before all of the children.

      E.g. – want to have an estate to leave the children? Buy private LTC insurance.