Financing a National LTC Insurance Program:
Best Practices for a Public Program
Reactor Comments to:
“Long-Term Care Financing Reform: Lessons from the U.S. and Abroad”
Building Bridges: Making a Difference in Long-Term Care
Colloquium sponsored by the Commonwealth Fund and administered by AcademyHealth.
27 June 2009
Chicago
Lessons from Abroad: General Comments
►Lessons valuable.
► Programs under-funded.
► Cash benefit raises issues of concern.
► Disability criteria set high.
► Focus on 60+ for most part.
► Use of ‘pay-as-you-go.”
Consider Key Differences before Lessons Apply
► Nature of private market development.
►Cultural and service resource differences.
►Nature of provider and service environment.
►Nature of consumer awareness of need, risks,
costs and benefits of planning.
►Build on existing infrastructure of “what
works.”
Some Observations & Responses
►Partnership Programs do and can work.
►Not a perfect solution, but evidence shows market penetration
higher in states with Partnership programs.
►GAO report extremely flawed assumptions and ignored
conflicting evidence.
► Fact that so few with PQ policies have gone on to Medicaid =
evidence of program’s positive impact.
► Surveys show people DID buy because of Partnership aspect.
►Detailed analysis by Claude Thau outlines flaws in GAO report:
http://www.lifecareassurance.com/2008%20Conference/Powerpoint/48a.pdf
Value of Education and Awareness
►Awareness and education programs also work.
►Evidence of people taking action – personal
responsibility for planning ahead for LTC needs –
when given education on the value of doing so.
►Most important example are results from “Own Your
Future” campaign – 4 years of education and outreach
to over 23 states.
Planning Actions Taken by Whether or Not Read Kit
50%
40%
33%
32%
30%
20%
18%
16%
10%
10%
6%
5%
2%
0%
Talk to agent
about LTC
Look into Reverse
Mortgage
Read Kit
Review existing
Coverage
Got it but Did not Read
Buy LTC
Insurance after
January 2005
Estimating Market Penetration
►Focus on eligible population for private insurance.
►With younger average purchase ages in all markets,
focus on 65+ not appropriate.
►Index of the LTC Uninsured adjusted for income.
►Good to adjust for health also, but more difficult.
►Still, about 10% market penetration if look at
population 50+ with incomes above $30,000.
“Woodwork Effect”
►No evidence within 20+ years of insured program data
of “woodwork effect.”
►People tend to use less care and services than we’d
like them to do.
► With good care planning, can keep people in or move
them to less intensive (costly) care settings.
► With good care planning and benefit design, can keep
informal supports intact.
► Part of this relates to the cash vs. service benefit
discussion.
Tax Incentives
►Evidence that tax credits work.
►Evidence from other product lines suggest a cafeteria
plan benefit for LTC tax advantaged treatment would
have favorable outcome with minimal revenue impact.
►Might be able to exclude those employers from having
to participate in mandatory public program.
Analyzing Programs Abroad
►What are the criteria for “success?”
►Important to articulate measurable objectives and
monitor programs against that.
►What is the role of the private market – how does it
replace or work with the public program?
►How do cultural and timeframe differences, as well as
different service and demographic frameworks,
impact program success?
Best Practices for Successful
Public (or Private) Program (con’t)
►Use proven, “state of the art” risk management and
care planning techniques.
► Impose same discipline on public as private
programs.
►Objective, valid and reliable benefit triggers.
►In-person assessments with proven tools, when
needed.
►Appropriate timeframe for reassessments.
Best Practices for Successful
Public (or Private) Program (con’t)
► Public-private sector collaboration – many
models – cooperate, don’t compete.
►Consider appropriate role for private market
and design public program to succeed within
that market, not conflict with it.
►Public education, awareness and motivation
are key!
Best Practices for Successful
Public (or Private) Program (cont’d)
►Service benefit vs. cash.
□ Cash benefits cost more, subject to fraud and abuse, more
difficult to accurately price.
□ Consider compromise of cash vs. service reimbursement
□ Build in appropriate plan design and risk management controls if
using cash benefits.
►Supports for informal caregivers.
►Consider limited benefit duration: short and fat.
►Consider “partial solution” mandatory program with voluntary
“buy-up.”
Best Practices for Successful Public
(or Private) Program
►Focus on broader population and younger ages – not
because “size matters” – but to allow opportunity for
pre-funding instead of “pay as you go.”
►Follow industry standards for discipline with prefunded program.
►Age-based premiums make sense if program is
voluntary. Can include age-subsidies if needed.
► Community-rating problematic but makes more sense
if program is mandatory.
►Use of co-payments and/or deductibles to help with
affordability and risk management.
The Case for Self-Funding a Public Program
►Common in health care benefits.
►Less common in long term care insurance.
►Two state programs – Alaska and CalPERS – have selffunded long term care insurance plans with decades of
experience. Federal program considered it.
►One private employer – Hewlett Packard – was selffunded but changed due to HIPAA.
►Large number of CCRCs self-fund long term care and
have done so for decades.
Definition
►Sponsoring organization is the “policyholder” – designs
and sponsors the offering.
►Sponsoring organization also plays the role of the
insurance company in terms of plan design, funds
investment, marketing, evaluation and modification, etc.
►Partners with actuaries, TPA and other industry experts
as needed.
►Insurance company or TPA can play “Administrative
Services Only (ASO) role.
Advantages
►Lower premiums because no insurance
company/agent commission, risk charges or profit –
greater affordability.
►Higher loss ratio – e.g., 80% or more – means more
value to consumer for each premium dollar.
►Can still adhere to all the consumer protection, rate
stability and other prudent practices of commercially
insured LTC products.
►Leverage affinity of sponsoring organization with its
members.
►Greater sponsor control over product and practices.
Advantages (continued)
►More flexibility in plan design – no state regulation.
►Sponsoring organization may have better ability and
track record for investment – rate of return influences
price. Additional 1% rate of return on investment = 25% lower premiums.
►Not for profit plan can enhance benefits or reduce
premiums if experience better than expected.
Disadvantages
►Only works if sponsoring entity has and retains strong
positive affinity with target market.
► Sponsoring entity must have appetite and ability to
manage the program and soundly invest the funds.
►Requires additional “education” for consumers to
understand the concept.
►Agents can “sell against” it if they choose to so
program must always offer competitive and
contemporary benefits and rates.
►Program can get caught in the cross-fire of changing
leadership within the sponsoring organization.
CalPERS Experience
►Initially highly favorable – good risk pool, enrollment exceeded
expectations, strong investment returns, maintained competitive
and contemporary plan offerings.
►Changes in leadership weakened program’s focus on strong reenrollment and program design fixes over time.
►Recession had negative impact on earnings.
►Assumptions were conservative – but needed to be even more so.
►While program had 2 rate increases, still not clear how “needed”
they were. But prudent path was not to “wait and see.”
►Need to revitalize offering and marketing.
Key Design Questions – Public Finance Program
►Voluntary or mandatory?
►Full or partial solution?
►How to best integrate with private industry if “partial.”
►Need to educate consumers if “partial.”
►How to incorporate state of the art risk management.
►All-inclusive or “different things for different people.”
►How to include non-working population?
Contact Information
Eileen J. Tell, Senior Vice President
Product Development & Analytic Services
Long Term Care Group
508-651-8800 or etell@ltcg.com
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Thank You
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