Elder Care Insurance Matures

By Robert Hadley

To the old adage that two things are guaranteed – death and taxes – a third could be added: high medical costs for the elderly.
To the old adage that two things are guaranteed – death and taxes – a third could be added: high medical costs for the elderly.

Long-term care insurance rose as a private product over the last decade with state encouragement to counter rising Medicaid costs. Care cost increases, though, have brought premium hikes that have cooled the market somewhat.

House Bill 259 in 2008 created Kentucky’s Long-Term Care Insurance Partnership Program. Signed into law by Gov. Steve Beshear on April 7, 2008, the bill seemed a win-win all around. The state was able to shift some of the cost of long-term care for the elderly away from the Medicaid budget, while consumers faced fewer hurdles to access Medicaid benefits once their private insurance was tapped out.

Those who obtained coverage did not have to drain their personal assets below $2,000 before Medicaid would foot any long-term care costs. Their private insurance benefits often were dollars that Medicaid – hence, taxpayers – would have had to reimburse to providers.

Brad Montel, State Representative, House District 58
Brad Montel, State Representative, House District 58

“The driving motivation was to certainly save the state money,” said Rep. Brad Montell, a Shelby County Republican who co-sponsored the bill. “It encourages the consumer to purchase long-term care insurance and assume that risk themselves, rather than shifting that cost to the state.”

The bill’s other sponsor, Meade County’s Rep. Jeff Greer, said his long work experience as the owner of an insurance firm in Kentucky convinced him of the need for this bill.

“I knew how important it was to have this program,” Greer said in a statement released by his office, “both for the families who would benefit from the financial protection it provides and the taxpayers who would benefit from the resulting savings in Medicaid where long-term care is a major cost driver.”

Since Kentucky became one of approximately 40 states offering partnership incentive programs, conditions have changed dramatically. The 2008 recession has pressured the insurance industry, and premiums have gone up. More medical advances have lengthened lives, but they have come at a cost. And Kentucky’s newly elected governor has said he desires to limit the number of new people on Medicaid, the primary source of elder-care benefits.

A question remains as to whether the long-term care policies are effective at reducing the Medicaid-funded taxpayer burden, or whether they’re a stop-gap measure before someone can develop a better solution to manage healthcare costs for the elderly.

“The governor’s intent is to get fewer people on the Medicaid rolls, so if that’s the case we’re going to see further need for this bill and other initiatives that attempt to shift the risk to consumers in an equitable and fair way,” Montel said.

The high cost of growing old

To the old adage that two things are guaranteed – death and taxes – a third could be added: high medical costs for the elderly.

According to the American Elder Care Research Organization, a Nevada-based nonprofit that maintains the
PayingforSeniorCare.com website, the roughly one in eight Americans 65 and older spend an average of $11,000 annually on healthcare.

If you consider that the average Social Security payment in 2015 was $1,335 per month and factor in that the average cost for a nursing home stay is $76,680 a year, a grim picture emerges about the lack of affordable healthcare options for seniors.

Rising costs are attributed to a variety of factors, including supply and demand as the number of Baby Boomers entering retirement is increasing. Life expectancy has also grown, from 47 years a century ago to almost 80 years in 2015.

Long-term care insurance generally covers home care, assisted living, adult daycare, respite care, hospice care, nursing home and Alzheimer’s facilities. Private long-term care insurance is growing in popularity in the United States. Premiums, however, have risen dramatically in recent years even for existing policy holders.

Once a person purchases a policy, the language cannot be changed by the insurance company, and the policy usually is guaranteed renewable for life. It can never be canceled by the insurance company for health reasons, but can be canceled for non-payment.

Forbes reported in February 2015 that buyers of market leader Genworth’s newest policies (called PC Flex III) are purchasing insurance that averages $137 per day for 3.4 years, about $170,000 in maximum coverage – a lot less than some older policies that typically provided almost $200 per day for four years (more than $283,000).

A 2014 survey by Broker World magazine found sales of five-year policies plunged from 18.9 percent in 2007 to 13.5 percent in 2013, while sales of three-year policies increased from 23.6 percent in 2007 to 35.3 percent. Sales of lifetime policies fell from 5.7 percent to just 3.6 percent.

Beth Munnich, Assistant Professor of Economics, University
Beth Munnich, Assistant Professor of Economics, University

“People are living longer,” said Beth Munnich, an assistant professor of economics at the University of Louisville. “As people live longer, there’s a greater likelihood that they will need a nursing home at some point.”

And the likelihood of poor health is a sticking point in Kentucky, which boasts diabetes, smoking and heart disease rates above the national average. Shannon Gadd, senior director of programs with Louisville-based ElderServe, says residents ElderCare serves in the seven-county metro region on average have two chronic illnesses.

“Typically we see people who are living on their Social Security benefits or on a small pension,” she said. “All it takes is one bad fall before your health can really deteriorate.”

To bridge the gap in care, ElderService provides in-home care that recipients pay for on a sliding scale; it is funded by Kentuckiana Regional Planning & Development Agency.

“It’s an option that allows people to stay in their home and live independently as long as possible,” said ElderServe CEO Julie Guenthner.

But for some with the worst illnesses, such as dementia, remaining at home is not an option, especially if they have no family members who can help with their care. Hence the need for the Kentucky’s partnership program.

“If they have a long-term care policy, it might give (consumers) a choice of where they receive their services,” said Ron Burkhart, a consultant with the Kentucky Department of Insurance. “And it can pay for nursing home care that can relieve family members who may have been the sole caregivers.”

Good for some, but not for everyone

Although long-term care insurance can protect one’s assets, experts say they work best for a certain slice of middle-income retirees who live above the poverty line but would not be considered wealthy.

“Long-term care insurance isn’t a fit for everyone, but it has value for people who are interested in preserving some of their estate for their heirs,” said John Accius, a senior strategic policy advisor for the American Association of Retired Persons.

Typically, when someone applies to receive Medicaid benefits, they must have no more than $2,000 of available assets. Partnership programs like the one in Kentucky allow consumers to get around this limitation. If someone has a $200,000 house, for example, they can buy a policy for $200,000 in long-term care benefits, allowing them to keep the house and still qualify for Medicaid benefits, once their insurance policy benefits have been exhausted.

Policy costs vary depending on age and coverage level, according to statistics from the American Association of Long-Term Care Insurance. For example, a 50- to 54-year-old can expect to pay anywhere from $1,384 to $11,667 per year, whereas the rates jump significantly for a 60- to 65-year-old, to $3,321 to $10,002 annually.

So, in the eight years the partnership law has been in effect, what kind of results have been seen?

Stephanie Bowker, Senior Insurance Program Manager, Kentucky Department  of Insurance
Stephanie Bowker, Senior Insurance Program Manager, Kentucky Department
of Insurance

The jury’s still out, it seems. Burkhart said no official report tracks the issuance of long-term care policies in Kentucky, but data suggests 700 may have been issued annually in 2014 and 2015, down from 1,500 in 2013.

“You have to keep in mind, it’s an expensive product,” said Stephanie Bowker, a senior insurance program manager with the Kentucky Department of Insurance.

“So it’s not for everyone. They are expensive policies to maintain.”

On its website, the AARP publishes a checklist for evaluating policies, and notes that premiums can increase over time. One reason is that insurers suffered from sticker shock when they found costs were much higher than expected when they issued these policies, the site says.

“Because interest rates are low, (insurance carriers) are not getting as much money from their investments as they would have otherwise,” Munnich explained. “They have to find other ways to fund coverage, so it’s now coming through premium increases.”

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