Medicare, the federal program for older people, covers little long term care. Long term care insurance, which pays benefits for a stay in a nursing home or assisted living facility as well as for home care, could offer some financial security. But in 30 years, it has failed to make substantial inroads, and only about 10 percent of seniors have coverage. Most who buy it tend to be relatively affluent, earning more than $75,000 a year, with at least $100,000 in liquid assets.
That may soon change. In recent years, states have been moving aggressively to establish programs that encourage middle income people who might otherwise spend down their assets and rely on Medicaid, the state-federal program for the poor and disabled, to purchase private long-term care insurance instead.
The deal that states offer sounds good. Purchase a long term care “partnership” policy, as it’s called, and in the unfortunate event that you exhaust your insurance benefits and still need care, you can qualify for Medicaid and still retain some or all of your assets. (Typically, Medicaid eligibility is limited to low-income people with assets of $2,000 or less.) Still, experts worry that partnership policies may not live up to their promise, largely because some consumers may not buy the tough inflation protection they need to protect their benefits’ value.
Under the policies, assets are protected on a dollar-for-dollar basis. Someone who wanted to protect $160,000 in assets, for example, might buy a policy that paid a benefit of $150 a day for three years, for a total value of $164,250. The daily benefit amount that people choose should reflect long-term care costs in their area.
For their part, states hope that partnership policies will relieve some of the pressure on their overburdened Medicaid programs, which currently pay the bills for about 70 percent of nursing home patients. To date, 43 states have either set up partnership programs or are in the process of doing so, according to the Center for Healthcare Strategies.
Private insurers can sell only state approved policies, and some states establish other guidelines to protect consumers. They may set minimum daily benefit levels, for example, or guarantee that residents’ policies will be honored even if the state partnership program ceases to exist.
Long term care insurance policies, partnership or otherwise, generally begin to pay when someone is unable to perform daily activities like dressing or eating, or is cognitively impaired (in fact, about half of all claims are for people with Alzheimer’s disease or other cognitive problems).
Apart from deciding how much insurance to purchase, perhaps the most important decision is what type of inflation protection to buy. Long-term care insurance has a long “tail”: someone who buys a policy in her early 60s might not tap the benefits for 20 years or more. Robust inflation that keeps pace with rising costs is therefore essential. All partnership policies sold to people under age 76 must have some inflation protection, but state requirements vary widely, and consumer advocates are concerned that many states aren’t setting stiff enough standards, tempting consumers to skimp on this critical coverage.
Good inflation protection isn’t cheap. A 60-year-old who bought a five-year policy with a $150 daily benefit and 5 percent compound inflation protection-considered the gold standard–could expect to pay $3,147 annually, according to a report released in by Avalere Health, a Washington health care consulting firm, and the Kaiser Family Foundation.
If the same person bought that policy with inflation protection pegged to the consumer price index, the premium would be 29 percent less, or $2,445, according to the report.
Uncertainty about the “partnership” aspect of these policies is also cause for concern. Marrying a complicated product like long-term care insurance to a complex and constantly changing program like Medicaid, some believe, creates the potential for serious problems down the road.
To qualify for Medicaid, for example, someone must have both limited income and few assets. If a policyholder’s income exceeds state Medicaid eligibility guidelines, he may never be able to qualify for Medicaid in the first place and thus be unable to take advantage of the asset protection portion of his partnership policy. In fact, he may have to tap his protected assets to cover his care.
Although most states are just now getting their programs off the ground, the Partnership for Long-Term Care got its start back in the 1980s as an insurance model developed by the Robert Wood Johnson Foundation to encourage middle-income people to buy long-term care insurance.
By 1992, four states-California, Connecticut, Indiana and New York-had received approval from the Centers for Medicare and Medicaid Services and put partnership programs in place, using seed money from the foundation.
But questions about the program–Congress wasn’t sure whether it would actually save Medicaid money, or add to its costs-prompted legislators to prohibit other states from launching new programs, and the partnership program stalled until the Deficit Reduction Act of 2005 lifted the moratorium. The original four partnership states require 5 percent compound inflation protection.
An analysis conducted by LifePlans for AARP concluded that that level of protection would likely cover about over 80 percent of a policyholder’s future nursing home long-term care costs (assuming an adequate daily benefit in the first place).
It’s too soon to know whether the partnership model will save state Medicaid programs money. But judging from the rush to set programs up around the country, it’s clear states are eager to test it. In South Dakota, officials rolled out their program in July 2007, with 17 insurance carriers on board. In the first year they signed up 987 people, increasing long-term care insurance penetration in the state by about 3 percent. With a population that’s aging more rapidly than the nation,
Preliminary estimates of potential state savings have been mixed. A 2007 General Accountability Office study of the original four partnership programs found that they were unlikely to result in Medicaid savings. But supporters of the program say the GAO analysis was flawed.
Meanwhile, data from Connecticut, the first partnership state whose program began in 1992, are somewhat encouraging. A state analysis found that of 39,000 policyholders, 980 have used partnership benefits. Just 57 of those people had to go on Medicaid, says David Guttchen, director of the Connecticut Partnership for Long-Term Care. Estimated state savings since the program started, based on people who either delayed going on Medicaid or avoided it entirely: $7 million.