The Post & HHS: "Long-Term Care Issues" + "Why You Should Worry..."
HHS--Research Projects, Reports and Websites
aspe.hhs.gov
The Post--"Why You Should Worry About Long-Term Care"
washingtonpost.com
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>>> Why You Should Worry About Long-Term Care
By Albert B. Crenshaw
Sunday , September 17, 2000 ; H01
As the nation heads into the 21st century, politicians and policymakers are doing a lot of talking about things like the future of Social Security, the adequacy of retirement saving, the difficulty of paying for a college education, and other long-term problems.
But there is one looming problem that is getting less attention, although it could turn out to be at least as devastating as the more prominent ones. The problem is the cost of long-term care for the elderly.
Consider: of the nation's roughly 35 million people who are 65 and older now, an estimated 5.2 million have some form of mental or physical disability that is bad enough for them to require help with activities of daily living, such as eating, dressing, bathing or taking medicine, according to Congress's General Accounting Office.
That's about a seventh of the elderly population.
Much of that assistance is provided by family members or professional aides in the person's home. That comes at no small cost, and for those forced to move to a nursing home, the average bill runs to more than $50,000 a year across the country, and far more in urban areas.
In 2011, the first of about 76 million baby boomers will turn 65, and if the proportion of those needing assistance doesn't change dramatically, the number will balloon to more than 10 million as the boomers age.
And the percentage might easily rise. Life expectancies are climbing, and more boomers will live to see their 85th birthdays than any preceding generation. Modern medicine may, of course, stage breakthroughs that will reduce dependence on nursing homes and other forms of assistance, but it would be foolhardy to rely on that.
Estimates of the number of elderly boomers who will need assistance range from two to four times the current level, the GAO said.
The dollar amounts are even more startling.
Current spending for long-term care for the elderly is estimated at about $123 billion a year. The majority of this comes from government programs--Medicaid and to a lesser extent Medicare--but about $43 billion is paid from the pockets of individuals.
And, the GAO noted, "these amounts . . . do not include many hidden costs of long-term care because nearly 60 percent of the disabled elderly living in the community rely exclusively on their families . . . and other unpaid sources for their care."
Given the magnitude of the problem and the devastating economic and emotional effects long-term care can have on a family, it is perhaps surprising that private long-term-care insurance continues to play only a minor role.
According to the GAO, only about $5 billion of spending on long-term care comes from private long-term-care insurance. And though the number of policies sold has been rising steadily, fewer than 10 percent of the elderly, and an even smaller share of the near-elderly, have purchased this coverage.
So far, long-term-care insurance represents something of a market failure: an obvious market, a seemingly suitable product, but only a relative handful of sales.
The fact is that no one, not insurers, not regulators, not consumers, has covered themselves with glory in this instance. And unless the situation improves, it's highly likely that American society can expect a crushing demand to fall upon its government programs in the next two decades, while at the same time a growing number of families impoverish themselves taking care of one or more elderly relatives.
The increasing sales are "a good development," Sen. Charles E. Grassley (R-Iowa), chairman of the Senate Special Committee on Aging, said at a hearing last week.
But "shopping for the product can be a daunting task," he said. "Each feature requires a decision. The list is long: inflation protection, nonforfeiture, guaranteed renewability, waiting periods, maximum length of coverage, maximum lifetime benefit and per-diem payments.
"The difficulty of these decisions is compounded by the impossibility of knowing exactly what--if any--services you may need," he added.
Most people still focus mainly on price, which is understandable because the coverage is expensive, but that has led a number of companies, either through poor planning or malice aforethought, to bring out relatively low-cost policies, sell a lot of them and then raise rates drastically.
That can force many purchasers to drop their policies, losing their coverage along with all the premiums they already paid.
For instance, in the late 1980s a company sold 2,000 policies in North Dakota at attractive rates and then boosted premiums. One man, a farmer now 96 years old, bought a policy in 1987 with an annual premium of $1,498. By 1996 the premium had climbed to $6,158.13, and he dropped the policy.
In fact, by 1996, according to New Orleans attorney Allan Kanner, who represented many of the policyholders in a suit against the company, only 200 of the original 2,000 policies remained in force.
Most companies do not behave this way, but some do and the horror stories that emerge frighten many consumers away from the product entirely.
Regulators are running to catch up. Insurance is regulated largely at the state level, and the process often grinds slowly as the National Association of Insurance Commissioners studies issues and produces model statutes for states to enact.
The NAIC has had a model statute in place since the '80s and has amended it several times, most recently last month when it added strengthened consumer protections, among other changes.
The model includes provisions requiring insurers to try to make sure a policy is suitable for the buyer, requiring policies to include "nonforfeiture" benefits so that if the holder can't afford increased premiums he or she can still get some benefits, and compelling various rate disclosures.
But not all states enact these changes promptly, so it can be years before all the provisions become law--if they ever do. State regulators are very protective of their turf, but Kansas Insurance Commissioner Kathleen Sebelius acknowledges that as Congress considers adding tax benefits for long-term-care insurance, it could consider including consumer protections as a requirement for receiving the tax breaks.
"You can move the market faster than we can," she said.
At the moment, employer-sponsored coverage seems to be a bright spot. When employers both explain the product and check out the policies offered, workers seem much more confident about buying it.
This market should get a big boost soon. Congress has passed a measure adding long-term-care insurance to benefits available to federal workers, and that bill is awaiting the president's signature.
In the meantime, though, as Kanner put it, "what we see in the case of LTC is that both sellers and consumers are doing a bad job of evaluating risk. The consumers, except for the very highest-risk subclass, are generally ignoring the very real need to provide for LTC costs for themselves and their parents. . . . At the same time, the insurance industry in many cases is not showing consumers that it is adding value at this point."
The best course for consumers today seems to be to start shopping--very cautiously. Don't rush out and buy this coverage, but educate yourself both about the product and how it might fit your situation. Ask your employer if it offers a plan or is thinking about it.
Understand the government programs. Remember that Medicare's coverage is very limited--mostly acute care or home-health services--and you generally have to be impoverished to qualify for Medicaid.
Only then, armed with that information, should you start looking at particular policies. A good policy can be a godsend; a bad one will do little more than help you qualify for Medicaid faster.
Long-Term Growth
The number of long-term-care insurance policies has been rising steadily since 1987.
SOURCE: Health Insurance Association of America
Who Pays the Bills?
Here's a breakdown of the source of payments for elderly long-term care in 1998:
Medicaid 39%
Out of pocket 29.5%
Medicare 17.8%
Private insurance 7.7%
Other 6.3%
SOURCE: Health Care Financing Administration
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