Quick thoughts on Senate Aging LTC hearing
April 18, 2012 2 Comments
I watched the hearing. There was a vague delusion to most of what was said….it is a terrible problem, lets do something about it, we cannot afford to do anything about it, isn’t there some way the private sector can fix this?
Generally, you expect private insurance markets to develop when there is an uncertain chance of a catastrophic loss that affects many persons. Long Term Care fits the bill, yet private insurance markets have not worked well. Somehow, we need to achieve broad risk pooling that includes all those at risk (everyone). From the introduction to a recent paper on private LTC insurance that I wrote with co-authors, there are six primary reasons that persons do not purchase private LTC insurance:
- No clear risk signal for need of LTC when young
- Lots of myopia about the need for and cost of LTC; so people don’t understand and/or face up to the risk
- 3 in 10 of those achieving age 65 will not use LTC, so if everyone bought private policies, a substantial minority would never claim benefits from their policy
- Medicaid coverage of NH care likely crowds out the purchase of private coverage
- A substantial proportion of the population has insufficient income to pay LTC insurance premiums, and/or insufficient wealth to “protect” from the cost of LTC
- The structure of the policies themselves lead to rational non-purchase: (benefits denominated in dollars per day and not care, which is risky especially when insuring against something that is probabilistically a long way off; history of premium increases when claims experience is higher than predicted; denial of applications).
You have to overcome all of these to make private LTC insurance work. I just don’t see it. Further, companies are leaving the market for LTC insurance, and it is a totally voluntary market in which they can underwrite. The most shocking thing I heard at the Senate hearing today was that only 1 company bid to be the carrier for the Federal Employees Health Plan LTC insurance plan, which is basically the largest, most stable such risk pool in the U.S. I just don’t see how we make private LTC work as any sort of population based answer to our nation’s LTC needs. Perhaps the National Flood Insurance Program could serve as a model….I will noodle on that a bit.