Genetic Nondiscrimination Act of 2008 and LTC Insurance

NPR has a story on the legal (h/t Brad Flansbaum) use of genetic information to discriminate (underwrite, set premiums) in the private Long Term Care (LTC) insurance market. I am the first author of the paper that Bob Green (the P.I. of the underlying study) is discussing in the NPR piece and I have blogged about its findings here and here.

The basic story of the paper in Health Affairs is that persons with at least one copy of the e4 variant of the APOE-4 genotype were found to be both more likely to move to a nursing home in a community cohort of elderly persons living in 5 N.C. counties, as well as being found in the REVEAL II study to alter their behavior upon finding out they were at increased risk of AD, including making changes such as buying Long Term Care Insurance. In short, this is adverse selection whereby consumers have information that companies do not, a story that likely keeps insurance executives up at night.

The biggest news of the segment was the report that Genworth, the largest seller of LTC Insurance in the U.S. acknowledged that the The Genetic Nondiscrimination Act (GINA) of 2008 does not ban the use of genetic markers to underwrite their product, and they stated they wished to keep this option available to do so (some states have moved to do so). I blogged at some length on this back on October 2011 (that it was allowed for LTC Insurance), but I have never heard anyone from the LTC Insurance industry acknowledge they wanted to keep this option.

I think it is a mistake to take a reflexive “see the insurance companies are bad” response to this story, and that in Long Term Care especially, we need some renewed thinking about what ‘fairness’ means.

The general idea behind GINA 2008 is that you cannot pick your genes, so to discriminate against someone on that basis is unfair. This makes general sense to me, and likely to most people. However, in a private insurance market with very low penetration (~less than 7-10% of persons in age ranges to consider such products buy them; this post highlights the many reasons) what constitutes fairness is not as clear. An average risk person who wants a LTC policy because they have no children, for example, yet who ends up paying a higher than warranted premium due to adverse selection in the market (those with higher risks signing up) could also be viewed as being harmed in an unfair manner.The chart below lays out how different scenarios of who knows genetic information in LTC could influence uptake and premiums. The table is meant as food for thought.

The bottom line answer to planning for LTC is risk pooling, and if ever there were a risk distribution that called out for social insurance it is LTC. That seems impossible politically at this time. However, the LTC system in this country is a patch work mess that is in need of some sustained policy efforts. This post has a weeks worth of links on planning for LTC, from both an individual and population basis if you want more. Long Term Care is always the forgotten topic until someone in your family needs it.

Long Term Care problems won’t go away

Busy week and little time to blog, but a quick note on this Kaiser story reporting on a SCAN Foundation poll on long term care needs/perceptions/preparations in California, sent my way by Brad Flansbaum. The article nicely summarizes the surprise many families receive when it comes time for a loved one to need LTC:

Long-term care costs can surprise many families who expect Medicare to cover their needs. After a hospital stay, Medicare will pay for 100 days of nursing home care, but after that, families are on their own or are forced to spend down their assets to become poor enough to qualify for Medicaid.

Only 35% of Californians correctly understood that Medicare does not pay for extended nursing home care and only 1 in 5 understood the Medicare home health benefit (they think it is more generous than it is). So, Medicaid is the default nursing home payer in the U.S. and the program pays around half of the nation’s nursing home bill. Block granting Medicaid in a way that reduces fairly costs for the program will pit LTC services for the elderly and disabled against the need for acute care insurance for children and pregnant women, and say to states “tag; you’re it!”.

We desperately need a more coherent LTC policy in this country. Private LTC insurance offers no hope of a population based answer. Families are left to stand in the breach, doing the best they can. As I have said before, one of the worst outcomes of the ACA debate was the demise of CLASS in a way that treated those provisions only through the lens of deficit reduction. Deficit accounting is important, but cannot answer all important policy questions.

CLASS wasn’t a deficit gimmick, it was an attempt to set up a self sustaining LTC insurance benefit that could have helped people age in their homes and delay NH admission. Like so much of health reform, critics know far more about what they are against than what they are for.

The question remains: how will our country insure against the need for LTC?

States develop regulations to limit use of genetic info in LTC insurance

My colleague Bob Cook-Deegan sent this article on states developing LTC insurance regulations restricting the use of genetic markers to underwrite private LTC insurance policies. The background is the hole in the Genetic Information Non Discrimination Act (GINA) of 2008, which did not ban the use of genetic information to underwrite or risk adjust long term care insurance policies/premiums. It has always been unclear to me if this was an oversight, or purposeful. Below is a partial snapshot of a table showing state regulations regarding the use of genetic information in the sale of LTC, disability and life insurance (link to full table, compiled by the Cancer Legal Resource Center):

Some states have moved to regulate the use of genetic information in LTC insurance, while others have not (North Carolina has not).

I did some work with Bob and colleagues from Boston University showing evidence of people using genetic information to behave in a manner consistent with adverse selection. Generally, the use of genetic information is thought to harm the individual whose genetic information may be used and that is the big idea behind GINA 2008, but I think that in voluntary insurance markets with rare uptake like private LTC insurance, there is an argument to be made that the entire risk pool is harmed with one-sided risk information. The key is which notion of “fairness” makes the most sense to you in a given market or context. The “you can’t pick your genes” notion, or the “actuarially fair premium is the only way to increase market share of a rare type of insurance notion” idea. The first is the most common, but I think the second may apply in private LTC insurance markets (which are falling apart in any event).

One of the worse by-products of the debate over the ACA was the labelling of the CLASS long term care provisions as simply a deficit reducing gimmick. Long Term Care is the forgotten policy, that will reliably rear its ugly head any time you want to do something like move toward premium support in Medicare or undertake any Medicaid reform. In short, Republicans really seared the ground for government efforts to jump start private insurance markets in the way they attacked CLASS, and they desperately need something besides the status quo in LTC (Medicaid pays for half the nation’s nursing home costs) to bring about their preferred big ideas in health reform.

Politics aside, the question remains: how will we insure against LTC? The baby boomers are coming….

update: clarified post by noting the LTC insurance market is voluntary; though forced risk pooling would have fixed CLASS and made it workable

Private LTC Insurance is a not a population solution

The WSJ has a good point/counter-point on the question “should you purchase private Long Term Care Insurance?” (h/t Brad Flansbaum). Mark Meiners argues for purchase by saying “you shouldn’t hope for the best” while Prescott Cole says “LTC insurance is too expensive, you should invest what you would spend on premiums.”

Essentially, they are both arguing that you should prepare for LTC, one via purchasing insurance, the other by building flexible assets that could be use for LTC, or bequeathed to your favorite charity upon your death if die without needing it.

The Journal piece outlines an important conversation that misses the main public policy point: private LTC insurance will never be the solution for the LTC needs of the general population due to income and wealth levels.

Perhaps 10 percent of the population has enough income to pay premiums, and/or enough in assets they may wish to partially protect from a potentially catastrophic LTC cost. For example, past work I have done showed that around 4 in 10 elderly persons had income and assets at age 65 low enough to qualify for Medicaid before paying for any LTC. Those people are removed from the complicated decision framed in the WSJ piece, but they are certainly at risk of needing LTC.

If ever there were a risk profile that cried out for social insurance, it is LTC. The reason that seems so laughable, is our countries failure to grasp the most important thing in all public policy debates: the counterfactual, or the costs and benefits of what happens by default, in this case for LTC.

NPR on Informal Long Term Care

NPR has an interesting story asking “who needs LTC insurance?” because other arrangements can be made to provide for such care (h/t Brad Flansbaum).

This puts a personal face and story on a public policy problem that hits close to home, as my mother-in-law is moving in with my family this Summer. The last 8-9 months my family has been consumed with myriad details to work this out (estate planning, new wills, buying a house, trying to sell two others, getting siblings on the same page, etc). I wrote last week on some of the public policy aspects of LTC; I mostly want to point folks to the NPR story, as it is the best, short representation of the many issues related to thinking through inter-generational living that I have heard.

The cost of caregiving and the demise of CLASS

AARP estimates that around 25 Million persons are providing unpaid caregiving to a loved one with a disability, and that those who do so while juggling market work lose around $325,000 in lifetime income after accounting for foregone wages, income from Social Security, and private pensions. The worst part of the demise of the CLASS provisions in the Affordable Care Act has been the fact that the majority of the focus was on the impact of CLASS on the 10 year deficit score assigned to the bill be the CBO (it accounted for around half of the ACA’s deficit reduction), diverting attention from one of the most profound public policy questions facing our nation:

• How will we insure Long Term Care?

CLASS wasn’t an accounting gimmick, but an attempt to set up a self sustaining, voluntary LTC insurance program that would provide modest benefits (not enough for a nursing home; best thought of as aiding aging in place) to persons with disabilities. If CLASS had worked perfectly and been a self sustaining program, it would have decreased the deficit in the short term, while increasing the deficit in the out years. As I wrote in December, 2009 about CLASS:

…Proponents claim that CLASS is self-financing over the long term, and opponents say it will increase the deficit in later years. Both are correct.

It is hard to project what will happen with CLASS, mostly because of uncertainties regarding disability rates 30-plus years from now, but there are numerous provisions designed to ensure that the program is self-financing. Regarding the long-term deficit, when a program runs a surplus, it buys federal securities that pay interest. When interest is later used to pay for care, it is counted as a transfer instead of revenue. Therefore, CLASS will inevitably increase the deficit in years 30 to 75 even if it pays for itself totally through premiums and interest earned on premiums, given current budget accounting rules. [update: it would add to the deficit before the 30th year]

One of the key beneficiaries of a self sustaining LTC insurance program would be the adult children of the disabled–who provide unpaid caregiving, with all the related harms (there are also benefits). CLASS was flawed, but could have been fixed had we focused on the policy goal–how will we insure LTC as the baby boomers move into retirement? I think the federal budget deficit is very important to address, but you cannot answer all important policy questions using deficit accounting. The CLASS episode whereby LTC policy was lost in a sea of deficit accounting scores shows this.

Quick thoughts on Senate Aging LTC hearing

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.

The essence of planning for long term care

Dan Diamond (@ddiamond) alerted me to a Senate Special Committee on Aging hearing (The Future of Long Term Care: Saving Money by Serving Seniors), that will be webcast live today at 2pm via the committee homepage. I hope they manage to talk about practical solutions to the difficulties of providing long term care, and do not simply spend their time clucking about what they oppose.

I was guest lecturing on Long Term Care and the demise of the CLASS provisions of the ACA in Peter Ubel’s health policy class on Monday and someone asked, “what is the essence of planning for LTC?” My answer was that it entails planning for who will wipe your ass when and if you can no longer do it for yourself.

Now, that it not what the 20 year old’s in the class were dreaming about discussing when they came to Duke, and I get that. It is very easy to put off thinking about LTC until tomorrow.

Around 7 in 10 persons who attain age 65 will use some LTC. Of the users, about half will do so for less than a year, but around 1 in 10 will need such care for longer than 5 years. It is impossible to look at a room of 20 year olds and say who will need LTC among the subset who live to 65; and of course someone in that room could need it much sooner due to a catastrophic event. Almost no one has the assets to self finance a 5-10 year period of LTC use (~$1.5 Million max risk), so nearly every0ne is at risk of needing such care and not being able to afford it. If ever there was a risk profile that called for social insurance it is LTC. Instead we have a default system in which families do their best, availing themselves of an incomplete safety net, and when care needs become too great and assets are exhausted, Medicaid pays for them to live in a Nursing Home until they die (Medicaid pays for about half of the total national NH cost). We can do better.

A few links with many LTC details if you want more (they will still be here tomorrow):

• What is the best way to insure LTC?
• Private LTC insurance options are shrinking, as the baby boomers are coming
• There is no evidence that voluntary private insurance can work for LTC
• Would assigning actuarially fair premiums expand LTC insurance market share?
• A paper I did on genetic markers as risk raters for LTC insurance and a follow up on GINA 2008
• Will we ever replace CLASS?
• Gleckman on what next after CLASS
• Where did CLASS fit into LTC?
• CLASS demise is not just a scoring issue
• A fair amount of CMS policy action is designed to prevent a back-door LTC policy
• Some LTC ideas from Heritage
• Here is one attempt that is greatly wanting
• Informal caregiving is a silent epidemic

The long term care counterfactual

Cross posted at The Incidental Economist.

I wrote last week about the shrinking private long term care insurance (LTCI) options.

From the comments to that post,wintercow20 asks:

…Wouldn’t it just be simpler to institute a forced savings system in general rather than trying to figure out who may be using LTC or not?…

And I answered that yes, it would definitely be simpler, and noted that the risk profile of LTC use of persons attaining age 65 is best addressed via some sort of social insurance-based approach. At a minimum, it seems clear that private LTCI is unlikely to work well for a variety of reasons (more context on public v. private provision of LTCI: here, here,  here,  here).

Also in the comments Theodore Whitfield provides a reasonable back of the envelope calculation of what a Medicare or Social Security-based LTCI program might cost and notes:

…Admittedly this is just a quick, approximate analysis, so I would put much faith into the specific estimates. But it does suggest that funding LTC through SSI or Medicare might be very expensive…

Lets take away the uncertainty–LTC funding via Social Security or Medicare would be very expensive. However, providing LTC is very expensive now. Most of it is provided by family members on an informal (unpaid basis) and there are a variety costs (lost wages for caregivers, negative impacts on caregiver health, etc.) that are not so easy to estimate. The AARP estimated the costs of informal care provided to adults with limitations in Activities of Daily Living to be $450 Billion in 2009. And Medicaid is the payer of last resort for nursing homes and finances around 4 in 10 dollars spent on NHs (~$150 Billion annually), the most expensive LTC setting that exists.

All of that happens now and will continue to do so by default. Much of the debate about the CLASS act, or about any discussion of expanding social insurance to cover LTC implies that the admittedly big cost of doing anything new is correctly compared to zero.* That is incorrect. The correct counter factual for any LTCI proposal is the piecemeal system that we currently have and its costs, including the already large public expenditures.

The most important thing in public policy is counter factual thinking, and many seem to struggle with understanding the correct LTC counterfactual.

DT

Shrinking private LTC insurance options

This is cross posted at The Incidental Economist.

Prudential announced this week that they will stop taking applications for private Long Term Care insurance (LTCI) at the end of March according to a WSJ story by Leslie Scism. Several other insurers have also exited this market in recent years, which means that private insurance options are shrinking as the baby boomers move toward needing LTC.

Medicaid exists as a de facto nursing home insurance plan with the deductible essentially being your wealth (Medicaid pays for ~40% of all NH costs in the U.S.). Before that, families provide a tremendous amount of informal long term care, which is both expected by many while also being very burdensome and costly, both in explicit financial terms as well as in other ways. That is the default system.

Prudential notes two primary reasons for their exit:

• claims being higher than predicted
• interest rates being very low

The first reason they put down to “increasing life expectancy”, but I am not sure I buy that. Life expectancy has been increasing for quite a while. The more likely culprit for higher claims is adverse selection, which just means the people signing up had higher risks than average, which you might expect to be particularly bad for a type of insurance that is so rare (less than 10% of those over 50 have any). Interest rates may seem unrelated to LTC, but effect the return on investment that insurance companies can easily obtain with the premiums for a type of insurance in which persons may pay in for many years with no claims before having large claims later. Prudential says they will honor existing contracts, but premium increases for all members are likely in spite of such policies typically being sold with flat premiums (State regulators have consistently approved such increases, believing default of insurers to be the only other option).

In short, it doesn’t appear that purely private LTCI markets can work, even with tax credit purchasing incentives that we have had for years. In the aftermath of the CLASS program demise, some noted the biggest problem within CLASS was the inability to assign an actuarially fair premium, which is important in a purely private insurance market, and allowing for simple underwriting could improve CLASS. However, the Prudential story and the move out of this industry by other private insurers shows they haven’t been able to assign actuarially fair premiums either.

Far more important than focusing on how premiums are set for a small pool is forced risk pooling of some sort, to get all those at risk of needing LTC into the pool. In one sense, if you are OK with families providing care and Medicaid picking up much of the nation’s NH bill then you could argue we have a system. If you don’t like this system, it is amply clear that a purely private insurance-based one won’t work, and some sort of forced risk pooling will be required. The question remains, how will we insure LTC?

DT