From the archives: What is the best way to insure LTC?

The post below was initially published in TIE on July 20, 2011, and is relevant given the demise of the CLASS Act.

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Lots of reports that the CLASS provisions will fall in any Senate-driven budget deal. Even if that doesn’t come to pass, CLASS is likely to go in any negotiations to move ahead on health reform. Most of the focus is on how CLASS influences CBOs score of deficit reduction, but I want to focus on the problem that CLASS is designed to address, the need for and cost of Long Term Care (LTC). Because we cannot repeal disability.

CLASS was an attempt to set up a self sustaining LTC insurance program that would provide a relatively small amount of money per day ($50-$75) that could be thought of as cover to help people live in their homes with disability and perhaps keep them out of a nursing home. It is a partial response to what many would say is a failure of the private insurance market to cover LTC.

I wrote a paper in Health Affairs (I believe ungated here via NIH depository) with colleagues from Duke and Boston University that was in the January 2010 Health Affairs that looked at the viability of using genetic markers as risk adjustors for private LTC insurance. I don’t want to focus on the genetic piece, but the reasons people don’t purchase private LTC insurance:

The policy big picture is this.

  • Families are the first line provider of LTC and this will always be the case. AARP estimates the value of such informal LTC to be $450 Billion per year.
  • Medicaid is the default payer of nursing home care in the U.S., the most expensive setting for LTC and pays around half of all such care. You could think of Medicaid as a universal NH insurance program with the deductible being your wealth. NH and LTC generally are where the big money is for Medicaid programs.
  • I suspect CLASS will eventually be goners. Do the repealers have any ideas about how to expand insurance coverage for LTC? We have had tax credits for LTC insurance for years….
  • The private LTC insurance market is small and there are many good reasons people don’t buy such coverage, including the fact that 3 in 10 of those surviving to age 65 die without using such care. Amongst the users, there are tremendous variations in length of use and the amount of money needed to finance the longest stay is probably $1. 5 Million. So, almost everyone is at risk of being unable to pay for the LTC they could need.
  • If ever there were a risk that called out for social insurance (broad spreading of premium in return for broad coverage) it is LTC. The policy answer is risk pooling and the private market has failed to do it. Medicaid certainly plays a crowd out role for NH coverage, but think through the 6 reasons for non purchase above; all of them must be addressed to move off of the status quo.

What is the answer? The population is aging….

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.

ScreenHunter_01 Jan. 18 09.54

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

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

LTC replace plan?

Sarah Kliff (@sarahkliff) tweeted out a link to a story in the Hill Blog about a potential bipartisan bill (at least 1 Democratic and 1 Republican co-sponsor) to replace the suspended but not repealed CLASS provisions with a new proposal.

A quick look shows that the draft bill most fundamentally would allow long term care insurance premiums to enjoy the tax preferred status that major medical plans enjoy (appears to me full value of premium). There are also some consumer protections, in addition to an information strategy designed to educate people about the risk of LTC and the fact that Medicare doesn’t cover much of it. I will save detailed comments on the policy essence when a fuller picture emerges, though my gut is not that what we really need is more tax preferenced health care spending. The key problem in LTC is lack of risk pooling.

I had been working on a post that basically said if the Republican House couldn’t even muster a replace bill they could get to the floor of the House in the area of LTC, where Medicaid has such a large role that they would like to see decreased, then there was no reason to ever expect a comprehensive health reform replace bill of any type. I will be surprised if House Republicans (and maybe some Democrats)  actually pass something like this out of committee and get it to the floor of the House in 2012, but I would also be glad to see them committing to some details of what they would actually do. And if a bipartisan consensus that can improve policy bubbles up, all the better.

DT

Heritage LTC ideas via Twitter

Last week during the conservative victory lap on twitter about the demise of the CLASS provisions, I was asking various folks to focus on the actual policy content of LTC and give their ideas for moving LTC policy ahead. Stuart Butler (@stuartmbutler) of Heritage actually replied with this testimony from Dennis Smith, given before the Senate Finance Committee on the role of LTC in health reform, on March 25, 2009.

This is mostly standard fare, long on the problems of Medicaid crowding out private options, but shorter on solutions related to moving ahead from where we are, though there are some interesting suggestions about providing more flexibility to Medicaid to allow rebalancing of LTC services toward community based options. However, what really caught my eye in light of the glee over the plug being pulled on CLASS was his response to the question posed to witnesses at this hearing,

“Are there different policy options for improving long term care for the elderly in comparison to the disabled? His reply:

There clearly are differences between the elderly and people with disabilities in the use of long-term services and supports when we examine the length of time the two populations use LTSS and the array of services. However, policies for both populations should be the same: they should be person-centered and money should follow the person. (emphasis mine)

This, of course, is the big idea behind CLASS; providing flexible benefits to be used as those in need see fit. In fairness, CLASS would have to be set up and properly functioning to fulfill this aim, and I agree that the benefit would need to be changed to have a chance of being self sustaining. However, flexible benefits that allow those with disability to decide how to spend them is the idea whose demise is being celebrated by conservatives, leaving us with the default system they do not like, with its central role for Medicaid.

The worst thing about the entire CLASS episode is the degree to which the discussion of the program has been nearly devoid of LTC policy. If CLASS is only a political scalp, it will be a missed opportunity, and it looks like that is where we are heading. I wonder if our political system is capable of any substantive policy discussion of any difficult topic?

Where did CLASS fit into LTC?

Long term care (LTC) is help and support to enable persons to deal with disability. Most think of nursing homes (NH) when they hear the phrase LTC, but only 1.6 Million persons live in a NH (see figure 1 below); the vast majority needing LTC live in community settings. Larger estimates of LTC are found when using a more expansive definition; AARP estimates that there are 30-38 Million persons (mostly family members) providing LTC to someone. The uncertainty in how many persons need and receive LTC underscores the fact that most do not live in institutions, making them difficult to count.

There are many inter-related ways to characterize LTC, all of which are important to understand what role CLASS could have played, and more importantly, to identify what needs to be done.

  • Disability progression. When disability onsets for the elderly, most persons initially need help in completing Instrumental Activities of Daily Living (IADL) such as shopping, paying bills, navigating health care visits, and cooking meals. Some have more severe limitations in Basic Activities of Daily Living (BADL), such as eating, bathing, dressing and using the toilet. A NH is best understood as a 24/7 provider of both BADL and IADL care. Disability progression can be more diverse in younger populations, some of whom need complete care due to a catastrophic event, and may need it for years or even decades.
  • Informal Care. Informal simply means unpaid, and most of this care is provided by family members, with spouses (87% of caregivers) being by far the most common provider followed by adult children. AARP has estimated that the cost of caregiving to be $350 Billion annually (based on their estimate of 30-38 Million informal caregivers), or more than twice the total cost of NH care.
  • Formal Care. Formal care is paid care, regardless of whether an individual or an insurer pays. The Kaiser Family Foundation (fig 2) shows the major reliance on out of pocket payment and Medicaid to finance formal LTC generally, and especially for care in a NH. Keep in mind that the figures below does not account for informal care, valued at $350 billion annually.

This was the default into which CLASS was supposed to enter, and which we have today. What role would CLASS have played in LTC?

  • CLASS benefits could be used for any LTC service, but were small ($50-$75/day), far less than the cost of a NH (several times that).
  • Benefits were best understood as either replacing some informal care hours and/or adding specialized, paid help for persons living with disability in the community.
  • It is possible that CLASS benefits could have delayed entry to a NH, allowing persons to remain in community settings longer.
  • CLASS would provide these low level benefits for an unlimited period; by contrast, private LTC insurance (which is rare) typically provides NH level benefits for a short period of time (1-3 years typically). Medicaid pays for NH care once eligible until death.

The goal of CLASS was to make planning for LTC a normal part of adulthood. Most persons do not plan at all, sometimes because they do not understand that Medicare pays for only limited amounts of LTC (home health), causing persons to rely on informal caregiving and defaulting into Medicaid to pay for the most expensive setting of care if they are impoverished (often due to paying LTC costs). CLASS wouldn’t have ended all of the LTC financing problems even if it was fully successful, but it would have contributed, and it would have been an example of forward looking policy in LTC. If the demise of CLASS is simply a political scalp it will be a missed opportunity to have a full discussion about how we will insure LTC.

Medicare Home Health Co-Pays & LTC

One detail of President Obama’s proposal released yesterday is the creation of a Medicare Home Health co-pay of $100 per episode if it includes more than 5 visits (p. 39).

This would apply to new beneficiaries beginning in 2017. This proposal is consistent with a MedPAC recommendation to establish a per episode copayment. MedPAC noted that “beneficiaries without a prior hospitalization account for a rising share of episodes” and that “adding beneficiary cost sharing for home health care could be an additional measure to encourage appropriate use of home health services.”

This is a tiny aspect of the overall package, and would reduce Medicare spending by $400 million over 10 years. However, it caught my eye because I think it is consistent with something that a Medicare official told me at a meeting a few years back: there is a strong institutional fear (at CMS) of any aspect of its benefit package becoming a “back door” long term care benefit.

After expansion of Medicare home health in the early the 1990s, there has been a general move to medicalize the benefit and reduce its use for personal long term care. McCall et al. (2001) noted the changes to the home health benefit brought about by the Balanced Budget Act of 1997

Eligibility for Medicare home health is limited to beneficiaries who are “homebound,” need “intermittent” skilled nursing or therapy services, and are under the care of a physician who prescribes their plan of care. A beneficiary needing only personal care does not qualify (emphasis mine)

These changes greatly reduced the use of home health; according to MEDPAC, total Medicare home health spending in 1997 was $17.7 billion, fell to $8.5 billion in 2000, and was $18.9 billion in 2009 (p. 177 of March 2011 report).

Further, I think that at least some of the discussion by MEDPAC of changes to the Medicare hospice benefit per diem payment and increased efforts to address very long lengths of hospice use for patients with non cancer diagnoses could be viewed in a similar light (such policies are not a part of the President’s proposal but remain a MEDPAC priority). From the MEDPAC March 2011 report (p. 267):

…between 1998 and 2008, the number of hospice users with debility increased from just over 8,500 to nearly 107,000, and the number with either Alzheimer’s disease or non-Alzheimer’s dementia grew from about 28,000 to 174,000…

It should be noted that outreach to patients with diagnoses other than cancer had been an earlier priority, but this success may feed worries that hospice is being inappropriately used for long term care.

Long term care represents a tremendous burden to Medicare beneficiaries, and under our current system the responsibility for such care falls initially on individuals and families. The cost of informal caregiving (family members caring for loved ones) is enormous, and could be understood as individuals self insuring against needed long term care, but many choose this by default due to lack of options. Private long term care insurance is rare, and Medicaid stands as the default payer of nursing home care–the most expensive care setting we have.

The question remains how will we insure long term care? Certainly not by repealing the CLASS provisions of the ACA and replacing them with nothing. As Howard Gleckman says

Aging Baby Boomers and their families would all be far better off if congressional critics of CLASS sat down with the White House to design a national long-term care insurance program that does work.

We could reduce the pressure for a “back door” LTC benefit by developing a coherent strategy for insuring the LTC needs of our aging population.

Update: for clarity, the type of care CMS has tried to decrease in the Medicare home health benefit over time is custodial care (help bathing, dressing, cooking, shopping), based on the argument the benefit is for skilled care, such as wound care.

What is the best way to insure Long Term Care?

Lots of reports that the CLASS provisions will fall in any Senate-driven budget deal. Even if that doesn’t come to pass, CLASS is likely to go in any negotiations to move ahead on health reform. Most of the focus is on how CLASS influences CBOs score of deficit reduction, but I want to focus on the problem that CLASS is designed to address, the need for and cost of Long Term Care (LTC). Because we cannot repeal disability.

CLASS was an attempt to set up a self sustaining LTC insurance program that would provide a relatively small amount of money per day ($50-$75) that could be thought of as cover to help people live in their homes with disability and perhaps keep them out of a nursing home. It is a partial response to what many would say is a failure of the private insurance market to cover LTC.

I wrote a paper in Health Affairs (I believe ungated here via NIH depository) with colleagues from Duke and Boston University that was in the January 2010 Health Affairs that looked at the viability of using genetic markers as risk adjustors for private LTC insurance. I don’t want to focus on the genetic piece, but the reasons people don’t purchase private LTC insurance:

The policy big picture is this.

  • Families are the first line provider of LTC and this will always be the case. AARP estimates the value of such informal LTC to be $450 Billion per year.
  • Medicaid is the default payer of nursing home care in the U.S., the most expensive setting for LTC and pays around half of all such care. You could think of Medicaid as a universal NH insurance program with the deductible being your wealth. NH and LTC generally are where the big money is for Medicaid programs.
  • I suspect CLASS will eventually be goners. Do the repealers have any ideas about how to expand insurance coverage for LTC? We have had tax credits for LTC insurance for years….
  • The private LTC insurance market is small and there are many good reasons people don’t buy such coverage, including the fact that 3 in 10 of those surviving to age 65 die without using such care. Amongst the users, there are tremendous variations in length of use and the amount of money needed to finance the longest stay is probably $1. 5 Million. So, almost everyone is at risk of being unable to pay for the LTC they could need.
  • If ever there were a risk that called out for social insurance (broad spreading of premium in return for broad coverage) it is LTC. The policy answer is risk pooling and the private market has failed to do it. Medicaid certainly plays a crowd out role for NH coverage, but think through the 6 reasons for non purchase above; all of them must be addressed to move off of the status quo.

What is the answer? The population is aging….