LTCI: Adrift in the LTC Sea

The Essential Guide

aImagine being on a boat headed straight at a jetty. You’re shouting to the captain and crew to change course but they’re shouting at each other. Everyone can see the crash coming but no one appears able to stop it.

That’s the situation with long-term care (LTC) policy in the U.S., albeit without the seaside scenery. Consider these observations, published in an August 2012 “Health Care Policy Snapshot Issue Brief” from the Robert Wood Johnson Foundation:

“Long-term care expenditures are projected to increase to $346 billion in 2040. Medicaid accounts for 43 percent of all long-term care spending while Medicare accounts for 18 percent. Meanwhile, federal and state governments are reducing overall spending and states are cutting back on their Medicaid programs. The one piece of the Affordable Care Act that addressed long-term care financing—the CLASS Act—has been abandoned due to inability to assure its financial viability.”

According to Genworth’s 2011 Cost of Care Survey, the median annual cost of long-term care in an assisted-living facility is $39,135, an increase of 2.4 percent from 2010. The comparable cost for a private nursing home room rose 3.4 percent to $77,745. Costs vary significantly by region: a semi-private nursing home stay in the State of New York costs almost $119,000 per year versus $49,000 in Oklahoma. At $18 per hour for homemaker services and $19 an hour for home-health-aide services, the median hourly cost to receive care in the home remained flat over the past 12 months.

“There is at the moment really no effort being made either by the Obama administration or in Congress to do anything about it.” ~Howard Gleckman, Urban Institute

Proposed solutions

The Obama administration tabled the CLASS Act in October, 2011, citing funding problems. Medicare isn’t designed for custodial LTC expenses, which leaves Medicaid as the federal government’s backstop program for those who qualify. But the growing number of financially strapped persons requiring LTC—an estimated one-third of Medicaid’s outlays in 2010—is straining that program’s resources and states’ budgets. Overall, the outlook for remedial LTC-funding action on the federal level is not good, says Howard Gleckman, author of “Caring for Our Parents” (St. Martin’s Press, 2009) and resident fellow at the Urban Institute in Washington, D.C. “There is at the moment really no effort being made either by the Obama administration or in Congress to do anything about it,” he says. “The Romney campaign has said nothing about it. So, in terms of policy initiatives, at the moment there is nothing.”z

Extended self-funding is not a viable option for most Americans, leaving a handful of potential funding mechanisms. Private LTC insurance gives insureds the most control over their benefit design but sales remain sluggish apart from the hybrid policies. Federal government civilian and military employees have access to competitively priced LTCI as part of their benefits package but market penetration remains low at an estimated 5 percent among eligible buyers.

State partnerships appear to be a viable solution for many consumers but fewer than 440,000 partnership policies were in-force as of year-end 2011. “The partnership has been one of the most disappointing busts in terms of an opportunity to really expand the marketplace,” says Jesse Slome, executive director of the American Association for Long Term Care Insurance in Westlake Village, Calif. “It’s a great concept. It really comes down to a real lack of understanding. I mean, you’ve got to market it.”

The lack of a coherent policy from the federal and state governments hasn’t stopped industry observers from offering their own solutions. William Galston, a senior fellow in the Brookings Institution’s Governance Studies Program in Washington, D.C., discussed several possible LTC-funding proposals in the Fall, 2012 issue of Democracy: A Journal of Ideas. Given the confluence of budget deficits, policy disputes and political inertia, though, it’s unlikely that private sector or government proposals will receive the attention needed anytime soon. The reef looms large…

By Ed McCarthy for the November 2012 issue of Senior Market Advisor Magazine.

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