Financing a National LTC Insurance Program:

Best Practices for a Public ProgramReactor Comments to:

“Long-Term Care Financing Reform: Lessons from the U.S. and Abroad”

Building Bridges: Making a Difference in Long-Term Care

Colloquium sponsored by the Commonwealth Fund and administered by AcademyHealth.

27 June 2009 Chicago

Lessons from Abroad: General Comments

►Lessons valuable.

► Programs under-funded.

► Cash benefit raises issues of concern.

► Disability criteria set high.

► Focus on 60+ for most part.

► Use of ‘pay-as-you-go.”

Consider Key Differences before Lessons Apply

► Nature of private market development.

►Cultural and service resource differences.

►Nature of provider and service environment.

►Nature of consumer awareness of need, risks, costs and benefits of planning.

►Build on existing infrastructure of “what works.”

Some Observations & Responses

►Partnership Programs do and can work.

►Not a perfect solution, but evidence shows market penetration higher in states with Partnership programs.

►GAO report extremely flawed assumptions and ignored conflicting evidence.

► Fact that so few with PQ policies have gone on to Medicaid = evidence of program’s positive impact.

► Surveys show people DID buy because of Partnership aspect.

►Detailed analysis by Claude Thau outlines flaws in GAO report:

http://www.lifecareassurance.com/2008%20Conference/Powerpoint/48a.pdf

Value of Education and Awareness

►Awareness and education programs also work.

►Evidence of people taking action – personal responsibility for planning ahead for LTC needs – when given education on the value of doing so.

►Most important example are results from “Own Your Future” campaign – 4 years of education and outreach to over 23 states.

Planning Actions Taken by Whether or Not Read Kit

32%

10%

33%

6%2%

16%

5%

18%

0%

10%

20%

30%

40%

50%

Talk to agentabout LTC

Look into ReverseMortgage

Review existingCoverage

Buy LTCInsurance afterJanuary 2005

Read Kit Got it but Did not Read

Estimating Market Penetration

►Focus on eligible population for private insurance.

►With younger average purchase ages in all markets, focus on 65+ not appropriate.

►Index of the LTC Uninsured adjusted for income.

►Good to adjust for health also, but more difficult.

►Still, about 10% market penetration if look at population 50+ with incomes above $30,000.

“Woodwork Effect”

►No evidence within 20+ years of insured program data of “woodwork effect.”

►People tend to use less care and services than we’d like them to do.

► With good care planning, can keep people in or move them to less intensive (costly) care settings.

► With good care planning and benefit design, can keep informal supports intact.

► Part of this relates to the cash vs. service benefit discussion.

Tax Incentives

►Evidence that tax credits work.

►Evidence from other product lines suggest a cafeteria plan benefit for LTC tax advantaged treatment would have favorable outcome with minimal revenue impact.

►Might be able to exclude those employers from having to participate in mandatory public program.

Analyzing Programs Abroad

►What are the criteria for “success?”

►Important to articulate measurable objectives and monitor programs against that.

►What is the role of the private market – how does it replace or work with the public program?

►How do cultural and timeframe differences, as well as different service and demographic frameworks, impact program success?

Best Practices for Successful Public (or Private) Program (con’t)

►Use proven, “state of the art” risk management and care planning techniques.

► Impose same discipline on public as private programs.

►Objective, valid and reliable benefit triggers.

►In-person assessments with proven tools, when needed.

►Appropriate timeframe for reassessments.

Best Practices for Successful Public (or Private) Program (con’t)

► Public-private sector collaboration – many models – cooperate, don’t compete.

►Consider appropriate role for private market and design public program to succeed within that market, not conflict with it.

►Public education, awareness and motivation are key!

Best Practices for Successful Public (or Private) Program (cont’d)

►Service benefit vs. cash.

□ Cash benefits cost more, subject to fraud and abuse, more difficult to accurately price.

□ Consider compromise of cash vs. service reimbursement

□ Build in appropriate plan design and risk management controls if using cash benefits.

►Supports for informal caregivers.

►Consider limited benefit duration: short and fat.

►Consider “partial solution” mandatory program with voluntary “buy-up.”

Best Practices for Successful Public (or Private) Program

►Focus on broader population and younger ages – not because “size matters” – but to allow opportunity for pre-funding instead of “pay as you go.”

►Follow industry standards for discipline with pre-funded program.

►Age-based premiums make sense if program is voluntary. Can include age-subsidies if needed.

► Community-rating problematic but makes more sense if program is mandatory.

►Use of co-payments and/or deductibles to help with affordability and risk management.

The Case for Self-Funding a Public Program

►Common in health care benefits.

►Less common in long term care insurance.

►Two state programs – Alaska and CalPERS – have self-funded long term care insurance plans with decades of experience. Federal program considered it.

►One private employer – Hewlett Packard – was self-funded but changed due to HIPAA.

►Large number of CCRCs self-fund long term care and have done so for decades.

Definition

►Sponsoring organization is the “policyholder” – designs and sponsors the offering.

►Sponsoring organization also plays the role of the insurance company in terms of plan design, funds investment, marketing, evaluation and modification, etc.

►Partners with actuaries, TPA and other industry experts as needed.

►Insurance company or TPA can play “Administrative Services Only (ASO) role.

Advantages

►Lower premiums because no insurance company/agent commission, risk charges or profit – greater affordability.

►Higher loss ratio – e.g., 80% or more – means more value to consumer for each premium dollar.

►Can still adhere to all the consumer protection, rate stability and other prudent practices of commercially insured LTC products.

►Leverage affinity of sponsoring organization with its members.

►Greater sponsor control over product and practices.

Advantages (continued)

►More flexibility in plan design – no state regulation.

►Sponsoring organization may have better ability and track record for investment – rate of return influences price. Additional 1% rate of return on investment = 2-5% lower premiums.

►Not for profit plan can enhance benefits or reduce premiums if experience better than expected.

Disadvantages

►Only works if sponsoring entity has and retains strong positive affinity with target market.

► Sponsoring entity must have appetite and ability to manage the program and soundly invest the funds.

►Requires additional “education” for consumers to understand the concept.

►Agents can “sell against” it if they choose to so program must always offer competitive and contemporary benefits and rates.

►Program can get caught in the cross-fire of changing leadership within the sponsoring organization.

CalPERS Experience

►Initially highly favorable – good risk pool, enrollment exceeded expectations, strong investment returns, maintained competitive and contemporary plan offerings.

►Changes in leadership weakened program’s focus on strong re-enrollment and program design fixes over time.

►Recession had negative impact on earnings.

►Assumptions were conservative – but needed to be even more so.

►While program had 2 rate increases, still not clear how “needed” they were. But prudent path was not to “wait and see.”

►Need to revitalize offering and marketing.

Key Design Questions – Public Finance Program

►Voluntary or mandatory?

►Full or partial solution?

►How to best integrate with private industry if “partial.”

►Need to educate consumers if “partial.”

►How to incorporate state of the art risk management.

►All-inclusive or “different things for different people.”

►How to include non-working population?

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Contact Information

Eileen J. Tell, Senior Vice President

Product Development & Analytic Services

Long Term Care Group

508-651-8800 or etell@ltcg.com

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Thank You