Long-Term Care
The Perfect Storm in LTC
Jim Heyer

By the early 1990s, the heavenly bodies of the LTC insurance galaxy were aligning themselves in a way never seen before. This celestial repositioning would cause changes that would long affect the still-developing world of LTC insurance, yet the magnitude of these events was largely unknown by the navigators of LTC insurance. After all, they were much more consumed with the race to claim new lands for their LTC insurance empires than they were about what conditions would be like in years to come. Nonetheless, these new conditions would continue to mount and would someday come together to form the perfect storm.
   In the early days of LTC insurance – the mid to late 1980s – LTC companies had strong defenses against excessive utilization in the form of gatekeepers. The first major gatekeeper was the nursing facility. With its sights, sounds, and smells, the traditional nursing home was clearly the last resort. Insurers could place some reliance on people not going there unless it was necessary. Ironically, the same “I’ll never end up there” sentiment had a dampening effect on the sale of LTC insurance. Why would people want a policy to cover something they refused to believe would ever happen to them?
So, the LTC insurance industry added new benefits and created new features to get people to buy their wares. As soon as one company came out with an enhancement, others would follow in an effort to stay competitive. One enhancement was an increase in the policy benefit period from five years to 10 years and then to unlimited benefit periods in the late 1980s.
   The second major gatekeeper was the three-day hospital requirement, which had its origins in Medicare. “Nursing home insurance,” as it was called in the LTC insurance days of yore, was intended to fill in this major gap of the federal program. It was only logical that nursing home insurance would adopt similar eligibility requirements. The standard requirement was that facility admission had to occur within 30 days of discharge from a hospitalization, which lasted at least three days and was for the same condition necessitating facility placement.
   By 1990, this hospital requirement fell into disfavor when changes in the Medicare program led to shorter and less frequent hospitalizations, which meant that the three-day requirement was getting harder to satisfy. People recognized that hospitalization was not necessary with many afflictions, the most significant of which, was probably Alzheimer’s disease. Therefore, the requirement could make it impossible for someone who desperately needed care to collect benefits. Being seen as unduly restrictive, the prior hospitalization requirement was no longer permitted in new policies. There went one shield.
Having no hospital requirement and unlimited benefits was good for consumers. But, in the mid-1990s, came the explosion of the stand-alone assisted living facility. With apartment-like settings, improved aesthetics, a dining room with a menu, and companionship; this was the place you could put Mom or Dad and have no guilt. These facilities had carpets and paintings instead of cold, hard-tiled floors. There was an atrium, a lounge, and no odor of bedpans. What a great option when someone needs care, especially if they have an LTC insurance policy to foot the bill!
   To complicate things even further, if Mom’s daily benefit was large enough, she could move to the assisted living facility and actually be better off financially since she wouldn’t have to pay for property taxes, utilities, or maintenance on her home. In addition, you wouldn’t have to worry about helping her with activities of daily living or preventing her from falling or wandering at night. Why in the world wouldn’t you put her in an assisted living facility? That sound you just heard was the second shield being blown apart.
One reason you might not want to move Mom too early is to conserve the policy’s benefits so they don’t run out, which could leave you facing some major bills. Anyway, even though it’s not easy, you can still handle her at home or move her into your house if you really have to. Oh, Mom’s policy is unlimited? Pack her bags!
   Here is what we have now: The policy benefits won’t run out; there is no hospital requirement; and the assisted living facility is pretty darned nice. This is the part where you see the LTC ship being tossed around by 90-foot waves. The seas were calm and the sky was blue what seems like just a few moments ago, but was actually 15 years ago. It wasn’t planned this way; the LTC delivery system and the policies just evolved.
Unlimited lifetime maximums might have been O.K. if not for the proliferation of assisted living facilities and home care to a certain extent. In addition, the proliferation of alternatives to the traditional nursing home might have been O.K. if we still had a hospital requirement or we didn’t have unlimited lifetime maximums. Weren’t all of these changes good for the consumer including improved facilities, the removal of unfair gatekeepers, and a benefit that won’t run out? Yes, but when you put them all together, it isn’t going to work.
   So, how do we move the LTC insurance back to calmer waters? Hospital requirements are gone for good and assisted living facilities are here to stay. So, it does not make sense to continue offering benefits that will never run out – not in today’s environment. Sure, we could price them sky-high so that no one would buy them. But, do we want to give consumers the idea that they have to settle for something less since the best available is unlimited, but unaffordable? Wouldn’t it be better to offer meaningful coverage and set reasonable expectations?
   If you are not convinced, just remember that no law or edict was passed down from the mountaintop saying that unlimited lifetime benefits had to work. Our industry tried them, but we’ve all learned a great deal since those early days. It is becoming clear that this industry needs to move away from an exposure that’s limited only by death and offer more sensible benefit levels that people will have to use more rationally. Will all the ships of the LTC insurance ocean eventually chart a course towards calmer waters? We think so, but only time will tell.
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Jim Heyer is senior vice president, Risk Management for Penn Treaty Network America Insurance Company. Jim has been involved with LTC insurance since 1988 and has extensive experience with underwriting, claims management, product development, and compliance. For more information, call 800-362-0700 x3758,