There is a strong movement in California to implement a publicly funded long term care (LTC) program. The California Long Term Care Insurance Task Force has been established “to explore the feasibility of developing and implementing a culturally competent statewide insurance program for long-term care services and supports.” The task force has a committee of fifteen members, consisting mostly of California Department of Insurance employees and representatives of caregiving organizations.
BY LOUIS H. BROWNSTONE
The LTC task force has now met three times and is beginning at a very high level to undertake its exploration. It is looking at several programs, including those from one or two European countries. However, the main example it is discussing is the recently enacted Cares Act from the State of Washington. A number of other states are pursuing the same track, but California may be the most advanced thus far in its thinking and organization.
The Washington Long Term Care Trust Act will be funded beginning in January through a mandatory payroll tax of .58% on all W-2 earners in the state. This will give workers a lifetime benefit of up to $36,500 adjusted annually by Washington’s Consumer Price Indexed inflation. There is a wide range of benefits, both at home and in facilities, based on the need for assistance in three of 10 activities of daily living, including cognitive impairment. The self-employed are given an option to opt-into the program, and citizens with private long-term care insurance are given a very limited option to opt-out by November 1, 2021.
The concept here is to provide a small long-term care benefit and to encourage citizens to buy wrap-around private long-term care insurance. This would protect citizens and save the state many millions of future Medicaid dollars.
In my view, this noble effort, guided by actuaries from Milliman, got many things right in its design. It’s a mandatory program. It is funded by a progressive tax, so that the poor pay very little and the very rich can opt-out. Its benefits
are far-reaching. It has a seventy-five year vision to adjust the program to ensure its financial solvency. It will be administered in a hands-on manner by Washington State government personnel.
However, the Washington Cares Act has run into some difficulties as well. There was strong public opposition to the imposition of the tax, despite the fact that the legislature approved it. No one likes to be taxed. The regulations included the fact that citizens who moved out of state would forfeit their contributions to the Fund. In addition, citizens who lived out of state, say, in Oregon or Idaho, but worked in Washington, would have to move to Washington in order to receive their benefits.
Because of these reasons, there was a huge rush by citizens to purchase private long-term care insurance in order to opt-out of the tax. The insurance carriers suddenly got deluged with applications and could not cope with the volume. Many applications were for very small benefits and premiums. The carriers were thus concerned that applicants would cancel their policies once they could show the Washington Cares Act that those policies were in force, as there was no planned recertification that these policies remained in force. In addition, applications for small benefits are generally unprofitable, due to the costs of underwriting and administration. Consequently, the carriers ceased taking applications almost three months before the closure of the brief opt-out option.
What can the California Task Force learn from the Washington Cares Act experience?
The main take-away is that in its efforts to be all-inclusive and ensure its solvency, the designers of the Washington Cares Act included some elements which were not well accepted by its participants and which might need some revising in the future. The problem is that many of these revisions would result in a shortfall of revenue and could necessitate an increase in the tax.
Here are some areas of concern which need further investigation.
First, and above all, there needs to be greater cooperation with the insurance industry. This would include a far longer period to be able to opt-out. There should also be minimum benefit requirements in order for a policy to qualify as an opt-out policy. The insurance industry should also be compelled to recertify opt-out policies on a regular basis in order for a policyholder to retain their opt-out status.
Second, Washington State’s citizens should not be penalized if they move out of state. They should at least receive a refund of their premiums. In this method, Washington
could retain any increases from inflation to cover their administrative costs.
Third, CPI inflation may become a weak method to keep up with the rise in the costs of care. In the present environment, CPI inflation is 2%, and the increase in the costs of care is about 4%. In 36 years, at these rates, CPI inflation would create a $200/day benefit, but a four-hour home care cost of $120 now would increase to $480. The Cares Fund would pay for less than two hours of home health care. This gap would continue to grow over time. A new method needs to be created to keep up with the rise in the costs of care.
All of these revisions would affect the size of the tax required. I believe that there would be little objection to the increase in the tax so long as the total remained under one percent. There may be other ways to cushion the need for a tax increase, such as inserting a small elimination period in order to receive benefits.
If the California Long Term Care Insurance Task Force uses the Washington Cares Act as its model, which I believe it will, it will attempt to overcome its shortcomings. I have submitted 10 recommendations to the task force as a starting point for discussion and revision. I hope that this and input from others will guide the task force in creating a program which will benefit many Californians.
Here are my recommendations:
1. Extend the Opt-Out Provision period to at least two years to handle the crush from California, whose population is five times that of Washington’s.
2. Enact minimum requirements to qualify as an Opt-Out policy. Suggestions:
a. Traditional LTCI: $150 daily benefit, 730 day benefit period, 3% compound inflation.
b. Linked life/annuity with LTC rider: $250,000 death benefit with equal LTC rider.
c. Life with LTC rider: $250,000 death benefit with equal LTC rider.
3. Recertify Opt-Out policies at least every other year.
4. Promote Opt-In for self-employed and include spouses.
5. Include either a 30-day or 45-day elimination period to cushion the size of the tax.
6. Include reimbursement for members who move out of state, either with a refund of premium cost or the current value of the account.
7. Create a new formula to keep up with the rise in the costs of care.
8. Have California’s senators fight for federal matching funds.
9. Include some of the elements of the California Partnership for Long Term Care.
10. Don’t call it a tax, call it a premium, a payment, an assessment —anything but a tax.
Others should feel free to weigh in with their recommendations to the task force. We should all pull together to create a good program for California’s citizens.
LOUIS BROWNSTONE is chairman of California Long Term Care Insurance in Burlingame, CA. He can be reached at Louis@CLTCinsurance.com, www. CaliforniaLongTermCare.com