An LTC insider offers an update
BY LOUIS H. BROWNSTONE
There is new momentum in California to solve the many social and financial problems of long-term care services andsupport. This momentum has been encouraged by California Governor Newsom, who is passionate about these issues because he endured a family long-term care event. With his encouragement, AB 567 (Calderon) “established the Long Term Care Insurance Task Force in the California Department of Insurance to explore the feasibility of developing and implementing a culturally competent statewide insurance program for long-term care services and support.”
Its objectives were broad and included exploring:
- Whether a program could be included as a benefit in state disability insurance
- Designing a program for working adults with payroll deductions
- Requiring mandatory enrollment with a voluntary opt- out option
- Providing a basic insurance benefit to those who develop functional limitations
- Helping individuals with functional or cognitive limitations remain in their communities
- Helping offset costs by adults with chronic and disabling conditions
- Evaluating how benefits would be coordinated with private insurance
- Evaluating how caregivers can be assisted to fill the need
- Considering a joint public and private system
- Enabling the public to access future long-term care insurance programs.Designing a program for working adults with payroll deductions
Wow! That’s a great deal to consider. It will be difficult to utilize the varied types of expertise needed to develop such a broad program. The task force recommendations are to be made to the insurance commissioner, the governor and the legislature by January 1, 2023, and an actuarial report is to be completed by January 1, 2024.
The task force consists of 15 voting members, either in government or representing various care providers. Only one of the 15 members is to be appointed from the long-term care insurance industry.
Recent public opinion surveys in California have shown that most citizens could not afford more than three months of nursing home care at an average cost of $6,000 per month. About four in 10 citizens could not afford a single month of care at that rate. This demonstrates the need for a comprehensive solution to these problems.
The task force had its first meeting on March 9 and plans to meet at least once every two months. This first meeting was mainly organizational. A great deal of time was spent dissecting a draft chart with seven main headings: structure options, financing, administrative considerations, workforce, services, coordination/interaction and access. Some members wanted to expand these headings from seven to at least nine.
The need for a comprehensive program keeps growing as our population ages and more people need substantial caregiving. Current long-term care insurance, whether traditional or hybrid, is only being sold to people with high income and assets. The industry has not provided an acceptable solution to the long-term care conundrum for everyone else.
We have compromised the plans we are selling to only partially cover even current costs. In addition, the costs of care keep rising fasterthan the rate of inflation and this trend is likely to continue for many years. This means that we can’t further reduce benefits to lower the price and still have a meaningful policy.
HOW CAN AN INSURANCE PROGRAM BE EXPANDED TO POTENTIALLY COVER THE MAJORITY OF CALIFORNIANS?
First, the task force is very interested in the new State of Washington Long-Term Care Trust Act, the first of its kind at the state level. Funded by a .58% payroll deduction, it provides for a benefit of $36,500 which will be indexed for inflation by the Consumer Price Index. Its big advantages are that it is a mandatory program and will include a younger pool of insureds. This plan has some major weaknesses and may need to be substantially altered to succeed. The benefit is a small one, but it’s the beginning of a long-term care solution which could grow and become important.
Second, the California Partnership for Long-Term Care is nearing the end of a death spiral and desperately needs reviving. Partnership policies were originally intended to attract people with moderate income and assets. Some states have revised their plans to again appeal to this target market, but not California. A previous Partnership Task Force recommended daily benefits as low as $100/day, a benefit limit as low as $73,000, and 3% compound inflation. If these changes were legislated, Partnership policies would be a fine example of a joint public and private system which could work for the middle class. It could be a mandatory plan with an opt-out for long-term care insurance policyholders.
Third, worksite programs, possibly extensions of disability insurance, could be the answer the Task Force is seeking. It would be an easy transition to combine long-term care insurance with long-term disability insurance. However, this is an expensive solution, combining two products in one, and would expand and exceed the purpose of the task force. The same would be true of utilizing a life insurance product to include a long-term care rider.
Fourth, a state Medicare for All program is projected to cost $400 billion—too much to pass at this time. A few years ago, an attempt at a long-term care plan at the federal level failed for lack of adequate funding. However, I envision some support for such a plan building over a 10 to 12 year period as health care costs continue to rise faster than the inflation rate. At some point, there will be considerable savings if America enacts such a plan.
Fifth, the repricing of traditional long-term care insurance could create lower initial premiums which rise slowly every year, similarto health insurance. This concept would better fit the needs of younger prospects who don’t want to spend much money initially in a long-term care solution. The rate of increase could be variable based on actuarial experience as well as increases in age. Furthermore, the costs would mainly be borne by older employees with potentially higher income.
Finally, there may be designs in the works that I don’t know of. I bet these new solutions are already on the drawing boards for the task force to discover. The people to whom we are selling long-term care protection now are not the ones who need it most. It’s everyone else, and a solution for them is the main purpose of the task force efforts.
LOUIS H. BROWNSTONE is chairman of California Long Term Care Insurance Services, Inc., located in Burlingame, Calif. CLTC is the largest independent specialist long term care insurance agency in California, and is broker for a group of high-producing long term care specialist agents. Brownstone is also very active in the National Association of Insurance and Financial Advisors (NAIFA).