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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
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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.”
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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.”
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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
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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.
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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
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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.
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“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.
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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.
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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?
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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.
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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!
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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.”
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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 [email protected]
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Thank You