Long-Term Care Financing Advisory Committee November 12, 2009

1. Building a Roadmap for Financing Long-Term Services & SupportsMelding Private Insurance, a Contribution Program & Medicaid into a Cohesive Proposal Long-Term Care Financing Advisory Committee November 12, 2009 For Advisory Committee Policy Discussion Purposes University of Massachusetts Medical School EBD Consulting Services, LLC

2. Presentation • Refined Strawman Proposal • LTC Partnership • Contribution Program • Combined Approach • Impact on Medicaid • Future Medicaid analysis • Appendix For Advisory Committee Policy Discussion Purposes University of Massachusetts Medical School EBD Consulting Services, LLC

3. Section 1 Refined Strawman Proposal For Advisory Committee Policy Discussion Purposes University of Massachusetts Medical School EBD Consulting Services, LLC

4. Refinements to Strawman proposal since last month • LTC Partnership/Private LTC Insurance • Identified affordable benefit package models • Targeted middle income people who are at risk to spend down • Contribution Program • Modeled a mandatory plan • Analyzed premiums required to ensure solvency • Medicaid Program • Assessed effect of LTC Partnership and Contribution on Medicaid • Status quo eligibility rules for purposes of modeling Medicaid baseline For Advisory Committee Policy Discussion Purposes University of Massachusetts Medical School EBD Consulting Services, LLC

5. Preview: “Take-away” points LTC Partnership: Private LTC insurance with good benefits can be made affordable to younger middle income adults Group coverage with conversion requirement would increase take-up rate Contribution Program: $75 daily benefit covers a significant amount of care and needs High uncertainty on how high to set premium rates in order to guarantee solvency (because of uncertainty in disability/death rates, among other factors) Medicaid Savings: Difficult to calculate, requires many assumptions For Advisory Committee Policy Discussion Purposes University of Massachusetts Medical School EBD Consulting Services, LLC

6. Comprehensive and cohesive approach begins to emerge (assumes mandatory Contribution Program) For Advisory Committee Policy Discussion Purposes University of Massachusetts Medical School EBD Consulting Services, LLC

7. Framework for Evaluation & Key Assumptions For Advisory Committee Policy Discussion Purposes University of Massachusetts Medical School EBD Consulting Services, LLC

8. Key questions for evaluating the proposal Target Population How many people will benefit from the model? Who will not benefit? Benefit Coverage What benefit does the model offer? Does it meet the need? How much LTS coverage does it provide? Costs (Costs and Savings Impact Analysis) Who bears the costs? Is it cost effective? For Advisory Committee Policy Discussion Purposes University of Massachusetts Medical School EBD Consulting Services, LLC

9. Assumptions and limitations of analysis • Assumptions • Affordability: Target of 2% • Modeled mandatory enrollment for Contribution Program • 5% compound inflation (e.g. Premiums, LTS costs, Medicaid) • Modeled individual policies, did not look at couples policies • No assumptions made about tax treatment of the premiums/costs • Limitations of work • Projection stops at 20 years • Population subgroups by age & income (e.g. people who are disabled) • Disability & death probabilities are critical • No Return on Investment assumptions made • Microsimulation model is highly recommended in order to develop legislation For Advisory Committee Policy Discussion Purposes University of Massachusetts Medical School EBD Consulting Services, LLC

10. LTC Partnership/Private Insurance For Advisory Committee Policy Discussion Purposes University of Massachusetts Medical School EBD Consulting Services, LLC

11. LTC Partnership is worth considering • Comparison grid highlights key differences between MA asset protection provision (quasi-Partnership) and LTC Partnership • Important things to be gained from a LTC Partnership: • Asset protection provided when purchase LTC insurance policy (in MA: asset protection provided when individual enters nursing facility) • Policies must cover community-based benefits (in MA: no requirement) • Choice is between existing MA asset protection rules or full LTC Partnership • Federal law “grandfathered” MA quasi-Partnership rules, but do not provide a way to amend these rules, except by implementing full LTC Partnership • Any new Program must protect people who bought LTC insurance policies under the quasi-Partnership rules For Advisory Committee Policy Discussion Purposes University of Massachusetts Medical School EBD Consulting Services, LLC

12. LTC Partnership: Where did we leave off last month? • Last month, we looked at the Connecticut Partnership model. • We wanted to improve that model by: • Creating an affordable LTC insurance benefit package • Targeting middle income people who are at risk to spend down • In this section, we identify and model the features of two affordable LTC insurance benefit packages • CalPERS • Federal Long-term Care Insurance Program (FLTCIP) For Advisory Committee Policy Discussion Purposes University of Massachusetts Medical School EBD Consulting Services, LLC

13. Elements of the improved model Who participates (target population)? People over the age of 25 years Incomes over $25,000 for under 65 Incomes over $30,000 for elderly people People who can pass health screen; excludes people with disabilities Assumed 15 percent of population over 25 would take up private insurance What is the benefit? Daily benefit of up to $100 or $150 toward comprehensive LTS for up to 2 years What is the cost? annual premiums vary by age, examples: $410 at age 25 $967 at age 55 $4,905 at age 85 For Advisory Committee Policy Discussion Purposes University of Massachusetts Medical School EBD Consulting Services, LLC

14. Two affordable models – benefit details For Advisory Committee Policy Discussion Purposes University of Massachusetts Medical School EBD Consulting Services, LLC

15. Who benefits: 69% of the population over age 25 would be eligible* to purchase a LTC insurance policy (estimate that only 15% will purchase) * Assumes low-income people and people who cannot pass health screen are not eligible to purchase an LTC insurance policy For Advisory Committee Policy Discussion Purposes University of Massachusetts Medical School EBD Consulting Services, LLC

16. Benefits covered: Both models cover substantial home care, most assisted living, and some nursing facility care For Advisory Committee Policy Discussion Purposes University of Massachusetts Medical School EBD Consulting Services, LLC

17. Slide from last month: Connecticut premiums unaffordable for middle income Higher income people buy LTC insurance in CT (green) We need to make LTC insurance affordable for middle income (yellow) For Advisory Committee Policy Discussion Purposes 17 University of Massachusetts Medical School EBD Consulting Services, LLC University of Massachusetts Medical School EBD Consulting Services, LLC

18. Costs to the individual: Improved model is more affordable, particularly for younger middle income For Advisory Committee Policy Discussion Purposes University of Massachusetts Medical School EBD Consulting Services, LLC

19. Additional cost if program provides subsidies: Older middle income would need subsidy in order to afford policy For Advisory Committee Policy Discussion Purposes University of Massachusetts Medical School EBD Consulting Services, LLC

20. Group insurance could increase take up rate • What does a Group offer? • Affinity, Simplicity to a large base • No agent fees, but regulated in the same way as the individual market • Would need to require rollover to retirement with no changes (group conversion) • Other State Models: All state employees • State of Minnesota • State of Michigan • CalPERS: • 12-14% of eligible population • Self-funded (no insurance company) to all active workers, retirees, & families • More risky, if program does not perform well • The Federal Long-Term Care Insurance Program (FLTCIP) • 6 percent of eligible population • John Hancock is the Insurance Carrier • Rate increase = Lapse in Mortality Rates (and decline in Rate of Return, ROR) For Advisory Committee Policy Discussion Purposes University of Massachusetts Medical School EBD Consulting Services, LLC

21. LTC Partnership: Effect on Medicaid Potential savings to Medicaid If new middle income people buy LTC Insurance, then fewer people would spend-down to Medicaid Potential costs to Medicaid Helping people keep their assets could reduce Medicaid revenue: If people were already buying LTC Insurance and would have spent down and Medicaid would have recovered their assets, then Medicaid would recover fewer assets For Advisory Committee Policy Discussion Purposes University of Massachusetts Medical School EBD Consulting Services, LLC

22. Outstanding questions and considerations For Advisory Committee Policy Discussion Purposes • Are we ready to recommend a LTC Partnership with these parameters? • Do we want to explore subsidizing older middle income people who are close to the affordability threshold? • Do we want to consider ways to increase participation? • Target people at younger ages • Encourage group coverage • Provide financial incentives • Do we want to consider other mechanisms (e.g., LTC riders to life insurance policies) for promoting insurance for LTS? 22 University of Massachusetts Medical School EBD Consulting Services, LLC University of Massachusetts Medical School EBD Consulting Services, LLC University of Massachusetts Medical School EBD Consulting Services, LLC

23. A Contribution Program For Advisory Committee Policy Discussion Purposes University of Massachusetts Medical School EBD Consulting Services, LLC

24. Contribution Program: Where did we leave off last month? • Last month, we looked at the CLASS model. • We wanted to improve that model by: • Ensuring solvency over many years • Ensuring high participation levels • In this section, we: • Analyze the premiums required to ensure solvency • Model a mandatory plan For Advisory Committee Policy Discussion Purposes University of Massachusetts Medical School EBD Consulting Services, LLC

25. Elements of the improved model Who participates (target population)? People over the age of 25 years People of low to middle income Incomes over $25,000 for under 65 Incomes over $30,000 (roughly) for elderly people Nobody is excluded due to disability status 79% of population is eligible to participate, assumes 100% participate (mandatory program) What is the benefit? $75 cash daily benefit for LTS ($50 cash daily if 2 ADLS, $100 if 4 ADLs) Lifetime What is the cost? $92 monthly premium, or $1,095 annual premium (derived from analysis) Premiums same for everyone regardless of age and income Premiums paid until person receives benefit (includes retirees) For Advisory Committee Policy Discussion Purposes University of Massachusetts Medical School EBD Consulting Services, LLC

26. Contribution Program – benefit details For Advisory Committee Policy Discussion Purposes University of Massachusetts Medical School EBD Consulting Services, LLC

27. Who benefits: 79% of population over age 25 would be eligible to participate (modeled mandatory program - 100% take-up) For Advisory Committee Policy Discussion Purposes University of Massachusetts Medical School EBD Consulting Services, LLC

28. Benefits covered: A $75 daily benefit amount would cover most home care needs, but is insufficient for institutional care For Advisory Committee Policy Discussion Purposes University of Massachusetts Medical School EBD Consulting Services, LLC

29. Costs to the individual:Affordable for people at or above 500% FPL (green)People 400-500% FPL would require subsidies (yellow)People below 400% would continue to rely on Medicaid (red) An individual with income = 400% FPL would require a subsidy of $228/year to limit spending to 2% of income For Advisory Committee Policy Discussion Purposes University of Massachusetts Medical School EBD Consulting Services, LLC

30. Uncertainty as to how high to set premiums to ensure solvency: Premiums are very sensitive to assumptions, particularly disability and death rates, and population projections For Advisory Committee Policy Discussion Purposes University of Massachusetts Medical School EBD Consulting Services, LLC

31. Requires diligent oversight over revenues and expenses to ensure solvency For Advisory Committee Policy Discussion Purposes University of Massachusetts Medical School EBD Consulting Services, LLC

32. Contribution Program: Effect on Medicaid • Potential savings to Medicaid • Fewer people would spend-down to Medicaid, especially if mandatory • If Contribution program pays before MassHealth for MassHealth-covered services, then there would be direct savings to Medicaid • Potential costs to Medicaid • If include asset protection for Contribution benefits (like Partnership), then Medicaid would recover fewer assets For Advisory Committee Policy Discussion Purposes University of Massachusetts Medical School EBD Consulting Services, LLC

33. Outstanding questions and considerations For Advisory Committee Policy Discussion Purposes • Are we ready to recommend a Contribution Program with these parameters? • Relationship to CommonHealth? • For people with disabilities, does a Contribution Program pay first (direct savings to Medicaid) or cover services that CommonHealth doesn’t cover? • Mandatory or auto-enrollment with voluntary opt-out? • Consider various mechanisms for universal participation? • Consider ways to increase voluntary participation? • Incentivize with Medicaid asset protection (like Partnership)? • Conduct sensitivity analysis of lower participation rates? 33 University of Massachusetts Medical School EBD Consulting Services, LLC University of Massachusetts Medical School EBD Consulting Services, LLC University of Massachusetts Medical School EBD Consulting Services, LLC

34. The Big Picture Public & Private Insurance Options How do they fit together? For Advisory Committee Policy Discussion Purposes University of Massachusetts Medical School EBD Consulting Services, LLC

35. Some people may wish to purchase both: people with higher assets who can afford both premiums For Advisory Committee Policy Discussion Purposes University of Massachusetts Medical School EBD Consulting Services, LLC

36. Does the refined Strawman proposal meet our principles? For Advisory Committee Policy Discussion Purposes • Meets All Principles • Strengthens the safety net for low income (by deferring Medicaid spend-down) • Provides affordable options for middle income • Supports stay-at-home preferences • Increases private financing • Limits pressure on state programs 36 University of Massachusetts Medical School EBD Consulting Services, LLC University of Massachusetts Medical School EBD Consulting Services, LLC University of Massachusetts Medical School EBD Consulting Services, LLC

37. Changes necessary to implement Strawman proposal • Contribution Program • State legislation with design specifications to support Committee’s goals • Insurance reforms • NAIC model act & regulations • State LTC Partnership legislation with design specifications to meet Committee’s goals • Other insurance market reforms? e.g. group conversion policies • Develop FDIC-like mechanism to insure policies against risk of insurer insolvency? For Advisory Committee Policy Discussion Purposes University of Massachusetts Medical School EBD Consulting Services, LLC

38. Medicaid For Advisory Committee Policy Discussion Purposes University of Massachusetts Medical School EBD Consulting Services, LLC

39. Steps in Medicaid analysis • Establish Medicaid spending baseline • Quantify effects on Medicaid baseline of proposals • Identify gaps in participation/coverage • Identify and assess Medicaid improvements or expansions to fill gaps • Cost out Medicaid improvements/expansions For Advisory Committee Policy Discussion Purposes University of Massachusetts Medical School EBD Consulting Services, LLC

40. Assessing the impact on Medicaid Key Features Status quo eligibility rules for purposes of modeling Medicaid baseline Uses Medicaid state plan LTS spending to model potential impact on Medicaid (impact could be greater because excludes HCBS waiver spending and expenditures made on behalf of Medicaid members by other state agencies) Methodology Calculate Medicaid baseline ($2.8 b) Focus on the baseline for elderly ($1.8 b.) Focus on the baseline for people with disabilities ($911 m.) Calculate the impact of each program and for each population on the baseline The Contribution Program The LTC Partnership And, then Together For Advisory Committee Policy Discussion Purposes University of Massachusetts Medical School EBD Consulting Services, LLC

41. Baseline Facts about Medicaid -State plan spending used for modeling purposes Big role for Medicaid: Medicaid represents 37 percent of all long-term care spending on the elderly, including all source Elderly big spenders: Medicaid spending on the elderly represents 66 percent of total LTC spending on elders and people with disabilities Institutional bias: Spending on Nursing homes represents 77 percent of all spending on the elderly Spending on Nursing homes represents a SMALL percent of all $ on people who are disabled Total budget bigger than $2.7 billion: $3.4 billion is spent on LTS when include community-based waiver services for people who are elderly and those who are disabled (ages 18-64) For Advisory Committee Policy Discussion Purposes University of Massachusetts Medical School EBD Consulting Services, LLC

42. [Placeholder]The Big Picture: A Global Shift in Roles For Advisory Committee Policy Discussion Purposes University of Massachusetts Medical School EBD Consulting Services, LLC

43. Conceptual example - How will the financing of LTS change under the Contribution Program for the elderly? For Advisory Committee Policy Discussion Purposes 43 University of Massachusetts Medical School EBD Consulting Services, LLC University of Massachusetts Medical School EBD Consulting Services, LLC

44. Next steps re: Medicaid • Continue to quantify effects on Medicaid baseline of proposals • Clarify resulting gaps in participation/coverage • Identify and assess Medicaid improvements or expansions to fill gaps • Cost out Medicaid improvements/expansions For Advisory Committee Policy Discussion Purposes University of Massachusetts Medical School EBD Consulting Services, LLC

45. Committee Business For Advisory Committee Policy Discussion Purposes University of Massachusetts Medical School EBD Consulting Services, LLC

46. Committee Business For Advisory Committee Policy Discussion Purposes • Public input process • New Dates (confirmed): • Friday, December 11th from 1 PM – 3:30 PM, Needham Sheraton • Thursday, December 17th from 5:30 PM – 7:30 PM, Northampton COA • Next meeting: • Date: Thursday, December 10th, 2009 from 9:00 -11:30am • Location: AARP - One Beacon Street, 23rd Floor • Future meeting reminder • Additional meeting scheduled for either Thursday, February 11th or February 25th University of Massachusetts Medical School EBD Consulting Services, LLC