Financing a National LTC Insurance Program: Best Practices for a Public Program

1. Financing a National LTC Insurance Program: Best Practices for a Public Program Reactor 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

2. 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.”

3. 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.”

4. 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

5. 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.

6. Planning Actions Taken by Whether or Not Read Kit

7. 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.

8. “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.

9. 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.

10. 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?

11. 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.

12. 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!

13. 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.”

14. 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.

15. 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.

16. 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.

17. 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.

18. 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.

19. 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.

20. 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.

21. 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?

22. Contact Information Eileen J. Tell, Senior Vice President Product Development & Analytic Services Long Term Care Group 508-651-8800 or etell@ltcg.com

23. Thank You