Results from the SOA's Long-Term Care Think Tank

Results from the SOA's Long–Term Care Think Tank
by Emily Kessler

Typically, Think Tanks serve as platforms for people to discuss a current topic or share new ideas. LTC is getting a lot of attention and participants involved in this thinking exercise dove right in to develop better ways to manage this growing market.

The Society of Actuaries' Long–Term Care Insurance (LTCI) Section sponsored a multidisciplinary "Think Tank" event in Washington, D.C on July 27 to 28, 2005. This event was intended to focus on the most significant issues and trends that may impact long–term care (LTC) risks, care delivery and protection in the future. Participants were challenged to think strategically and creatively about how various aspects of the LTC market can be better managed for the benefit of all stakeholders.

The Section Council was very interested in having a wide variety of perspectives represented at this Think Tank. The invitation to participate was sent to individuals with backgrounds and experience in underwriting, claims, actuarial, marketing, group and legislation/regulation as well as CEOs, the academic/think tank community, health care service providers and consumer groups. Professionals from the private LTC market represented the majority, but not all, of the event participants.

The report has been prepared for the SOA's LTCI Section Council and event participants. Over the next few months, the Section Council will be discussing those "big ideas" that emerged as a result of this event to determine how to move them forward. As appropriate, sister actuarial organizations, event participants and others in the industry will be invited to collaborate on the next steps.

Think Tank Structure
Risk, Delivery and Protection
In considering how the LTC market would evolve over the next five to 10 years, event participants were asked to think about what would change in terms of LTC risk, delivery and protection.

• Risk was defined as the chance that an individual would require living assistance of some sort. New treatments for disease and changes in morbidity, for example, affect risk.
• Delivery (or delivery of care): If assistance is needed, how will that living assistance be provided? Care could be provided by family members, friends or paid providers. It could be provided at home, at a hospital, in an institution (e.g., continuing care communities, assisted living facility) or through another venue.
• Protection is defined as any of the private or public options available to individuals to protect themselves against LTC risks.

This protection could be provided in two ways. First, it could minimize need for care in the first place (e.g., vaccinations for Alzheimer's disease). Second, it could finance care if care is needed (e.g., Medicaid, LTCI and reverse mortgages).Only when we understand how these three aspects are evolving can we understand where the market is headed.

Before the meeting, participants were asked to complete a survey that was designed to solicit their opinions on how the system might evolve over the next five to 10 years. See the "The Survey Says ." sidebar for more information.

Stakeholders
Once we had identified what was driving the system, we could then talk about the system's stakeholders. Broadly, we decided to categorize stakeholders as:

• Consumers. Consumers include patients (those currently receiving care) and insureds (those who have purchased protection but are not yet receiving care).
• Financiers, or more simply, those paying for care. This includes a wide range of people including consumers and their families, insurers and taxpayers/government (both federal and state).
• Caregivers, which includes both familial and nonfamilial caregivers. While familial and nonfamilial caregivers are included in the same category, it was acknowledged throughout the Think Tank that the needs of these groups are often different.
• Society, which we represented by the tax payers and government (both federal and state.)
• State regulators who regulate insurance products.

Different individuals could play several stakeholder roles, such as consumer, taxpayer, caregiver and financier. Individuals can also play different roles at different points in their lives.

WIFMs
To be able to talk about stakeholders, and how they react to each other and to changes in the system, we used the concept of WIFMs, or "What's in it for me?" Each stakeholder has wants, needs or desires from any LTC system. Any change in the system has to be viewed through the lens of each stakeholder's needs and desires. For shorthand, the participants in the Think Tank used WIFMs as a way of discussing those needs and desires.1

When changing any system, it's important to understand the WIFMs of the stakeholders. Any changes made to the system should satisfy as many of the WIFMs of the major stakeholder groups as possible, or should at least not violate the most significant ones. Often WIFMs will be contradictory both between stakeholders groups and within individuals who have multiple stakeholder roles (e.g., the individual acting as both patient and taxpayer).

Consider improvements to the Medicaid system. Taxpayers won't like any improvements that increase taxes. But, caregivers, both familial and nonfamilial, may like the improved level of protection available. So, these groups have different views of improvements to Medicaid. Moreover, any individual is likely to play several roles in the system: consumer, taxpayer, caregiver and financier–either simultaneously or at different stages of life. So, any individual may have very different views of the changes to the Medicaid system, for example, depending on whether he is looking through his taxpayer lens or his lens as a consumer of LTC services.

In order to understand the various frameworks stakeholders will use to evaluate market changes, participants in the Think Tank outlined the major WIFMs for different stakeholder groups.

Big Ideas
Participants spent the afternoon of the first day working with the trends and stakeholder WIFMs to determine possible directions for the LTC system. Each table was assigned one of the six macro trends previously described and were asked to discuss the effects of each trend with respect to all aspects of the LTC market. They also were asked to consider how this trend would affect risk, delivery and protection. Finally, they were to keep in mind the different stakeholders and their WIFMs. These discussions were to flesh out the issues raised by the trends, and how these issues might affect stakeholders. Once those issues are known, we can move to find possible solutions.

Based on their discussion of the previous afternoon, participants returned the next morning to develop concrete solution proposals. Participants split into five tables; each table brain– stormed various ideas for possible development. The brainstorming exercise was intended to be "blue sky;" current regulations, market barriers, et cetera, were ignored.

Once each table identified its two or three favorite ideas, they developed these and tested them against stakeholder WIFMs. Also, tables identified potential stumbling blocks to the realization of each particular idea. Each table presented its ideas, and all participants then voted for their favorite idea.

Two of the five favorite ideas involved repackaging or rebranding existing Medicare/ Medicaid benefits. The other ideas were more long–term in nature. The five ideas that got the most votes were:

• Reform Medicaid to take out the "loan" on home value (29 votes)
• Short-Term Product with Government Catastrophic Insurance (26 votes)
• Repackage Medicare/Medicaid Benefits as "Medicare Part E" (18 votes)
• Tax Incentives for LTC Insurance (15 votes)
• LTC Financing Reform/National LTC initiative (15 votes)

Reform Medicaid to Eliminate the Government's Role as Home Value Lender
This proposal focuses on changing a current Medicaid practice. The value of the house is excluded from Medicaid assets when determining eligibility for Medicaid, but Medicaid has, technically, the right to recapture the home value once the estate is settled. This can be well after the LTC recipient has died, if there is a surviving spouse or disabled adult children. This proposal is to eliminate the government's role of providing interest–free loans by establishing a private and/or government loan system to capture house value, similar to Fannie Mae. This private system would loan money on the house and the LTC consumer would be able to elect how to spend that money on care. When determining, then, pure eligibility for Medicaid, the house would not be an exempt asset, although the value of the house would be considered net of any outstanding loans. The effect would be the same, but the government would not be the lender.

Short–Term Product with Government Catastrophic Insurance
In this proposal, individuals would be required to privately purchase LTCI (or another product) to cover a short–term period of need, with a taxpayer–financed program providing coverage beyond the short–term period. The group proposed a three–year period, but this detail would need to be worked out. Key features of the proposal are as follows:

• Each individual would be required to carry short–term LTC coverage, much as states have been moving to require auto insurance or banks require fire insurance on mortgaged properties.
• While the short–term coverage would be mandatory, the government (taxpayers) would pay for short–term coverage for those of low means. In this case, housing value would be counted in the means testing.
• Insurers and others would offer products to cover the three–year period. By limiting the coverage period, other possibilities for coverage could open, including reverse mortgages and bonds. Reverse mortgages might be limited to those 55 and older. Bonds could be provided by a Fannie–Mae type organization.
• The government program would cover LTC needs beyond the three–year period. This program would be universal (not means–tested). In this way, the government is assuming catastrophic losses, with "catastrophic" being defined as the term of coverage.

When testing the stakeholder WIFMs for this proposal, the team felt that stakeholders would react in the following manner:

• Consumers would have a mixed reaction to the proposal.
• Society would also have a mixed reaction; there is a great deal of political risk in this proposal.
• Nonfamilial caregivers would see the proposal as positive.
• Familial caregivers would have a positive reaction to the program.
• Third–party payers such as insurers would have a mixed reaction (probably similar to their reaction to Medigap/Medicare).
• Regulators would have a mixed reaction. Capital markets would have a positive reaction.

Medicare Part E
Some parts of LTCI are provided through Medicare, but most are provided through Medicaid. Medicaid has the stigma of being a welfare program, while Medicare is seen as universal medical coverage, with no attached stigma. Medicare and Medicaid interact with each other in a complicated and difficult to understand manner. This proposal would pull all LTC benefits together and put them under the Medicare umbrella (Medicare Part E). Existing benefits would be repackaged and rebranded to increase understanding with minimal additional cost. Medicare Part E coverage would be mandatory (similar to hospital insurance). Medicare Part E supplemental plans could be offered by the insurance industry similar to traditional Medigap plans. These would be voluntary plans on the part of participants.

Tax Incentives for LTC Insurance
Different variations of this idea were discussed. This included above–the–line tax deductions and 401(k)–style plans to pay for LTC. Additional variations were for using IRC Section 125 to permit pretax savings for LTC or to purchase LTCI. One idea was that the tax incentives might vary based on the benefit design and the amount financed (more incentive for funding more care).

In terms of WIFMs for stakeholders, most stakeholders would find this positive with the taxpayer/government/politician stakeholder finding this negative because of lost tax revenue. Participants in the Think Tank thought this could be fixed by considering affordability and flexibility. A revenue source would need to be identified and the tax effects would need to have a proven benefit in a cost/benefit analysis.

LTC Financing Reform/National LTC Initiative
These were two separate proposals that were similar.

The first part of LTC financing reform would be to restrict and enforce Medicaid regulations so that Medicaid only provided coverage for the needy. Vouchers to purchase coverage would be provided to low–income patients. Those who could not qualify for private insurance would have a risk pool available. Some sort of catastrophic coverage would be included, possibly with a means–tested element.

As part of the LTC financing reform, government/insurer partnerships similar to Medicare Advantage could be established. These would encourage private LTCI coverage and allow the insurers to leverage branding, credibility and backstop. Insurers in return would provide products for coverage gaps.

The other idea, a national LTC initiative, is a public/private partnership that offers simplified, standardized plans. Optional benefits would be allowed under this system. The private policy pays up–front cost and the taxpayer (government) picks up tail risk. This for the upfront cost.

Note: Information including a listing of participants, complete survey responses, stake– holder discussions and suggested ideas for further study and development are included in the full report which can be found at http://study.soa.org/SOA-LTC-Think-Tank-Report.pdf

Emily K. Kessler, FSA, EA, FCA, MAAA is a retirement systems staff fellow at the Society of Actuaries in Schaumburg, Ill. She can be reached at ekessler@soa.org.

1. We acknowledge the use of the WIFM concept as presented in Alan Stonewall and Elizabeth Moore's paper, "Improving Pension Funding and Disclosures: What's in it for Me?" presented at the SOA's Symposium on the Future of Pension Plan Funging and Disclosure and to be published in the upcoming SOA monograph.