Stakeholder Views on a Public Program to Provide Long-Term Care Catastrophic Coverage
By John Cutler
Long-Term Care News, April 2023
Long-term care (LTC) financing in the United States is a mix of public and private components that don’t always align well for the American public. The disparate elements of LTC financing—from LTC insurance to informal family caregiving to Medicaid and other governmental programs—are not organized in a manner to keep up with the need to finance and provide care to our expanding elder population. These challenges are being exacerbated by the aging baby boom generation that will soon be reaching the point when LTC needs are greatest and affordable LTC solutions are lacking for many.
The Society of Actuaries (SOA) Research Institute’s Aging and Retirement Strategic Research Program sponsored an exploration of stakeholder views on the efficacy of a public catastrophic LTC insurance program at the state level in Minnesota. The team consisted of John Cutler and John O’Leary operating under O’Leary Marketing Associates. Actuarial support was provided by Milliman. (To read the entire report visit the report's landing page).
While this research was conducted in the state of Minnesota, it was neither a state-sponsored nor a state-funded activity. Minnesota was chosen by the researchers from among a group of states because of its history in promoting the health and well-being of its senior population. The researchers also had familiarity with state-based stakeholders from previous work each had done in the state. This facilitated knowledge of and access to individuals for interviews. Stakeholders included long-term care experts, policymakers and opinion leaders who were knowledgeable about LTC financing and delivery in Minnesota.
The design offered to stakeholders was based on other recent efforts to develop policy solutions for financing long-term care. Working off efforts by Marc Cohen, Judy Feder, and Melissa Favreault,[i] this research is the first phase of a study to explore catastrophic (back-end) coverage at the state level. To do this, the authors defined two potential “strawman” designs and then solicited feedback from Minnesota stakeholders.
LTC Program Options
The two options would both be mandatory state insurance programs for Minnesota residents to help pay for long-term care expenses. All Minnesota residents aged 65 and older, including nonworking spouses, would be eligible for benefits. There would be a waiting period after a claim was certified, as explained below. Similar to Social Security, there would be a work requirement of 10 years or 40 quarters of employment before an individual would be vested under the program.
In Option 1 (the comprehensive option) participants would qualify for benefits when they need help performing two or more of the activities of daily living or are severely cognitively impaired (usually referred to as the “HIPAA trigger”). They would receive up to $5,000/month ($165/day), which would track with inflation in future years, as reimbursement for their long-term care expenses. That would continue for as long as recipients continued to meet the qualification requirements.
There would be a variable waiting period of between one and four years, depending on a person’s lifetime income. Those with average annual earnings under $50,000 would wait one year for benefits to begin, but those with annual earnings over $120,000 would have a four-year wait. Individuals would be responsible for their care during the waiting period, and it was believed that communicating this broadly would incentivize individuals to plan for covering that gap, for instance, by purchasing LTC insurance.
To give stakeholders a sense of potential program costs, a team of actuaries from Milliman who specialize in LTC and collaborated with the authors to provide a range of payroll deduction increases of between 0.75% and 2.25%. That would translate to between $30 and $90 per month for the typical Minnesota worker. To simplify discussions with stakeholders, the interviewers often rounded the range to a 1–2% potential increase in payroll deduction.
Option 2 (which would be a condition-specific option) would provide funds to help pay expenses resulting from certain conditions such as Alzheimer’s disease, Parkinson’s disease, amyotrophic lateral sclerosis (ALS), and multiple sclerosis (MS) that typically lead to LTC needs. Since these conditions tend to require earlier service interventions, the waiting period was shortened to one year for those whose annual income is under $50,000 and two years for those over that level. The actuaries estimated that Option 2 would result in a lower payroll deduction increase of between 0.5% and 1.75% for Minnesota workers. That would translate to a $20- to $70-per-month increase.
Interview Results
The researchers synthesized feedback and input from stakeholder interviews to determine potential barriers and issues with the “strawmen” designs. The following list summarizes what the authors regarded as the main areas of importance to stakeholders:
- Option 1 preferred over Option 2. Option 1 was “cleaner”; Option 2 was viewed as too limited as well as more subject to disputes over what conditions to include in coverage.
- Front-end versus catastrophic coverage. Most stakeholders thought catastrophic was better because it covered those who were at more financial risk. However, others pointed out the advantages of providing an upfront benefit.
- Mandatory preferred over voluntary. It was no surprise that those who are knowledgeable how insurance products operate know this sort of program must be mandated to avoid adverse selection.
- Importance of education and marketing. Both are critical when the benefit program is developed as well as when it is actually launched. You have to explain the benefits of what you are doing to everyone, including intermediaries such as employers for a program design that includes payroll-based deductions.
- Variable waiting period. The original work by others (Cohen et al, mentioned above) had a waiting period of between one and four years, depending on the income of the recipient, which seemed overly confusing. Plus, people already would be paying more money into the program in terms of their pay rate. It was deemed easier to go with one or two years.
- Benefit trigger: HIPAA versus Medicaid. The insurers liked HIPAA because they use it, and it makes sense if the first couple of years are protected via LTC insurance. But Medicaid has value if it is the coverage option for someone before the catastrophic program kicks in (especially if income is factored in). One insurer frankly said, “Just tell us what trigger to use and we will be fine.” (We are aware there may be federal tax consequences because the HIPAA trigger has to be followed to get tax qualification status.)
- Benefit amount. It seems reasonable to go with what amounts to $165/day, but this is obviously too low for a serious long-term care health issue. One thought was to treat the benefit as a home- and community-based program, in which case the amount is more appropriate.
- Portability. If nothing else, the Washington State program got everyone tuned in to this issue. There was a lot of back-and-forth, but ultimately it was a matter of equity. If you pay in, then you get the benefit. If you can’t, then the program should be structured so either you don’t have to pay or you can get the money back.
- Many other salient issues. These included how to build in wellness benefits or other value-added ideas before someone triggers the benefit; cash versus reimbursement (an insurer all-time favorite); and how and where to invest the money for maximum return.
The bottom line was that the stakeholders recognized the impact on families—and the government—in terms of financing long-term care. They supported actions to address this and were interested in both private-sector and public-sector ways to do it. It was clear that most stakeholders saw the need for government to act. That included designs that incorporated private insurers in ways with which they felt comfortable. But government has to be first in designing the architecture to do this. However, in terms of financing any government program, a significant challenge that emerged was the perception of the difficulty of passing any legislation that would increase taxes via higher payroll deductions.
From the authors’ perspective, this exercise was interesting in that we quickly gained insight into what stakeholders viewed as the really important issues. Out of that, we could construct a third option 3 that seemed to synthesize and combine the best ideas. This new package would hopefully keep the price point lower and increase interest in those who would enact such a proposal, as well as the ultimate beneficiaries—the employees who will have to pay for the plan well before they enjoy any benefits. We also strongly believe that a second phase of research is justified at some point by the SOA or other researchers to carry the research into other states.
Statements of fact and opinions expressed herein are those of the individual authors and are not necessarily those of the Society of Actuaries, the editors, or the respective authors’ employers.
John Cutler, J.D., is a senior fellow for the National Academy of Social Insurance, a special adviser to the Women’s Institute for a Secure Retirement and a consultant for various organizations interested in long-term services and support financing reform. John can be reached at johncutler@yahoo.com.