The Commission on Affordable Housing and Health Facility
Needs for Seniors in the 21st Century
November 7, 2001
Chair, Advisory Council, Aging and Independence Services
San Diego County
Good Afternoon my name is Bob Prath. I appreciate the opportunity to testify before this distinguished commission.
I was requested to direct my comments toward the Long Term Care Insurance issue. What works, what doesn't … what might. The comments spring from my seven years with consumers as a volunteer counselor for the Health Insurance Counseling and Advocacy Program or HICAP (see . http://www.cahealthadvocates.org/) A website address explaining the HICAP mission is contained in my written testimony.
After wrangling along with hundreds of my fellow Californians considering Long Term Care Insurance (LTCI). I have come to sense the following:
First affordability is the major issue to the 15% or 20% of the population that are prime candidates for current Long Term Care Insurance offerings.
Secondly quality and consumer protections are the next major issue to those purchasing LTCI. Therefore, trading quality and consumer protection off against affordability, which has been attempted by some, is a loser from the consumer viewpoint.
Thirdly the whole issue of our own long term care can be a confusing and unpleasant topic to many of us. Anything that can be done to clarify and simplify the issue for those courageous enough to take it on, is a move in the right direction.
On the affordability issue: The widely accepted rule of thumb that no one should purchase a LTCI policy with premiums in excess of 7% income demonstrates the very direct impact that premium affordability has on the potential size of the LTCI market. I believe we can improve affordability of LTCI by working on risk reduction and risk pooling.
About eighty percent of long term care is delivered in an informal setting by family members or friends that may not even realize they are part of the long term care system. Everything we do to keep that national percentage high or even raise it by strengthening our informal care system helps keep premiums low in the same manner safe highways and safe vehicles help lower auto insurance premiums. In San Diego, as elsewhere, we work hard to integrate community based and acute care into a non-fragmented delivery systems … with local, state and national support we are building family caregiver programs ( see http://www.ais-sd.net/) … initiatives like this must continue to keep risk of formal care low and ultimately increase the affordability of LTCI
Large employers, including government employers, may have the best unrealized potential to impact both risk reduction and risk pooling for long term care insurance candidates. I frequently listened to family members stressed by the need to work and provide care to a family member. We should press for test legislation which persuades employers to have programs that support family caregivers and offer affordable group policies when informal caregiving is not practical. An example working here is Qualcomm which has an active family caregiver support program for employees and the CALPERS system in which the California Personnel Retirement System offers high value group policies to members and their families (see http://www.calpers.ca.gov/longtermcare/) . I have seen estimates of 20-40 billions in business losses attributed to family caregving. Employers have strong potential to help reduce risks by supporting family caregiving and helping to pool the risk of financing long term care that families cannot provide (see http://www.aarp.org/inthemiddle/). In the process they will markedly help themselves.
Secondly, I believe that long term care insurance policies will have to meet consumer expectations for value and quality to achieve popularity. Consumers seek confidence that policies cover most of the bases (even some they don't know about), that price is fair and care will be paid for without glitch when they need it. In my view California has done an excellent job of improving the quality standards. When I first started counseling consumers in California I devoted most time toward warning them about pitfalls in the product and the purchase process. Now I spend little time scaring them off and more time helping them define policy parameters which best meet their needs. They leave with more confidence, and I believe they are far more apt to continue the purchase process. Quality is good for everybody. Consumers, agents and indirectly the government all benefit from good LTCI policies with adequate consumer protections.
What has not worked for consumer protections in California are the standards set in HIPPA for "tax qualified LTCI" policies. These federal standards misled insurance buyers by touting limited tax deductions as significant benefits for all. Also in California they were a quality step backwards. The triggers for federally tax qualified policies are much stiffer and the definitions to qualify for care are much narrower than the pre-existing state definitions
(see California Code at http://www.leginfo.ca.gov/cgi-bin/waisgate?WAISdocID=6121985590+0+0+0&WAISaction=retrieve) .
I have seldom observed an inform consumer that chooses a tax qualified policy over a non-qualified policy in California. I believe that making policies more affordable by making them less useable is self-defeating and that the federal government is actually stifling some market innovation by setting absolute trigger standards instead of trigger minimums for LTCI policies.
Finally the issue of clarifying the LTCI insurance … I believe its absolutely essential to have a "no wrong door" policy to those seeking answers. Wary consumers come to ask about LTCI through diverse paths. It's not a popular family topic. It makes it imperative that inquiring citizens be forwarded to a reliable and informed source of help not focused on closing a sale. In San Diego we try to practice "no wrong door" through a single source 800 for the entire county (see http://www.ais-sd.net/) and a state HICAP number. Every California policy sold has a mandatory wording suggesting consultation with HICAP volunteer. Informed consultation relieves consumer hesitancy and reduces future consumer problems which would harm the reputation of this valuable insurance product.
Finally there are some suggestion box issues which have merged from my grassroots counseling:
LTCI Insurance guarantees: Much remorse seems to be associated with LTCI premiums … wariness of paying all that money without positive assurance that I'm going to get to spend it in a nursing home. There's a potential market here for insurance guarantees. That is, while I might not feel sufficiently risk averse to buy the whole deal now, I may be willing to pay small premiums to guarantee my right to buy a policy later on when I know my need better. I have heard that some companies are planning to test market this concept.
Estate Insurance. I always ask LTCI clients to define for themselves what it is they are protecting through insurance. Usually it turns out to a legacy or estate. They seem more comfortable talking about "estate insurance" than "nursing home insurance." When we use the term estate insurance, kids and parents seem more willing to talk about the possibility of sharing the premium burden. California is one of 12 LTCI partnership states in the nation (see http://www.dhs.cahwnet.gov/cpltc/) and I think the market for these policies is flat in part because they were marketed as long term care policies and not as estate protection policies. I don't believe this naming issue is entirely trite to the consumer. Though it would take federal and state law changes to enable companies to give their LTCI policies a more expressive and palatable label, it might be worth the research.
Standardized LTCI policies. Studies show about 35% of seniors believe Medicare pays for formal long term care including care for Alzheimer patients. Why not give them an opportunity to be half-right. The ten standard Medicare Supplement plans permitted by state and federal law might be expanded to include two plans which contain long term care options. This might increase interest in long term care and accentuate differences between custodial and skilled care.
I appreciate the your work in bringing these issue to the attention of Congress and would be happy to assist you further as you go about your good work.