New options in financing long-term care
A long-term care crisis is unfolding among millions of American families who find themselves unprepared for the financial challenges associated with growing older. At the same time, as Genworth's 2016 Cost of Care Study finds, the cost of long-term care services continues to rise unabated.
Those of us who work in the field know the conundrum all too well. On one side of the spectrum, Americans are unaware that Medicare (other than in limited circumstances and amounts) and most private health insurance plans do not cover LTC expenses. On the other side, planning ahead for possible LTC needs can be out of reach, due to, among other reasons, the cost of care, limited financial access to private insurance and uninsurability.
Here's some good news; a large group of leading LTC experts have been working on solutions to help alleviate the burden on the individual and on public financing programs. Last November, with support from the SCAN Foundation, AARP® and LeadingAge, the Urban Institute and actuary group Milliman released a study outlining and analyzing three hypothetical LTC insurance programs and their affordability for Americans. This first-of-its-kind modeling simulates demographic events such as personal income consumption, births, deaths and gender to predict the outcome and financial impact these proposals would have on public programs. It gives Congress helpful substance to consider when it puts LTC back on the front burner as a federal issue.
Additional work to analyze LTC public policy solutions is also underway at the Bipartisan Policy Center and the Brookings Institution, as well as within the National Association of Insurance Commissioners. These efforts share a common goal – to reduce the burdens (financial, emotional and otherwise) of long term care on Americans and their families.
While the developers of these proposals caution that their work is only a starting point, and that future iterations will be more robust and capable, it is a significant first step. Many ideas will surface as a result of the new modeling, but experts largely agree: there is no single silver bullet solution to create meaningful change in the LTC field. Instead, a mix of options stemming from both the government and private sector will be necessary. As the nation's largest carrier of private long term care insurance with 40 years of experience in helping to deliver the care needed by the elderly, we agree.
A majority of Americans will need long-0term care themselves, or will have a family member who needs it, and are not prepared. At least 70% of people over 65 will need long-term care services and support at some point in their lives, which comes at a cost of $725 billion annually. While younger workers today are more likely to have access to an employer-based retirement savings plan, many Americans entering retirement did not. The Government Accountability Office reported last year that almost 30% of households age 55 and older have neither retirement savings such as a 401(k) or IRA, nor a pension plan, which typically provides a monthly payment for life, so it comes as no surprise that family caregivers often miss work or stop working altogether to care for a loved one.
One solution, albeit not for everyone, is planning ahead, namely considering one of various private sector long term care financing solutions. This may include long-term care insurance, or a combination product that is a hybrid of LTC and life insurance or an annuity.
The reality is that many seniors do not plan ahead and reach the point of care when they are uninsurable. This is precisely why we recently launched an immediate need annuity specifically designed for those who are at the point of care and risk outliving their assets only to turn to family or Medicaid. Unlike traditional LTC insurance, this underwritten annuity provides a guaranteed stream of lifetime income – cash that can be used for anything, including the cost of long term care support and services. It is by no means for everyone, but it will prove valuable for some.
Genworth will continue to be among the many stakeholders advocating for LTC reform in Washington and in state capitals. And before Congress takes hold of a comprehensive set of reforms outlined in the public policy proposals released this year, there are some immediate opportunities for lawmakers to consider:
Strengthen Medicaid, the safety net for low-income individuals. Medicaid has become the default primary payer of LTC in our country, despite warnings it is not sustainable.
Support educational initiatives to raise awareness about the need for planning, and to warn people about the fact that Medicare and most private health insurance plans do not provide comprehensive LTC coverage.
Significantly increase funding for Alzheimer's research: According to the Alzheimer's Association, the cost to society of the growing Alzheimer's crisis is projected to increase from $236 billion today to more than $1 trillion (in 2016 dollars) in 2050. This will result in a nearly five-fold increase in government spending under Medicare and Medicaid and a five-fold increase in out of pocket spending.
Create tax incentives to help make private coverage more affordable for middle class families so that they do not unnecessarily rely on Medicaid after exhausting their own assets.
Lastly, create a regulatory environment that encourages growth, innovation and greater access to affordable and flexible LTC insurance products. We are confident that within an improved regulatory framework, private insurance can play an even larger role in the financing of LTC needs.
This year has brought new research to the long term care reform discussion that will undoubtedly better help analyze the benefits of proposed solutions. Because every American deserves to age with dignity and with the care they need, I hope Washington's elected leaders continue on from this important first step with a willingness to turn concept into reality.
Tom McInerney is president and CEO of Genworth Financial.