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The truth behind long-term care insurance

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The truth behind long-term care insurance
The truth behind long-term care insurance

EDITOR'S NOTE: This article has been slightly modified from its original version.

For some, long-term care insurance has long been viewed, despite all evidence to the contrary, as a nostrum to fix what ails long-term care.  There has been danger in that thinking, as policymakers parsimonious on Medicaid are happy to embrace magical thinking about alternative funding.  But it is worth asking whether it is long past time to put childish things aside, given what ails this insurance market.  

As a January Wall Street Journal article noted, “Steep rate increases that many policyholders never saw coming are confronting them with an awful choice: Come up with the money to pay more—or walk away from their coverage.” 

Last month NBC Nightly News reported a $2.8 billion loss is behind huge premium increases from Genworth, the nation's largest long-term care insurer. Whether even this would maintain the company's solvency is questionable.  Genworth is looking for governmental approval to be sold to China Oceanwide Holdings Ltd. and would get $1.5 billion under terms of the deal. 

Other long-term care insurers are similarly challenged by a failure to anticipate the combined costs of their insureds' longevity, lax state regulation on rates and reserves, and low investment returns. In May MassMutual announced it was looking for an increase averaging 77% for roughly 54,000 policyholders. And last year the average premium increase was reportedly 83% for federal employees and retirees in the Federal Long Term Care Insurance Program, where John Hancock is the sole insurer. 

Even were the costs of long-term care insurance not prohibitive, most people are simply not planning for a future in which they might be faced with debility. Yet they should. A RAND Corporation study last year found that “[a]mong persons age 57 to 61, 56 percent will stay in a nursing home at least one night during their lifetime.”  Michael Hurd, the study's lead author, noted that with the unviability of long-term care insurance, “people should be prepared to use the societally provided insurance, which is Medicaid.”

If that is the case, we need to make adequate provision for this future. Medicaid currently pays for 62% of nursing home residents, and covers home-and-community-based services in many states. By 2030, the Census tells us there will be 3 million more Americans who are 85-and-older compared to 2012. Yet we are already facing a dire shortfall in direct care workers exacerbated by low Medicaid reimbursement. 

A March report to Congress found the average nursing home had only a .7% margin in 2016, which leaves no room to compete in a job market that has only grown more red-hot since then. Many facilities teeter on the edge of bankruptcy. 

In 2016, the percentage of overall Medicaid long-term care spending dedicated to home-and-community-based services rose to a new high of 57 percent. Yet this sector faces severe challenges too. The median hourly wage for home care workers has been $10.49 an hour – hardly livable. In New Hampshire you can make more money collecting tolls. And 28% of the home care workforce is comprised of immigrants. Immigration restrictions risk damaging the well-being of our elderly, even as President Trump's posh Mar-a-Lago Club seeks more foreign workers.

Matters will only get more challenging. As the Paraprofessional Healthcare Institute has noted, “Direct care will create more jobs than any other occupation in the next 10 years.”  Professor Paul Osterman, Ph.D., of the Massachusetts Institute of Technology's Sloan School of Management has conservatively estimated that by 2030 there will be a national shortage of 151,000 paid direct care workers and 3.8 million unpaid family caregivers.

Beyond matching (inadequate) state Medicaid funding, the federal investment in planning for a “silver tsunami” is extraordinarily modest. Indeed, it has taken considerable effort from advocates just to stave off federal cuts from those convinced that the vulnerable on Medicare or Medicaid, and not irresponsible tax cuts and defense spending, are somehow driving our nation's debt. But this is a societal crisis that cannot be left to states alone to resolve. 

The long-term care insurance market should be our canary in the coalmine. No longer can we delude ourselves into thinking private sector solutions alone can avert a demographic disaster. Providers in Montana suing over rate cuts, for example, cannot bank on wishful thinking.

Brendan Williams is the president/CEO of the New Hampshire Health Care Association.

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