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The Collapse of Private Long Term Care Insurance

By News

A Cautionary Tale of the Long Term Care Insurance Marketplace

By 2050, the U.S. will have almost 90 million people aged 65 and over, and more than half will need long-term care at some point. Yet only a sliver of that group can afford long term care insurance. As of 2015, private insurance covered less than 10 percent of U.S. spending on long-term care — and the private market has been shrinking.

Medicare covers only a short period of care after a person has been hospitalized. That leaves Medicaid, the state-administered program for long term care. The paperwork involved is a protracted ordeal, especially for those with physical and mental impairments, and the rules to qualify are strict and complex.

The reality is – the private insurance market is on life support so understanding Medicaid is critical. Schedule an appointment to learn the rules.

Nothing illustrates this more than General Electric and its Long Term Care Products. The company’s troubles with long-term-care insurance show the challenge of caring for an aging population.

Insurance Policy

Long-Term Care Insurance Policies have hurt many insurance companies balance sheets.

General Electric’s multi-billion-dollar loss in a unit that sold long-term-care insurance is a blow from which the iconic company is still reeling. But it’s also a harbinger of a much greater challenge for society at large: paying to care for the growing number of Americans who can’t look after themselves.

GE’s travails stem from the early 1990s, when insurance companies began developing a new line of business, offering policies that, in return for regular premium payments, would cover the cost of a nursing home or other long-term care if the need arose. With the baby-boom generation approaching retirement, sales took off. By 2007, some 7 million policies were in force, generating almost $10 billion a year in premiums.

The insurers miscalculated. Claimants lived longer than expected — perhaps because people prudent enough to buy the insurance were more careful about staying healthy. But longer lives meant more people needing long-term care. Medical costs rose, and investment returns fell short. To cover their obligations, companies had to increase premiums (as far as regulators allowed) and, like GE, take big charges against earnings. Penn Treaty was forced into liquidationleaving policy holders to rely on meager state guaranty funds.

Tempting as it may be to blame regulators, that wouldn’t be fair. True, they could have allowed more premium increases sooner, and they should always demand that companies have ample equity to absorb losses. They’ll need to investigate GE’s accounting. But new insurance products are inherently risky, and companies are bound to make mistakes. Officials shouldn’t be expected to catch risks that actuaries can’t foresee.

Rather, the debacle illustrates a troubling truth: Private insurance can’t handle this problem by itself.

Understanding the rules as to the Medicaid program is critical for all persons. Failure to anticipate long term care nursing costs can wipe out an entire lifetime of savings. Call us to discuss how to protect your lifetime savings while still qualifying for Medicaid.

CLICK HERE TO READ THE ENTIRE ARTICLE ON BLOOMBERG.

Funding Long-Term Care for an Aging Global Population

By Uncategorized

Funding Long-Term Care is a Global Issue

Bobbie Preddy’s mother ran out of money years ago. She’s 98 years old and if she lives longer than six more months, Preddy might be out of cash, too.

Preddy’s mother requires round-the-clock care, due to frequent urinary tract infections and related conditions. Together, Preddy and her mother determined the only way she could get the support and care she needed was at an assisted-living facility. But costs for even one of the cheapest facilities in the market are hundreds of dollars more than Preddy’s mother can afford with her pension checks each month.

“I’m going to run out of money and my mother might still be alive,” she says. “And I don’t see anything, anywhere that can help that.”

Preddy’s dilemma is not uncommon. Her mother is one of more than 8 million individuals in the U.S. that require support from long-term care services, according to the Centers for Disease Control and Prevention, the great majority of whom are more than 65 years old. Family Caregiver Alliance, a nonprofit support organization for caregivers, lists at least 10 different options for living arrangements, each with varying degrees of provided care, independence and cost. According to the insurance company Genworth, the average annual cost for a private room in a nursing home in the U.S. is more than $90,000, and a year in an assisted-living facility is more than $40,000 , expenses that are not always covered by public insurance programs.

Globally, the number of older persons is growing faster than any other age group. In 2015, one in eight people was more than 60 years old, according to the United Nations. By 2030, they project an increase to one in six people, or 1.4 billion individuals over the age of 60.pbn-article

When it comes to aging, experts say the greatest challenge our world currently faces — more than pensions or birth rates — is planning for and financing long-term care.

Long-term care is like an “exploding bubble,” says Randall Ellis, a professor at Boston University whose research is focused on health economics. “It’s the largest uninsured risk for the aging population.”

In the U.S., when people face the dilemma that Preddy does with her mother — once houses have been sold, a lifetime of savings has been depleted and health conditions have reached the point that in-home care is not an option — others may rely on Medicaid to cover costs.

In 1965, Medicare and Medicaid became the first public health insurance programs in the U.S. when they were signed into law by President Lyndon Johnson. Medicare was intended for individuals over 65 years old and those with end-stage renal disease, or kidney failure. Medicaid was intended to cover low-income individuals. But as of fiscal year 2014, long-term care services accounted for about a third of Medicaid spending, or $152 billion.

Preddy’s mother is well beyond 65 years old and, with an annual income of about $17,000, would be considered low-income by many. Her pension is far from enough to pay for her long-term care, but it is enough to disqualify her for both public health insurance programs and leave her family scrounging for funds.

“There’s an extreme bias in the allocation of resources away from older people to other groups,” says Peter Lloyd-Sherlock, a professor of social policy and development at the University of East Anglia in the U.K. whose research focuses on the social protection of older people in developing countries. Costs associated with long-term care — financial and otherwise — are inevitable, he says, and the systems created to distribute those costs exemplify the values of that society.

Taking care of an individual at home will always be less expensive than bringing him or her to a nursing home or assisted-living facility, says Terry Hokenstad, a professor of global health at Case Western University. Policies and programs that support informal caregivers like family members, he said, make it easier to keep older adults at home and out of long-term care facilities longer, therefore reducing their overall costs.

In a number of European countries, pension funds are used to compensate unpaid caregivers. Denmark and the Netherlands automatically cover time spent outside the labor force due to caregiving, while Germany and Norway reward caregivers with additional credits to their own pensions.

 “Say an older person has a stroke and goes into the hospital,” Hokenstad says. “The first thing we (Americans) think is to get them to a nursing home. The first thing they think in the Nordics is how they can get back into their own home and what sort of improvements are needed to make it happen.”

But Naoki Ikegami, president of the Japan Society of Healthcare Administration and the Japan Health Economics Association, warns against a reliance on informal care for older adults. A long-term care industry has a public responsibility and legal obligation to provide appropriate care, he said, but it’s difficult to monitor whether family members are actually caring or not.

Instead, restricting the “medicalization” of long-term care — maintaining a separation between health care spending and activities and those related to long-term care — can keep expenses down. “Health care can always be interpreted as a life or death situation,” he says. “In health care, we give doctors a blank check to do whatever the patient needs. But with long-term care, we can rely on a more objective way of measuring need.”

In 2000, Japan developed a universal insurance program for long-term care in response to public outcry against growing problems of neglect. Funded by tax revenues and higher premiums for those over 40 years old, out-of-pocket costs for long-term care services are limited to a 10 percent co-payment. A revision this year raised that rate to 20 percent for those with above average income.

Ultimately, national and global debates on long-term care come down to whether the responsibility to look after our growing elderly population should be a public or private one. Like Japan and Denmark, most developed countries have favored strong, publicly funded social safety nets.

For Josh Wiener, former director of the Aging, Disability, and Long-Term Care program for the non-profit research organization RTI International, creating a successful system is a matter of finding the political will to make long-term care a policy priority.

“Long-term care is higher on the political agenda mostly everywhere else than it is in the U.S.,” he said. “Germany established a long-term care insurance program at a time when they were dealing with the unification of the East and the West. They recognized a need and they went ahead and did it.”

The same happened in Japan, where policy makers saw they had an aging population and agreed to address it . But the U.S., he said, tends to avoid the conversation.

For a while, private insurance plans that allow individuals to protect a greater share of their assets dominated the long-term care coverage discussion in the U.S. But the number of providers for these private plans has decreased dramatically in recent years.

A voluntary public insurance program almost made its way into President Barack Obama’s health care reform plans in 2011. But the Community Living Assistance Services and Supports program, or CLASS Act, was quashed for fear of adverse selection, or attracting a disproportionate number of high-cost users, that would drive up premiums and because it couldn’t prove to be debt-free for at least 75 years as the law requires.

Bobbie Preddy and her mother share a caring and trusting relationship; they’re “simpatico,” she says. Preddy doesn’t hope for her mother to die, but she does hope that supporting her mother doesn’t have to cut too much into her own retirement savings.

Deidre McPhillips is a data reporter at U.S. News. You can find her on Twitter or email her at dmcphillips@usnews.com.

The original story can be found HERE.

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