To: NAIC Long-Term Care Innovation (B) Subgroup

March 16, 2017

To: NAIC Long-Term Care Innovation (B) Subgroup

Comments: Potential Federal Policy Changes

California Health Advocates (CHA) appreciates the opportunity to comment on the subgroup’s recommendations to the federal government on innovative approaches to long term care insurance. While we support the work of the subgroup in providing guidance to the federal government, the subgroup must be careful not to expose consumers to unintended consequences of experimental policy designs, features, or recommended federal actions. Consumer protections must be built into how products are marketed and sold, issued and paid for, and when benefits are used. While the industry has gained valuable experience and knowledge about long term care over the last several decades, this industry is still in its formative years. Industry mistakes in judgement and assumptions have been very visible over the last decade and have even exposed insurers of other health products to losses of unprecedented amounts.

By now it is apparent to many that the purchase of an insurance product cannot singlehandedly solve the national problem of financing long term care and “save state Medicaid” programs. Middle income purchasers have virtually disappeared from the current marketplace. Insurers and regulators have discovered how expensive it is to cover the cost of long term care within hundreds of risk pools of various sizes, designs, and pricing spread out amongst dozens of insurance companies.

Stand-alone long term care insurance is no longer affordable to middle income purchasers, as the Buyer Non-Buyer study done by LifePlans[1] for AHIP every 5 years demonstrates. The trend line of purchasers over the last 10 years clearly shows a more affluent, younger buyer as premium costs have escalated.The industry has clearly moved away from standalone coverage to life and annuity based benefits that are even more expensive, and sold to a more affluent and sophisticated purchaser. The industry has further restricted the market with stricter underwriting and gender based pricing, making the purchase of these products much more difficult for older buyers.

We are generally opposed to providing various tax advantages that encourage the purchase of private insurance products that pay for long term care. The federal government does not provide up front tax advantages for other insurance products despite the fact that someone might become impoverished and eligible for state or federal benefits. Providing tax advantages for long term care insurance might be a worthy marketing goal for companies, but tax advantages simply provide a federal monetary advantage to high net worth people who are unlikely to ever qualify for federal assistance for long term care.

This is not to say however that some kind of a public-private partnership might not be feasible using a sliding scale based on income to combine public and private benefits for middle income purchasers or policyholders.

We believe that the issue of financing long term care will not be solved until there is some mandatory, public foundation of minimum benefits that people could supplement in a variety of ways. Insurance to supplement a basic minimum benefit is likely to be far more successful by allowing a broader range of Americans to buy additional benefits based on their ability to pay for them. A minimum basic benefit designed to keep impaired people at home, and utilizing technology to keep their employed family members at work, could form a national foundation of benefits for insurers to build on.

Comments on Subgroup Options

Option 1: Permit retirement plan participants (ages 45 and older) to make a

distribution from 401(k), 403(b) or Individual Retirement Account (IRA)

to purchase LTCI with no early withdrawal tax penalty.

Option 2: Allow LTC Savings Accounts, similar to Health Savings Accounts (HSAs).

We do not disagree with suggestions to help people prepare to pay for care by using current savings and retirement vehicles of various types. However, we may not agree with tax incentives that might accompany those methods of preparation. In addition, designating savings and retirement funds as sources of payment for long term care costs may create an unintended consequence by requiring that those funds be exhausted as a condition of Medicaid eligibility, much as having a life insurance policy with cash value does today.

Option 3: Treat all tax qualified LTC policies as DRA Partnership qualified Policies

We are not necessarily opposed to allowing asset protection to apply to policies that meet all of the Partnership requirements within a particular state. However, the Partnership concept was developed to meet the needs of middle income people, those most likely to spend down to Medicaid eligibility, not people of high net worth who are unlikely to ever qualify for Medicaid benefits. In addition, asset protection can only be used when a policyholder is impoverished and qualified to enroll in Medicaid under the eligibility standards of a state. A policyholder with income high enough to both benefit from the tax deductibility of a premium and also be eligible for Medicaid benefits seems an unlikely combination. However, an unintended consequence of having protected assets at the time of claim, but an income and other resources that make a policyholder ineligible for Medicaid benefits, might also encourage the use of financial strategies to create deliberate impoverishment in order to take advantage of that asset protection.

Option 4: Remove the requirement to offer 5% compound inflation with LTCI policies and remove the requirement that Partnership policies include inflation protection (HIPAA and DRA).

This option is particularly dangerous to consumers. Removing all inflation protection from Partnership policies not only puts purchasers at risk, but state Medicaid programs as well.

Paying premiums for long term care insurance takes money out of circulation that might otherwise increase a buyer’s assets or be used for a more efficient and reasonable way to finance later care. The purchase of benefits that steadily lose value over time cheats policyholders, and state Medicaid programs, of the very security and protection policyholders depend on. Removing inflation protection ensures that purchased benefits will be less than the cost of care decades later, increases the potential of early exhaustion of reduced benefits, and accelerates dependence on Medicaid. Over the years debates about the pros and cons of inflation protection have included a number of methods for increasing benefits to keep up with the cost of care, but most disadvantage policyholders in one way or another if that protection is not part of the base benefits of the coverage.

Option 5: Allow flexible premium structures and/or cash value beyond return of premium (HIPAA and DRA).

A “flexible” premium structure could price people out of coverage as they age unless there are some significant protections built into such a structure. Building cash value into a premium structure would require clear disclosures at the time of purchase. But more significantly, such a benefit would require comprehensive actuarial review since such a benefit would add even more premium cost than return of premium today just based on death or length of coverage. Typically long term care nonforfeiture benefits have not done well in the marketplace due to the additional high premium cost.

Option 6: Allow “morphing” combination products that combine disability insurance or term life insurance with LTCI.

Combining multiple benefits within a single product will add complexity to the purchasing decision and require extensive disclosures to ensure consumer understanding. Multiple benefits would also require careful and ongoing regulatory review and oversight of sales and marketing, product designs, and pricing.

Option 7: Support innovation by improving alignment between federal law and NAIC models (HIPAA and DRA).

Option 8: Create a more appropriate regulatory environment for Group LTCI and worksite coverage (HIPAA and DRA).

We don’t know what these two options are describing, or what they are attempting to accomplish. A more appropriate regulatory environment can mean many things. While insurers would certainly welcome such an environment the result might not benefit consumers.

Our experience with worksite sales is that often a small employer has simply agreed to allow individual long term care policies to be marketed to their employees at the worksite. We think there is probably a big difference between large employers that sponsor coverage, employers that endorse or sponsor a certain product, and employers that allow sales to their employees at the worksite. In some cases we have seen employer sponsored coverage offered that is a very minimal coverage with options for employees to buy up or add benefits at extra cost. Employees often don’t understand the paucity of the offered benefits or have the ability to fund additional benefits, particularly inflation protection.

Option 10: Expand Medicare Supplement insurance (Medigap) to allow for an LTC-specific component.

Adding long term care coverage to a Medigap would add extra cost to the Medigap premium, putting both coverages at risk. Medigap premiums increase every year because the Medicare deductibles and copayments they cover increase every year. Adding the risk of future premium increases for long term care increases the likelihood that the combined premiums would become unaffordable. Consumers need secure health insurance coverage before they can consider adding a long term care benefit at additional cost. We would not support making Medigaps more expensive by adding an additional expensive benefit that risks the loss of both at some future date.

We also point out that a home care benefit less restrictive than Medicare’s was part of several Medigap plans in the past. There was agreement between regulators, consumer groups, and industry to delete that benefit because consumers were confused by it, rarely used it, and the utilization rate was negligible.

Option 11: Federal education campaign around retirement security and the importance of planning for potential LTC needs.

Since 2005 the federal government has sponsored and provided some funding for “Own Your Own Future,” a state and federal educational campaign to plan for long term care. An evaluation of the success of that effort should be done before launching any new educational project. In addition more work needs to be done to discover how different population groups can fund their future care, and what products are available to accomplish that goal.

Conclusion

We recognize that the issue of financing long term care is complex, and not likely to have a single solution. We acknowledge that almost all suggested solutions face a political headwind. However, the silver tsunami facing the nation demands federal attention. The nation faces a massive increase in the numbers of people who will need care, and impaired seniors who have fewer adult children to provide that care. In addition, a growing percentage of younger baby boomers, not yet retired, are projected to have a higher rate of poverty, and far less income and savings as a source of preparing or paying for their care needs.

There has been little analysis of the connection between having insurance coverage and qualifying for and using Medicaid benefits. Several GAO studies[2] have cast doubt on whether having Partnership long term care insurance saves any Medicaid dollars, and there is at least one study that concludes “….promoting private sector long term care insurance is unlikely to have more than a marginal impact on Medicaid expenditures for long term care services and supports without deep subsidies…..”[3]. It seems important to discover if having insurance really does result in fewer people eventually qualifying for Medicaid, and identifying those populations that could benefit to one degree or another by buying insuring to cover the risk of care. If having insurance does not result in diverting people from public resources then the public policy focus and the urgency of protecting public dollars is being misdirected.

Thank you for the opportunity to comment on these recommendations.

Bonnie Burns

NAIC Funded Consumer Representative

Mailing Address: 5380 Elvas Ave., Suite 221, Sacramento, CA 95819

831-438-6677 (Satellite office)

1

[1] https://ahip.org/wp-content/uploads/2017/01/LifePlans_LTC_2016_1.5.17.pdf

[2] http://www.gao.gov/new.items/d07231.pdf

[3] http://www.thescanfoundation.org/sites/thescanfoundation.org/files/rti_medicaid-spend-down_3-20-13_1.pdf