A roundtable discussion — Consumer Disclosure Law: The Changing Face of Long Term Care Funding
By Chris Orestis
Life Care Funding Group
Following the panel session Consumer Disclosure Law: The Changing Face of Long Term Care Funding on Aug. 25, 2011 at the Annual Senior Market Advisor Expo in Las Vegas, the panelists were asked a series of follow up questions about the topic areas discussed during the session.
Representatives from politics, senior living, insurance producers and private market funding solutions came together to discuss the crisis situation for seniors attempting to pay the costs of long term care in today’s environment.
- Chris Orestis, CEO of Life Care Funding Group as host and moderator
- Jayne Sallerson, executive vice president of Emeritus Senior Living
- Rep. Rob Damron, D–KY, immediate past president of the National Conference of Insurance Legislators (NCOIL)
- David Kitaen, CLTC
Orestis: Our country has begun a demographic sea change with 10,000 baby boomers turning 65 every day. This started on Jan. 1, 2011 and will continue uninterrupted for the next 20 years. The pressure this is creating in how we will pay for long term care led Federal Reserve Chairman Ben Bernanke to declare the aging population and exploding cost of health care as the no. 1 challenge facing the U.S. economy and government budgets.
Question: How has the government reacted to this demographic sea change?
Orestis: The current economic crisis could not have happened at a worse time, and we see it in the news every day. Just as the baby boomers started qualifying for Medicare and Social Security, this massive surge in the aging population is forcing the government to enact swift and draconian cuts to Medicare and Medicaid.
There is not a budget proposal in Washington, D.C. without cutting hundreds of billions in Medicaid spending. CMS announced in August that as of October 2011, they would institute an 11.1 percent across the board reduction in expenditures for all long term care-related programs. This is an unprecedented reduction and the consumer is going to be forced to dig into their pockets to make up for it.
Question: As executive vice president for the largest assisted living company in the world, what do you see as key challenges families are facing in today’s environment when trying to pay for senior living and long term care?
Sallerson: Equity in homes of most seniors has eroded and many can’t sell anyway, pensions and retirement plans have lost tremendous value, and most have not planned with products such as long term care insurance. Too few families plan for long term care or even understand the differences between assisted living and skilled nursing, Medicare and Medicaid, Medigap and long term care insurance and how all of it works. Unfortunately most families just don’t deal with long term care until they are in a crisis mode and have very little time and even fewer options. Many people are trapped in their homes and/or are getting insufficient or no care whatsoever based on their conditions and declining ability to live independently and safely.
Making matters worse, programs like Medicare and Medicaid are experiencing huge cuts and the responsibility to pay is being pushed back on the individual and their family. We are seeing more emphasis on families covering long term care expenses with private pay dollars, but most have no idea what their options are and where to turn for help.
Question: As one of the first and longest active LTCI producers in the country, how do you view the current state of affairs for seniors and long term care?
Kitaen: The combination of the toughest economy since the Great Depression, a growing senior population and cuts to Medicare and Medicaid are making things very difficult for seniors and families confronting the need for long term care.
This should be the boom years for LTCI with the highest sales levels on record, but sales have not been growing and companies like MetLife have left the market. MetLife leaving the market is like General Motors announcing they no longer will be selling cars.
The costs of long term care services rises every year but the ability of seniors to pay has been declining since the economic crash of 2008. Seniors need help understanding all of their financial options and how to get full use of any available assets.
Question: As president of the National Conference of Insurance Legislators, was this situation with long term care funding one of the factors contributing to passage of the Life Insurance Consumer Disclosure Model Law?
Rep. Damron: Yes, we saw the billions of dollars in life insurance policies owned by seniors being abandoned by the owners ever year. These seniors did not understand their legal rights of ownership or available options to use these policies in a better way such as to help pay for their costs of long term care.
The motivation behind this model law is to educate policy owners that they have options such as converting their life insurance policy to a long term care benefit plan that can be set up to help pay for their costs of long term care every month. We would rather see these policies being used by their owners to address their long tem care needs than be abandoned with the entire policy value going to the insurance company’s bottom line as profit. Question: Life Care Funding Group has been an active supporter of the model law, what do you hope is accomplished as the model law is adopted in states around the country?
Orestis: We want to see the high lapse and surrender rate of life insurance policies by seniors reversed. We believe this will happen as they come to understand their legal ownership rights and options to use the policies as a tool to help them pay for long term care.
Billions of dollars in life insurance could be converted instead of abandoned and then used to help pay for long term care costs. By giving the consumer access to information about their legal rights and options as a policy owner they can make informed decisions about best use of an asset they already own.
In today’s environment it is important that consumers know they can convert a life insurance policy to a long term care benefit plan. It is a Medicaid qualified spend down of an asset they have been needlessly abandoning. Now instead of abandoning a policy they own and have paid premiums sometimes for decades, it can sustain a person’s long term care needs at private pay levels for months and years.
Question: What are LTC providers doing to educate and help consumers?
Sallerson: Emeritus has been promoting financial solutions to the consumer to help pay for costs of housing and care for many years. We educate the consumer at each of our over 550 communities across the United States about the availability of options and the importance of being financially capable. We have partnered with companies like Life Care Funding Group, made this information available on our website, and we discuss it in the press and participate in public forums such as this on a regular basis.
Despite our efforts and the efforts of many others, we find the vast majority of consumers are uninformed and unprepared when it comes to this point in their lives. We plan to be active supporters of the NCOIL model law so seniors understand they should not be abandoning life insurance policies when they could be converting them to an Assurance Benefit plan to help pay for senior housing and long term care.
Question: What more do advisors need to do help seniors in this situation?
Kitaen: LTCI still has a role to play in helping seniors pay for long term care, but it is not a magic bullet and other solutions will be important as well. It is hard to ignore the fact that 153 million Americans own $10 trillion worth of life insurance and seniors are abandoning billions of dollars of policies every year. Converting life insurance policies into a long term care benefit plan is a Medicaid qualified spend down, it is written into the NCOIL law and senior care providers all over the country accept the benefit plan as a way to help pay for senior housing and long term care.
An Assurance Benefit plan can address immediate needs quickly. Advisors need to be informing clients that if they have a life insurance policy they should not abandon them but instead hang onto the policy because they can convert it when they have a need to help pay for assisted living, home health and nursing home care. Question: Is an Assurance Benefit plan an insurance policy?
Orestis: No, it is not LTCI, it is not a hybrid policy or annuity and it is not an accelerated death benefit. It is the conversion of an in-force life insurance policy to a benefit plan that is set up as a dedicated long term care account administered specifically to help pay monthly costs of assisted living, home health care and nursing home care.
For families confronting a long term care crisis speed is of the essence, so the enrollment process is designed to be quick and uncomplicated for the policy owner bypassing the carrier all together with enrollment completed in 30-60 days.
Question: Can you tell us about your experience using the Assurance Benefit conversion for one of your clients?
Kitaen: I had an 81-year-old male client with a $100,000 UL policy he was five days away from lapsing when I contacted Life Care Funding Group about enrolling him in the Assurance Benefit to pay for his long term care costs. Over about a 45 day period he was enrolled in the Assurance Benefit with a policy conversion amount of $35,000.
My client is now receiving a $1,700 monthly benefit being sent to his care provider of choice for the next 15 months and has a $5,000 final expense benefit in place for funereal costs in the future. He is now receiving home health care as he starts making the transition to assisted living.
When I was with the family the day we signed the enrollment papers, my client and his two sons all actually gave me hugs and thanked me for so quickly taking a policy they were about to throw away and instead turned it into a long term care benefit that is covering them today.
Question: What do you see as the momentum for passage of the Disclosure Law around the county in light of the current economic crisis to fund long term care and what can agents/advisors do to help?
Rep. Damron: Cuts to Medicare and Medicaid will make private pay options such as use of life insurance to pay for long term care important. Remember, these are our tax dollars we are talking about, and for every person able to extend their ability to pay for long term care and stay off of Medicaid a little bit longer the tax payers of this country are saving money. The life insurance industry opposes the Model Law because if less policies are abandoned it will cut into their profits
I’m not just an elected official and a tax payer; I am an agent/advisor myself. Every one of us needs to contact their state senate and legislators to express support for this model law so consumers can get access to information about their legal rights and options as a policy owner.
Other industries such as the long term care providers support this model law, and they will be actively lobbying to see measures that promote private pay options move forward. One of the requirements of the model law is that agents and advisors are part of the process to inform consumers about their options — and that creates an opportunity for every one of us supporting this measure.
Question: What is your prediction for where things are going?
Orestis: Baby boomers started turning 65 this year at a pace of 10,000 people every day and that will continue uninterrupted for the next 20 straight years. That will cause a lot of stress on the system that programs like Social Security, Medicare and Medicaid will have difficulty handling and moves like NCOIL made will be more common.
The responsibility to pay for senior housing and long term care will continue to shift back to the consumer and their family, but the economic crisis will make this a difficult challenge. The ability to tap into private pay options and billions of dollars every year in available life insurance policies will be an important part of the equation that consumers, the long term care providers and political leaders will not be able to ignore.
Portions of this interview originally appeared in Senior Market Advisor October, 2011 issue.
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