How long term care insurance preserves individual freedom

By Phyllis Shelton

LTC Consultants

There’s a lot of talk today about preserving individual freedom. Twenty states are suing the federal government because the new health care reform bill — The Patient Protection Affordable Care Act of 2010 — requires every American to accept health insurance or pay a penalty, which is now referred to as an additional tax. The litigating states and organizations like the National Federation of Independent Business (NFIB) are maintaining that such a requirement is unconstitutional because it infringes on individual freedom.

That’s the part of the lawsuit you are hearing about. The other part involves unprecedented expansion of the Medicaid program, which is the nation’s means-tested (welfare) program to pay for health insurance and long term care.1 And this, my friends, can ultimately steal our individual freedom before we can draw a breath and say “What happened?”

We all want to be sure people are protected if they need health care services, but the focus today seems to be primarily about acute care. Unfortunately, many people have not thought of the great risk and cost of long term care to individuals and their families, and to the nation as a whole. Today, Medicaid is the primary payer for America’s long term care costs — a solution that is unsustainable.2 Long term care makes up one-third of state Medicaid budgets and is projected to grow to half by 2030.3 This country has 80 million baby boomers facing their long term care years, and 95 percent of them have no coverage for long term care.4

This dependency on Medicaid will worsen as new legislation goes into effect January 1, 2014 that will add 16 million more people to the Medicaid rolls.5Further, health care reform is expanding the Medicaid home care benefits for long term care beginning in 2011, which will bring people out of the woodwork to claim these benefits.6

In a nutshell, America has a choice to make. We can use Medicaid to pay for the health insurance of younger people, or we can use it to pay for the long term care of the baby boomers. We can’t do both without sacrificing essential services like education, crime enforcement and better roads. If no choice is made, families will have to pay higher tuition costs and give up scholarships for their children, and pay increased property tax and sales tax. Millions of women will suffer emotionally and financially as their dreams are crushed because they are thrust into the role of becoming a primary caregiver without money to pay someone to do it.
We all know people who can’t leave home until they find someone to come in and take care of their loved one. Caregiving erodes individual freedom to go and do what we need to do, tasks such as working a full-time job to support our family; sending our children to college; taking vacations; or even going out to dinner spontaneously. It erodes the family’s financial well-being.

As a matter of public policy, we can’t allow that to happen. We want to maintain people’s lives as effectively as we can, and I believe that for most people, that means protecting themselves with long term care insurance and participating in a public-private partnership. The partnership allows the private sector to pay for long term care first and makes Medicaid the payer of last resort. The four states that embraced this concept in the early 1990s have proved it to be a home run. Out of the approximately 325,000 people who purchased LTC partnership policies in Connecticut, New York, Indiana and California, less than 500 have had to turn to Medicaid after using their long term care insurance benefits first.7

Unlike the federal government, states are required to balance their budgets every year. They can’t print money like the federal government can, which means they only have a certain amount of funds. The Center of Budget and Policy Priorities (CBPP) says states are making cuts in essential services such as education, public health, and services for the elderly and disabled in addition to downsizing the state workforce. Some are cancelling vendor contracts for new projects, which eliminates jobs in the private sector.8

In other words, states are making choices between funding Medicaid and funding education. The National Association of State Budget Officers makes it clear where the priority lies. In 2010, total education cuts were $7.8 billion, while only $1.5 billion of Medicaid dollars were cut.9

If you, as a financial professional, truly want to make a difference in the quality of life of your clients, your own family and the economy of your country, you simply cannot afford not to present partnership long term care insurance plans in every LTCI sales situation. Regardless of the client’s financial strata, it communicates that the state wants people to buy it, and eventually, most, if not all, LTCI plans will be partnership.
Most insurance companies are participating in the partnership plans. This means that when clients buy the age-appropriate inflation benefit from a company that participates, they receive a partnership policy, whether you meant to sell one or not and whether or not they asked for a partnership plan. The premium is the same for partnership or non-partnership policies, so there’s no down side to having one.

The partnership is powerful in any presentation for these reasons:
    1) Individuals can suffer financial reverses, as we’ve seen so plainly in the recent economy; e.g. $1 million in assets can become $600,000 in a short period of time.
    2) Many baby boomers still haven’t recovered from losses of this extent suffered during the stock market downturn.
    3) Insurance companies are pulling back from the unlimited benefit period; but even for those who have that, consider points one and two. Whenever one receives benefits equal to net worth, that person can apply for Medicaid, if desired, and protect the full net worth.
So, mention it in one-on-one and worksite presentations as well as in seminars. Regardless of the venue, here is where it goes in your presentation:

Most long term care is paid out-of-pocket or by Medicaid — the state/federal welfare program that pays after one has spent down most resources — unless you buy a state-approved long term care insurance policy that allows the policyholder to protect assets equal to the benefits paid out before turning to Medicaid for help.10

Now, look at this point again. Notice I didn’t say the word "partnership" at this point. I said “state-approved”. That lends credibility and makes it sounds like a public-private policy without using the word "partnership" at this point. If I have time, I quickly cover the spend-down requirements for Medicaid like this:

Single people have to spend down assets to $2,000, and will be asked to sell their home to pay for their care; assets of a married couple are added together, no matter which spouse’s name the assets are in, and the most the healthy spouse can keep is about $110,000, plus the home. However, at the death of the spouse who needs care, the state expects to recover the amount paid by Medicaid. But we now have a special policy in our state that allows one to protect assets equal to the benefits paid out if you do have to turn to Medicaid for help — and this could be $200,000, $300,000, $500,000 or however much has been paid out in benefits — plus the amount you would normally be allowed to keep as a single or married person.
Tip: It’s popular today to say it isn’t necessary to mention how one qualifies for Medicaid. I think it is important, especially when talking about the partnership, so that consumers can appreciate what the partnership does. Before concluding your presentation, you will also explain that income still goes to the cost of care once Medicaid benefits begin, and that the person still has to meet the physical or cognitive impairment trigger for the state. But I don’t put those points in the initial explanation, as they detract from the asset protection benefit.

Because I’ve been personally conducting partnership-oriented enrollments in Tennessee through Blue Cross and Blue Shield of Tennessee health insurance brokers to test my process, I can tell you that you must understand them to be successful in the LTCI market.

1Schmitt, Rick. “Health Reform Facing Early Legal Tests”, Kaiser Health News, 10/6/10
2 “National Health Expenditures by Type of Service and Source of Funds for Calendar Years 2008 to 1960”, Centers for Medicare and Medicaid Services, 1/10 and Eiken, Sredl, Burwell and Gold. “Medicaid LTC Expenditures in FY 2009”, Thomson Reuters, 8/17/10
3 “Medicaid Long-Term Care: The Ticking Time Bomb”, Deloitte Center for Health Solutions, 6/21/10
4“Economic Downturn Impacting Women's Ability to Plan for Long-Term Care Costs, New Survey Finds”, AHIP, 1/9/09
5Congressional Budget Office, “H.R. 4872, Reconciliation Act of 2010 (Final Health Care Legislation)”, 3/20/10
6CMS HHS Letter to State Medicaid Directors, 8/6/10 re: Improving Access to Home and Community-Based Services, SMDL #10-015, ACA #6
7Reports from CT, NY, IN, CA LTC Partnership Directors as of 9/30/10
8Johnson, Nicholas, Phil Oliff and Erica Williams. “An Update on State Budget Cuts”, Center on Budget and Policy Priorities, Updated August 4, 2010
9 “2010 Fiscal Survey of the States”, National Association of State Budget Officers; 10 “National Health Expenditures by Type of Service and Source of Funds for Calendar Years 2008 to 1960”, Centers for Medicare and Medicaid Services, 1/10 and Eiken, Sredl, Burwell and Gold.