LTC insurance: missing the Maine chance?

Some people in the long-term care policy field cherish a dream that nursing home coverage will become a popular addition to employer-financed healthcare benefits. If corporations and self-employed professionals were motivated to purchase group long-term care policies, then the nursing home industry could be liberated from dependence on government largesse. Medicaid financing would be reserved for the truly poor and revenue streams would be more predictable.

The question is how to provide that motivation. In 1996, Congress responded by adding long-term care insurance to the employee benefits that companies can deduct from their Federal taxes. The action suddenly injected the Federal government into the formerly state-regulated long-term care insurance market, in that the Internal Revenue Service became responsible for defining the characteristics of longterm care insurance policies that would qualify for the tax deduction. In exchange for yet another Federal agency piling regulations onto the long-term care field, the members of the Health Insurance Association of America, the American Health Care Association and other supporters of the legislation hope that the tax deduction will jumpstart privately financed nursing home care.

The IRS has quickly fulfilled its share of the responsibility - the regulations defining qualified long-term care insurance were proposed this spring. The IRS regulations are based extensively on the provisions of the National Association of Insurance Commissioners' Long-Term Care Insurance Model Act and Model Regulation and defer to state law interpretations of these rules. Most existing long-term care insurance policies will qualify for the tax deduction under these regulations.

Now all that is needed is for the insurance industry to successfully market the tax-deductible long-term care benefit to employers. The experience of the state of Maine in offering a similar deduction to employers and individuals purchasing long-term care insurance suggests that this won't be easy.

Maine is a largely rural state - Portland, its largest city, has fewer than 65,000 residents, and the total state population is 1.25 million. The state has tried many approaches to reducing nursing home dependence on Medicaid income, including some proposed eligibility restrictions that were disallowed by HCFA. Despite these efforts, the state Bureau of Elder and Adult Services reports that Maine has experienced a continuing decline in private-pay nursing home utilization. It also experiences long waiting lists for state-funded home care programs to serve people who do not qualify financially for Medicaid assistance.

Tax benefits for both individuals and employers who pay premiums for private long-term care insurance first surfaced in the Maine legislature during the early 1980s and have been in place for more than five years. The tax deduction was advocated both to ensure that the state Bureau of Revenue treats all health insurance equitably for tax purposes and as an incentive for purchase of long-term care policies.

According to Christine Gianopoulos, director of the Bureau of Elder and Adult Services, the tax deduction "has had minimal impact on encouraging employers to offer this benefit, or on encouraging consumers to buy individual policies." The Maine Bureau of Insurance estimates that 7,000 privately financed long-term care policies are in effect in the state, providing coverage for roughly 1 out of every 115 adult residents. The Bureau of Revenue Services does not track the number of deductions filed, but estimates that the total cost of the deduction to the state treasury is $50,000 per year. In addition, after examining sources of nursing home income in Maine, Gianopoulos believes that "if people have long-term care insurance, they most likely are using it for home care or assisted living."

Nursing home operators in the state support Gianopoulos' view. A spokesperson for MaineGeneral Rehabilitation and Nursing Care, operators of several facilities in the state, agrees that the enactment of the tax deduction has not affected the use of private insurance to finance nursing home care. In fact, nursing home industry representatives in Maine see their facilities facing a difficult future, with declining private sector revenue, static Medicaid reimbursement and increasing costs from a burden of state regulation that, as one puts it, "makes OBRA look mild by comparison."

Political philosophies color the explanations for why the tax deduction hasn't worked. Senator Judy Paradis, chair of Maine's Senate Committee on Health and Human Services, places the blame on a combination of economics and employer behavior. Her sparsely settled district, like many areas of rural Maine, depends on seasonal employment. Thousands of residents who may eventually need nursing home care and whose household income places them above the poverty line face annual layoffs and no continuous benefits. Elsewhere in the state, according to Senator Paradis, employers are trying to reduce personnel costs, in part by withdrawing healthcare benefits. The offer of an additional tax deduction for long-term care insurance has not been enough to reverse the trend toward reduced employee benefits.

Tarren R. Bragdon, a Republican state legislator with a human services background, is more optimistic. He believes that employers simply are not aware of the availability of the deduction; in addition, neither insurance industries nor benefit managers think of long-term care coverage in the same terms as traditional benefits. Bragdon assumes that more consumer and employer education will make a difference.

"Nursing home coverage is not something that only some people need; with the increasing rates of Alzheimer's and other conditions, it's something more and more people will need. People don't think of long-term care as their own personal obligation. They think the government will take care of them, and that's just wrong. When they are better informed, they will realize it's another responsibility that they need to think about."

Bragdon may be right, but his views point out a basic problem with using tax incentives to expand private sector long-term care insurance. Someone needs to invest in a major effort to educate Americans, including both employers and employees, on the importance of insurance coverage for nursing home care - but like so much else in the equation, neither the private nor the public sector is rushing to spend the money needed to make this possible.