Private LTC insurance: still a budding resource.

An Interview with Robert Dawson, Director of Consumer Affairs, Amex Life Assurance Company, San Francisco, California 

With nursing homes in most states faced with the prospect of dwindling Medicaid support, will private long-term care insurance ultimately save the day? Well, maybe not - but the product is evolving rapidly and looking to significant market growth in the near future. Nursing Homes asked Robert Dawson, Director of Consumer Affairs for the Amex Life Assurance Company, a long-time underwriter in this field, to discuss private LTC insurance, 1996-style, and where it may be going from here. Questions were posed by Editor Richard L. Peck.

Peck: How might a Medicaid block grant approach impact on the private LTC insurance market?

Dawson: Obviously this would be invigorating for the private market. Already the debate has had an impact on public awareness and understanding of the issues involved. Fewer people believe that Medicare will cover the costs, although many still do, of course. But, overall, this should encourage development of a much larger market.

Peck: The product has thus far been marketed primarily to the over 70-year-old population. Do you see significant growth yet in the employer/employee "fringe benefit" market?

Dawson: There is a definite growth trend. Only a couple of years ago it was only the largest companies - the GMs and the GEs - that offered this, but now it has become more common among big companies to do so. During the past six years we've seen an increase from 20,000 to over 400,000 covered lives in this market - an 88% increase, though obviously from a very small base. It could grow faster but there are still a few obstacles - corporate downsizing, benefit cutbacks and, of course, the tax questions. Everyone is in favor of tax clarification, but this got bogged down in the Federal budget impasse. An Internal Revenue Service ruling would have helped, but their response was that they had difficulty distinguishing between the benefit's medical care component, which would be traditionally deductible, and its custodial care component, which would not. The pending legislation would resolve this.

Peck: How, if at all, has the over-70-year-old market changed in recent years? Are more finding LTC policies to be more affordable?

Dawson: "Affordable" is a matter of perception. Premiums have increased in recent years, but as more people become educated to the need to protect their assets from the costs of long-term care, more are finding it to be affordable. The most sales growth in recent years has occurred among individuals having less than $35,000 in annual income and less than $30,000 in assets; their costs for private LTC insurance amount to approximately 6% of household income. We have also seen the average age of the typical purchaser decrease, from 73 to 67.

Peck: What constitutes a "good" LTC policy these days, as opposed to a few years ago?

Dawson: The trend is toward what we call the "comprehensive" policy. It used to be that you would purchase coverage of $30-150 a day for nursing home room-and-board; later home health care riders were added. Today, you can purchase coverage applying that per diem to whatever level of care is needed over the life of the policy - home health care, assisted living, nursing home care - shifting from one to another, as needed, once you have met the ADL requirements and any deductible (usually 100 days). Of course, the three-day prior hospital stay that was once required for eligibility is long gone.

Peck: What other trends do you see in the development of these policies?

Dawson: Just to use our own product for an example, we are developing a case management approach for home health care. A case manager assesses the patient's needs and draws up a plan of care. If the customer accepts the plan, we cover 100% of the cost, with no deductible; if not, we cover 80%. We believe this more rationalized approach will save money.

One unforeseen development in this, though, were cases - there have only been a couple so far - in which the insured patient was involved in an accident, hospitalized, and then discharged for post-acute care. Our case management policies waive the 100-day deductible, so we paid 100% of the post-acute care cost. Post-acute is a new field for us and we're reviewing how to handle it under our comprehensive approach.

Peck: Are there still questionable marketing practices by underwriters out there that would-be purchasers ought to be cautioned about?

Dawson: I would say that the National Association of Insurance Commissioners in collaboration with the industry have pretty much cleaned up the industry's act. Companies have just about done away with so-called "post-claims underwriting," under which policyholders were denied benefits once the company found out the extent of their need. All consumers should make sure that the company has signed on to language clearly identifying the risks that the company is assuming. That will prevent any last-minute changes.

Peck: How do you foresee the growth of the private LTC insurance market over the next 10-15 years?

Dawson: It's going to take a while. Right now we account for about 2-4% of long-term care reimbursement, and maybe it will go up to 10 or 15% during the next 10 or 15 years. Of course, we have this big influx of baby-boomers becoming of eligible age around the year 2010, so we could see quite a bump in the market around then.

Peck: Speaking of which, what can nursing home administration do now to approach these people who are now middle-aged and have parents in the nursing home, to encourage their purchase of LTC insurance?

Dawson: They could give 'em our product information! Seriously, this has proven to be quite a challenge. You would think that administrators would be highly interested in creating the private pay market of the future, but we don't see much activity in that direction. The professional organizations, particularly the American Health Care Association, have been very active in supporting private insurance. But at the facility level, administrators don't see this as part of their routine activities, so it just isn't done. We would certainly like to work with them on this.