Security blanket.

Long term care insurance is catching on--and could shape the future of long term care

EN ROUTE TO A SPRING TRADE SHOW TO TALK ON the topic of long term care insurance as a payor for assisted living, Alterra's vice president of health services, Shari Kaplan, made an interesting observation. A glossy ad in a golf magazine for long term care insurance boasted of its broad long term care coverage. The day those ADL triggers tripped, Mr. or Mrs. Consumer, the world of long term care would be yours.

But the ad failed to mention assisted living. That type of care was covered, Kaplan knew. In all likelihood, the problem was a marketing department that was less than savvy about the industry whose services it covered.

Kaplan boldly predicts that in 30 years policies will cover virtually 100 percent of the costs of assisted living--but only if effective communication gets the long term care insurance ball rolling. "If things don't change, we won't get there," she says.

National Healthcare Corporation's Stacia Higgins agrees: "There needs to be more communication between providers and insurance companies."

Higgins, director of the Nashville-based company's long term care insurance division, is one of many in the industry doing her share of talking. Her division was launched in 1993 in response to consumers' growing interest in long term care insurance.

"Administrators and others in the facility would get a lot of inquiries but weren't really prepared to field the questions," Higgins explains. In 1994, after researching the field, the firm began partnering with insurance companies to sell policies. "We're not out there making cold calls," says Higgins, who explains that the goal is to be able to serve consumers who express interest. These days, brochures are placed in each facility to prompt inquiries. The effort is now a soft-sell revenue stream that has 620 active policies. "If you give people good information, they will make good, rational decisions," says Higgins.

Your attention, please

Private coverage was virtually unheard of when today's seniors were young, and even today, policies account for less than 5 percent of payments to long term care providers, far behind government and out-of-pocket payments. But that figure is expected to grow steadily, according to the Health Insurance Association of America.

Has long term care insurance really arrived? Well, not yet, but a road map is in place.

From legislative initiatives that would allow tax deductions for policy premiums to President Clinton's recent proposal to provide a $1,000 tax credit for people with long term care needs, the question of long term care and who will pay for it finally seems to be getting some serious discussion:

* The federal government is also studying long term care as a benefit for federal workers and has been directed by President Clinton to use its market leverage to make policies more affordable for federal employees.

* Congress is considering several bills that would make long term care insurance more attractive to the general population as well as federal employees (see "Capitol players," page 32).

* Attendance at the thirteenth annual Private Long-Term Care Insurance Conference set a record this year. The conference, sponsored by a coalition of provider, insurance, and consumer groups, attracted more than 625 participants who gathered to discuss growth in the long term care insurance industry, strategies for broadening the market, product development, and better ways to educate consumers about the need for private insurance.

* The American Health Care Association's SecureCare program would provide a public/private insurance-based benefit package integrating long term care with Medicare hospital and physician services.

* New coalitions seem to be popping up every month. One visible effort, Citizens for Long Term Care, aims to make long term care financing reform a major issue in the 2000 presidential campaign. Chaired by former Senator David Durenberger (R-Minn.), the group has 24 national organizations as members including both insurance and long term care associations. Tax credits for policy buyers are among the measures it supports.

Though the percentage of Americans who have such policies remains small. In the last decade, the number of long term care insurance policies sold has grown by an average of 22 percent per year. By the end of 1996, the most recent year for which figures are available, a total of almost 5 million long term care insurance policies had been sold cumulatively, with 600,000 sold in that year alone, according to the HIAA.

Some policyholders won't be cashing in anytime soon: The average age of those buying through employer plans or as part of a life insurance policy are 43 and 44 respectively. But the majority of holders are already seniors; the average age of those purchasing individual policies or signing up through an association plan is 67, reports HIAA.

The inevitable

"There's no doubt that people are taking long term care more seriously now," says Marc Cohen, a vice president of LifePlans, a research and consulting firm, and senior scientist with the Center for Health and Long-Term Care Research. "The government has clearly articulated to the public that planning for long term care requires personal responsibility, and the government is not likely to continue paying for it."

While players in the long term care financing debate differ somewhat in their views on how to get more people to buy long term care insurance, there is one thing most agree on: Medicaid cannot withstand what has been called "the demographic tidal wave" of aging baby boomers. Many also contend that Americans with the means to do so assume responsibility for their own long term care costs.

No one expects the shift to private financing of long term care to occur overnight, but most experts say it is inevitable. For providers, this will mean changes in both payment source and patient census as seniors gain greater control over their long term care options and choose settings that give them maximum independence.

The policies could prove to be a powerful force for home health, adult day services, and assisted living. "Long term care insurance gives consumers more choice. And, given the option, most people will choose to stay at home or go into assisted living before going into a nursing home," says Kaplan. "There are many people in nursing homes who don't need to be there, but that's all their [outdated] long term care insurance or Medicaid will pay for."

Karen Wayne, president of the Assisted Living Federation of America, notes that just a few years ago, insurance companies knew little about assisted living and were reluctant to cover it. Now, she says, 10 of the 12 major carriers offer assisted living as a benefit.

But nursing facilities will also benefit from the new funding stream, which in many cases will be more generous than Medicaid. "Long term care insurance won't keep people out of nursing facilities, but it may delay their arrival," says Todd Smith, director of legislative policy and analysis for the American Health Care Association. "What we may see is not a decline in occupancy but a different kind of individual needing long term care service that cannot be provided at a lower level of care."

By covering all of the various types of long term care, future policies will enable consumers to stay in settings that afford the most independence for as long as possible, notes National Healthcare's Higgins.

Policy changes

In the 1970s, long term care insurance policies were few and far between. Just a handful of companies offered them, and coverage was generally limited to nursing home care and required a three-day hospital stay before benefits would be paid. Coverage for home health care was scarce. And a policyholder who developed Alzheimer's disease was probably out of luck; most plans refused to cover it.

The late 1980s saw policies transformed, however. Though 12 companies still sell the vast majority of policies, more than 120 companies compete for business, offering a vast array of options and benefits.

Most plans now cover nursing home, home health care, assisted living, adult day services, respite care, and alternate care services--without such restrictions as old policies' clause that home health care would be paid only after a certain period of nursing home care. Some policies also cover hospice care, unheard of in the old days.

Another change for the better: Policies can be tailor-made. Consumers typically choose what services they want covered, the daily benefit they want to receive (usually ranging from $50 to $300 per day), the length of the benefit period, and the deductible period. And while options have increased, premiums are declining. According to the HIAA, a typical policy cost about 5 percent less in 1996 than it did in 1995.

Companies vary on conditions that must be met to cash in on a policy, but an emerging standard may be problems with at least three of the following: eating, walking, bathing, toileting, dressing, transferring from bed to chair, and incontinence. Almost all plans cover Alzheimer's disease and other organic cognitive disabilities, and most policies will pay for "medical necessity," which applies when a condition such as congestive heart failure limits a claimant's ability to care for himself, even if he can perform most ADLs.

Some companies offer comprehensive policies that offer a "pool of money" to be used for different types of long term care. The purchaser selects a daily benefit and benefit period, then draws on the total value of the policy, or pool of money, to pay for whatever care he needs. Money spent on one kind of care reduces the amount available for another.

Insurance companies have also begun offering hybrid policies that combine life insurance and long term care insurance. New York Life Insurance and Annuity Corporation, for example, recently introduced Asset Preserver, a cash-value life insurance policy that allows policyholders to apply their entire death benefit to long term care if needed. Any part of the death benefit remaining after long term care benefits are used will be paid to beneficiaries, generally free of income tax.

It's your business

For some providers, long term care insurance has already brought a shift from business as usual.

In 1996, market penetration was highest in the Upper Midwest. That doesn't surprise Kurt Meyer, vice president of operations in the health care services division of Balanced Care, which operates 58 assisted living and 13 skilled nursing facilities in about half a dozen states.

Meyer says that policies are popular in farm country. In one Balanced Care assisted living facility in Missouri, he notes, one out of four residents is covered by long term care insurance. "There's a belt between North Dakota and Missouri which has a very high long term care insurance penetration," he explains. "It seems to be much higher in areas where there's agribusiness, because farmers often buy cancer insurance and long term care insurance instead of traditional health insurance."

With long term care insurance policy sales increasing, providers already are stepping up efforts to draw insurance dollars to their facilities and are likely to become even more competitive. Balanced Care Corporation, for example, has developed "preferred provider" arrangements with two insurers and is hoping to establish similar deals with others. Under this arrangement, Balanced Care offers discounts to policyholders who choose one of its assisted living facilities.

"It's a benefit for us because we get additional residents," explains Meyer. "It's a benefit to the resident because their dollars last longer, and it's a benefit to the company because they're working with someone who will help reduce the cost for their beneficiaries. There's some resistance among insurers, though, because they don't want to appear to be steering people to places where they have arrangements."

Education can also go a long way toward furthering the long term care insurance cause. Consumers are a prime target. Through informal local seminars and talks before civic groups, some facility representatives are schooling potential policyholders about long term care insurance, perhaps even tackling such related topics as Medicare supplements and the pitfalls of Medicaid spend-down.

The people who sell the policies and adjust the claims are another key audience. "I recently called five agents randomly to discuss assisted living, and not one of them had even been in an assisted living residence," says Alterra's Kaplan. Nursing facilities, adult day centers, and other providers also need to educate local insurance representatives about their services and strengths.

Stay tuned

While long term care insurance remains a relatively new product, the market is evolving rapidly. Even if Washington's proposals don't pass this year, the policymakers are on the case.

"It's very unlikely that we're going to see an increase in federal dollars for long term care, and there's a generation about to start retiring that has accumulated a fairly significant amount of wealth," says LifePlans' Cohen. "All the factors are there for a fairly rapidly growing long term care insurance market."

Kim Scott is a freelance writer based in Olney, Maryland.

                             Policy purveyors
                   The number of companies selling long
                    term care insurance peaked in 1990
                           and has hovered near
                               120 in recent
                                  years.
1987  75
1990 143
1996 120
Source: HIAA LTC Market Survey, 1997

Capitol players

Federal lawmakers have introduced a number of bills designed to encourage Americans to buy long term care insurance policies. Here's a look at the proposals and the lawmakers guiding the debates:

Senator Charles Grassley (R-Iowa) Chairman of the Senate Special Committee on Aging, Grassley this year reintroduced two bills he co-sponsored last year: The Long Term Care Affordability and Availability Act (S 35), which would allow Americans to deduct long term care insurance premiums, and the American Worker Long Term Care Affordability Act (S 36), which would create a model long term care insurance program for federal employees by requiring the government to secure group rates to make premiums more affordable.

Joe Scarborough (R-Fla.) As chairman of the House Government Reform Subcommittee on Civil Service, Scarborough in March held hearings on a bill he sponsored, the Civil Service Long Term Care Insurance Benefit Act (HR 602), and the Federal Employees Group Long Term Care Insurance Act of 1999 (HR 110), sponsored by Elijah Cummings (D-Md.). Both measures would direct the federal government to set up a program through which federal workers could obtain long term care insurance at group rates. A similar bill, the Federal Civilian and Uniformed Services Long Term Care Insurance Act of 1999, has been introduced in the House by Connie Morella (R-Md.) and in the Senate by Max Cleland (D-Ga.).

Representative Chris Smith (R-N.J.) Smith is the primary sponsor of the Long Term Care Advancement Act (HR 275). In addition to a $500 refundable tax credit for families providing care for the elderly and people with disabilities at home, the bill would provide a new IRA tax deduction for the purchase of long term care insurance policies.

Representative David Hobson (R-Ohio) In March, Hobson introduced the Long Term Care Insurance Act of 1999 (HR 1261), which would provide individuals who purchase a qualified long term care insurance policy a phase-in, full tax deduction for premiums. Beginning in 2001, a taxpayer could deduct up to 20 percent of the premiums for the taxpayer, a spouse, and dependents. The deduction would increase to 40 percent in 2002, 60 percent in 2003, 80 percent in 2004 and 100 percent in 2005.

Christopher Shays (R-Conn.) A senior member of the House Budget Committee and chair of the House Working Group on Health Care, Shays this year reintroduced a resolution designed to raise awareness about long term care financing issues and ensure the solvency of Medicaid. H. Con. Res. 8 urges the government to inform the public about financial risks posed by rapidly increasing long term care costs and encourages employers to offer private long term care insurance coverage to employees. Christopher Dodd (D-Conn.) in March introduced a companion Senate measure (S. Con. Res. 22).