What to tell people about long-term care insurance.

Baby Boomers are starting to learn the facts of life - middle-aged life -, one of them being that parents are moving ever closer to the age when nursing home admission becomes a distinct possibility. Suddenly something they've heard of called "long-term care insurance" gains interest. When they ask you, the nursing home administrator or DON - and an expert in geriatric care by definition - something about this, what do you tell them? Recently NURSING HOMES convened a panel of key officials from three major carriers to update you on this ever-changing, and often much-maligned, insurance product.

Participants included:

Pamela Germain Skagias, Vice-President for Group Long-Term Care, The Travelers, Hartford, CT.

Ron Hagen, Vice President for Product Development & Government Relations, AMEX Life Assurance Co. (Long-Term Care and Group Division), San Francisco, CA.

James Weil, Vice-President of Senior Services, Met Life, New York, NY.

The questions were posed by Richard L. Peck, Editor, NURSING HOMES.

Let's address some questions that nursing home administrators and directors of nursing are likely to field about long-term care insurance. For starters, how available is it?

Germain Skagias: It is widely available. Good policies are available today in all 50 states.

Hagen: I would say that the only state where there might be some limited access is Minnesota, where they've come up with a state-standardized product that makes it difficult to innovate and design differentiated policies. But overall, there are more than 130 carriers today and over 2 million policies sold.

Before, Pam, you mentioned "good" policies. What sort of guidance can be given to people who ask just what is a "good" policy?

Germain Skagias: There are a variety of policies now to meet a variety of needs, and I would say that the first recommendation would be to go to an insurance agent you trust. Beyond that, there are certain basic features that should be looked for, such as: guaranteed renewability, no prior hospitalization required for nursing home care and no prior skilled nursing care required for home care.

Hagen: People should also be advised to check with their employers because employer-based group products are becoming increasingly available. In terms of basic standards, the standards developed recently by the National Association of Insurance Commissioners (NAIC) have been adopted by many, if not most, states, and it is likely that most carriers have exceeded even those.

Weil: These consumer-oriented issues have been at the top of state insurance regulators' agenda in recent years. One result has been that there are a number of good consumer guides available from state insurance departments and departments on aging. There are also guides available from NAIC, the American Association of Retired Persons (AARP) and the Health Insurance Association of America (HIAA), based in Washington.

Hagen: Very often it is required that such a guide be given to the customer at the point of sale. State departments on aging also typically have insurance counseling programs, available via a toll-free 800 number.

We should face the fact, though, that long-term care insurance is a very difficult product to sell. There is a lot of denial out there by people who figure it will never happen to them, a lot of misunderstanding about costs, about Medicare, Medicaid, employer-based plans, and what have you. In fact, private policies usually take 2 or 3 visits to sell, each visit lasting at least an hour. Even then, a lot of people who could buy coverage just aren't.

Germain Skagias: One thing it is important for people to know is that all the major carriers are trying hard to foster good sales and advertising practices. There are still lots of practices out there that we don't like, but the message is that people don't have to put up with them.

That leads to the next question: When people have heard about long-term care insurance, it is often in a negative context concerning sales practices claims payment policies, and so on. There is the classic line about how Consumer Reports was unable to find one policy that it could recommend. Any comments on this?

Hagen: I think one of the biggest disservices to the public is so-called consumer groups with a clearly stated preference for an exclusive social insurance program telling people to wait until quality products are available. Nothing could be further from the truth. These policies have undergone a rapid evolution over the past 2 or 3 years. They've rid themselves of a lot of artificial gatekeepers and screens that reduced benefit eligibility; they are more clearly written and thus more understandable; and they offer home and community care options that simply weren't available a couple of years ago. Many have gone to unlimited lifetime benefits for catastrophic nursing home risks, as well as use of ADLs as a marker to qualify dementia patients who are otherwise healthy, and in general most policies can be purchased with a high degree of confidence.

Weil: Interestingly, the company that Consumer Reports cited as having its top-rated policy, the Atlantic & Pacific Insurance Company, went into receivership shortly after the article came out.

Hagen: That happened twice, actually; another of Consumer Reports' top choices went into receivership, as well. Apparently a company's solvency, financial strength and claims payment record is not terribly important to them.

What about the long-term care legislation recently introduced by Senators Jay Rockefeller and George Mitchell, among others?

Weil: That has much less adequate provisions than any of the major carriers provide. For example, an individual disabled at the three-ADL level would be eligible for only 52 hours of home and community-based care per month. That's not much care for a person with three ADL needs. And the cost of the plan is estimated to be $45 billion the first year.

Hagen: Also, the supplemental role they prescribe for the private insurance industry is not something I want to do. I've been paying claims in the long-term care field for 18 years, and I want to be able to create and provide the catastrophic protection people want and can afford. Let's face it, a social insurance program costing multi-billions of dollars is many years away, if ever - and what do we do in the interim? When we unfairly denigrate the good products that are already out there, we give people no option for protecting themselves here and now. In essence, they are "left bare" as we wait for "something to happen."

Recently HIAA did some research indicating that the only real difference between purchasers and non-purchasers of long-term care insurance was an attitudinal one. The non-purchasers felt confident that the government would do something about this reasonably soon. Encouraging them in this may, in fact, prove to be a disservice to them.

Germain Skagias: We shouldn't overlook the fact, either, that some states are taking the initiative in setting up public-private partnerships with long-term care insurance carriers. Connecticut, Indiana, California and New York are all trying different approaches to provide asset protection to middle-income and perhaps lower-income people in determination of Medicaid eligibility. Connecticut already has "partnership policies" on the market, and we could be seeing other states considering similar steps, as well. This is not something that has received much national attention as yet.

Hagen: I also want to mention something I alluded to before: a company's willingness to pay its claims must be factored into the equation. Claims payment records have been blatantly ignored in the consumerist analyses of the industry, and even the NAIC's brochure doesn't address this strongly enough, in my view. Some companies have been charged - and rightfully so in some limited cases - with unfair claims processing, or what we call "post-claim underwriting." This continues to be a bone of contention, but it is not nearly as widespread as it once was, thanks to the NAIC model legislation and state adaptations. A company's record on this, as well as overall financial ratings, should be looked at by anyone buying a policy.

How do you size up the future of long-term care insurance?

Germain Skagias: There's a growing interest in the managed care approach to this, with basically case managers making on-site assessments of people's needs and referring them to the appropriate level of care.

Hagen: The availability of a broader range of care options is growing - assisted living, board and care, home health care, respite, adult day care, are all growing, and the interest in incorporating these in long-term care insurance is growing, as well. How rapidly this will happen I can't say right now.

A couple of carriers are experimenting with a disability approach, with the benefit based on the person's physical or cognitive impairment and to be used, not in a specified type of care, but as the person elects to use it.

Nursing homes themselves are changing and becoming more post-acute care-oriented, doing things the hospitals used to do, and people are now moving down the institutional and non-institutional spectrum. How coverage for all this shapes up will depend on how states approach such matters as the definition of providers and insurable services.

Meanwhile, I think the government will have a role in helping provide protection for people who are uninsurable or who can't afford any type of policy.

Weil: Along with these changes in coverage, I think we will see changes in how long-term care is financed. Especially with the development of employer-based group products, premiums will be structured in different ways. Part of the premium will be based on the person's age-related risk, and part will be investable at the person's discretion in, say, stocks or bonds - in general, allowing pre-funding for one's older years. This sort of change is probably still years away, though; the tax laws don't favor it at this point.

There may also be the option of term policies allowing the individual to pay premiums based solely on age-related risk, in which case the premiums will come way down. We will see various flexible spending accounts, cafeteria plans, home equity and annuity-based plans, as well.

In short, as there is change going on with respect to coverage, so will we be seeing major changes in financing, as well.

Any summing-up comments?

Germain Skagias: People who purchase an individual long-term care policy have an average age of 69, but people who purchase group policies have an average age of 43. The growth of the latter these days is making it imperative that the federal government clarify the tax status of long-term care insurance premiums and benefits.

Hagen: There are several questions as yet unresolved: Should benefits be tax-free or taxable? Should premiums be tax-deductible? Should the internal build-up of the policy's value be taxable? How should the various options James Weil just discussed be treated? We hope to get a tax clarification soon.

Weil: For now, though, the key thing for the consumer to know is: Pick the right company; make sure that the company is prudent in its pricing and is likely to be around when you need it. This is probably the most important factor of all.