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Private LTC insurance: poised for growth?

With the American Health Care Association, the American Association of Homes for the Aged, and the Clinton Administration apparently seeing eye-to-eye on encouraging the growth of private long-term care insurance, the question is, is that enough to make it happen? Will Americans get past the criticisms and misperceptions attached to this product? According to Bill Gradison, recently appointed president of the Health Insurance Association of America, private insurance just needs a chance, and deserves one. And, as an ex-Congressman who was intimately involved in the health legislation battles of the 1980s and early 1990s, he sizes up the political realities of long-term care financing in this interview with Nursing Homes Editor Richard L. Peck.

Peck: What are the major needs to make private LTC insurance an attractive option for people in the 1990s?

Gradison: There's a positive step to take, and there's a negative one to be avoided. The positive step would be to clarify the tax status of long-term care insurance so that it is treated like any other health insurance under the tax code. That step alone could dramatically increase the number of employers offering such policies. As for the negative step to be avoided, one of the great impediments to the growth of private long-term care insurance is the notion that government will take care of this problem. If the Clinton Administration's proposed health care reform indicates that government is taking the first step toward insuring all long-term care, this will certainly discourage growth of private insurance. In fact, my impression is that sales of these policies dropped off somewhat as the Administration worked on its proposals.

Peck: Private LTC insurance has received criticism on several grounds. Let's take them one-by-one: Its premiums and copayments are unaffordable for most people, as suggested recently, for example, by the Families U.S.A. study.

Gradison: I think Families U.S.A. may have "cooked the books." It based its findings on the assumption that people couldn't afford to pay more than 5% of their income for long-term care insurance. And, true, there are those having modest resources for whom Medicaid would step in rather quickly. For many people, though, the real question isn't percentage of income, but what percentage of their assets should they tap to prevent the loss of their total assets if they experience heavy nursing home costs?

Today, a policy providing $80 a day in nursing home benefits, a $40 a day home health care benefit and four years of nursing home care would cost a 50-year-old a premium of $477 a year. I'm not minimizing that amount, but it's well within the means of a very large number of 50-year-olds.

Peck: There's the argument that this age group has so many competing financial demands -- college, home mortgages and the like. What is your response to that?

Gradison: I think that the issue for public policy is whether taxpayers have the responsibility to fund a program which has, as a principal goal, protecting people who could buy insurance to protect themselves but choose not to do so.

Peck: What about the criticism that administrative overhead for private insurance is so much higher than it is for government health programs?

Gradison: I don't doubt that it would be less expensive overall if we could all shop in one grocery store, live in identical housing, and had only one style of clothing available, but this flies in the face of consumer choice. Government activities, viewed broadly, don't stack up well against the private sector because they become so rigid over time. What I am saying, in essence, is that even if private insurance overhead is higher, that is the price we pay for consumer choice, as opposed to being required to contribute to a program which we may or may not wish to pay for.

Peck: What is your best guess as to the percentage of the long-term care market private insurance will occupy in 10 years?

Gradison: It would seem that a lot depends on the signals coming from government, as I have already suggested. If the signal is that people will be encouraged to purchase private coverage, its growth could be dramatic. Its growth in its early years has already been exceptional, compared to the growth of hospital insurance and indemnity insurance for doctors' bills during their early years. Sales of long-term care policies tripled between December 1987 and December 1991. Group policies offered by employers, many of whom made no contribution themselves, nevertheless increased by a factor of 10 from 1988 to 1991. Granted, this started from a low base, but I think this indicates a major growth potential for private long-term care insurance in the group coverage arena, if it's given a chance.

Then there are states that are undertaking private/public partnerships, such as those under the auspices of the Robert Wood Johnson Foundation in Connecticut, New York, California and Indiana. There is a question whether the Federal government will support these and, in fact, there is a move afoot in Congress to stop it. This is something that bears watching.

Peck: How do you view the "social insurance" approach favored by the American Association of Retired Persons, among others?

Gradison: The major problem with it is, in a word, cost. When I was Vice-Chairman of the Bipartisan Commission on Comprehensive Health Care Reform, better known as the Pepper Commission, I found it interesting that two-thirds of the costs of the Commission's recommendations -- some $44 billion -- were in long-term care. It is almost certainly less expensive to come up with a proposal to cover acute care services than cover long-term care. I realize that social insurance is popular, but many government programs are popular until people see the price tag. Then they experience sticker shock.

Peck: Still, what are the political realities of asking people to pay upwards of $30,000 a year upfront for nursing home care, and on top of that, closing Medicaid loopholes for people who apparently want a sort of Medicaid entitlement?

Gradison: I was struck by the difficulty the Pepper Commission had in deciding between upfront coverage by government or reserving such coverage for longer stays. It was a very close argument and they ended up doing a little of both, which proved to be very expensive.

As for Medicaid "planning," I'm at a loss to explain why it is allowed to continue. Congress must be aware that some people who are perfectly capable of affording to pay their own bills are, through loopholes, reducing money available for people in need. This is a sad situation.

It is possible under the Clinton plan that the acute care portion of Medicaid will be folded into the overall plan. This would bring these people into the medical mainstream. Medicaid would, presumably, then be focused on long-term care. This remains to be seen.

Peck: Isn't there a risk of backlash from relatively well-off elderly that Congress experienced with its Medicare catastrophic insurance plan in the late 1980s?

Gradison: It's possible. I was actively involved in the Medicare catastrophic debacle, which started and ended as the Stark-Gradison bill, and I have some scars to show for it. But there is a difference in the two situations. Under the catastrophic bill, the income-related premium would have been paid by all the elderly and disabled in the top 40% of income. In short, they were impacted broadly and immediately. In the case of long-term care insurance, only a small proportion of these people would be impacted any time soon. In fact, most would not be impacted at all, because a majority of the elderly don't spend time in nursing homes.

Peck: How do you think long-term care financing in general will evolve?

Gradison: I don't know what the President's plan is (late June), nor do I have a clear idea what the Administration wants, other than to expand home health care services, as opposed to institutional services, and to gradually phase in whatever long-term care benefits they propose. I really believe that Congress will focus on the acute care side, and major changes in long-term care financing will be deferred because of cost.
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Title Annotation:long term care
Publication:Nursing Homes
Article Type:Interview
Date:Jul 1, 1993
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