Long-term Care Insurance Market Research Articles

Policy implications of an annuity approach to integrating long-term care financing and retirement income.

The authors consider an integrated income and disability annuity as an alternative framework for long-term care financing, show that pooling disability and mortality risks can reduce the need for medical underwriting, and discuss private and public implications. Data from the National Mortality Followback Survey of 1986 were used to simulate current underwriting and minimal underwriting, excluding only those already eligible for benefits. Remaining disability, life expectancy, and premiums are compared under both underwriting assumptions. Under minimal underwriting, 98% of persons age 65 would be eligible to purchase disability protection through an integrated annuity, versus 77% under current underwriting. Premiums for both the income and disability components were lower with minimal underwriting. Combining income and disability protection may be able to expand private markets for long-term care financing beyond what appears possible in the long-term care insurance market. Public policy should avoid the distortion of choices created by focusing exclusively on an insurance model.

The Established long-term care insurance market and the Growing assist device industry for the aged

The Established long-term care insurance market and the Growing assist device industry for the aged

L'assurabilité de la dépendance et sa prise en charge par le secteur privé. Une mise en perspective internationale

Afin de pallier l'augmentation probable de la demande de soins de longue duree et les insuffisances de la couverture publique dans les nombreux pays ou la dependance n'est pas reconnue comme un risque normal de l'existence par la Securite sociale, l'assurance privee semble etre en mesure de jouer un role important dans la couverture des personnes n'ayant pas acces aux prestations attribuees sous conditions de ressources. L'assurance dependance rencontre cependant un certain nombre de difficultes : d'une part, les difficultes « habituelles » de l'assurance (alea moral, antiselection) ; d'autre part, l'assurance dependance se heurte a des incertitudes majeures quant a l'evolution tant des probabilites d'entree en dependance que du cout unitaire des soins et aides de longue duree. En reponse a ces incertitudes, les assureurs proposent generalement des polices qui limitent leur exposition au risque en en reportant une part importante sur les assures : la quasi-totalite des contrats prevoit ainsi des prestations forfaitaires qui ne sont versees qu'en cas de dependance tres lourde. Ces limites fournissent peut-etre une explication rationnelle au faible developpement de l'assurance privee, y compris dans des pays ou les prestations publiques se limitent a une aide sociale attribuee sous conditions de ressources. Ainsi aux Etats-Unis, malgre l'intervention des pouvoirs publics qui ont regule le marche de maniere a ameliorer la qualite des produits, le nombre de souscripteurs demeure faible. Ceci amene a considerer des modes alternatifs d'organisation du marche de l'assurance dependance, voire une reconnaissance par l'Etat de la dependance comme un nouveau risque couvert par la Securite sociale.

Patterns of informal and formal caregiving among elders with private long-term care insurance.

The purpose of this report is to provide basic descriptive information on community-dwelling, disabled, private long-term care (LTC) insurance policyholders who have accessed policy benefits. We focus on how benefits are used, whether claimants feel they are getting appropriate value from their policies, and what the patterns are of formal and informal service use. Data were obtained from a nationally representative sample of 693 LTC insurance claimants who were receiving benefits while living in the community and 424 of their informal caregivers. Eight of the largest LTC insurance companies representing about 80% of the market participated in the study. LTC insurance benefits are well targeted; they serve those truly dependent on ongoing care. The vast majority of claimants are satisfied with their policies, understand their coverage, and find it easy to file claims. Because of their LTC benefits, substantial numbers of disabled elderly individuals report that they are able to remain at home instead of being forced to seek institutional care. The availability of LTC benefits reduces stress among informal caregivers. For most claimants, formal care did not replace informal caregiving. As the LTC insurance market continues to grow and mature, there will be changes in the profile of claimants, the service delivery system, and the design of policies. Expansions in the private market will be associated with a greater number of disabled elderly remaining in their homes with a maintenance of and enhanced resiliency of informal support networks.

Genetics, Alzheimer’s Disease, and Long-Term Care Insurance

This paper applies a model of Alzheimer’s disease (AD) developed by Macdonald and Pritchard (2000) to the question of the potential for adverse selection in long-term care (LTC) insurance introduced by the existence of DNA tests for variants of the ApoE gene, the ε4 allele of which is known to predispose one to earlier onset of AD. It computes the expected present values (EPVs) of model LTC benefits with respect to AD for each of five ApoE genotypes, weighted average EPVs with and without adverse selection, and sample underwriting ratings. The paper concludes that adverse selection could increase costs significantly in a small LTC insurance market only if current population genetic risk is not much smaller than that observed in case-based studies, and if carriers of the ε4 allele are very much more likely to buy LTC insurance. Finally, the paper considers the cost of a combined retirement package, providing both pension and LTC insurance, and shows that it can reduce adverse selection.

The Effect of Firm Traits on Long-Term Care Insurance Pricing

ABSTRACT Financing long-term care is an issue of concern to many Americans, yet private long-term care insurance product sales have experienced slow growth. Pricing problems may in part explain this phenomenon. This study provides the first empirical evidence on pricing in the long-term care insurance market and analyzes the relationship between insurer operating characteristics and premium. The results suggest that prices vary across firms due to size, organizational form, default risk, and tenure in the market, but not due to differences in distribution system. The evidence is also consistent with significant price differences due to contract design variables that control moral hazard and adverse selection. INTRODUCTION Financing long-term care has become an issue of increasing concern to many Americans. Long-term care includes a range of social and medical services needed by individuals unable to care for themselves due to physical or cognitive disability. Care may be provided in nursing homes, at home, in other residential facilities, or at adult day care centers for the elderly or disabled. People of all ages use long-term care, but the need is especially acute for the elderly (i.e., those over age 65). Private long-term care insurance is one solution to the financing issue. However, this product has experienced relatively slow growth in recent years, possibly because price and policy characteristics are not sufficiently appealing to generate strong sales. This study analyzes the relationship between insurer operating characteristics and the price of insurance. In particular, the importance of insurer organizational form, size, financial strength, distribution system, and tenure in the market is documented and analyzed. M oral hazard and adverse selection effects with respect to particular policy design features are also examined. This article begins with a review of the context in which long-term care insurance is sold. Next, the research methods used in the study are discussed, and the data set and the expected results are described. The empirical results are then reported, followed by a discussion of the major conclusions and implications of the study. THE LONG-TERM CARE INSURANCE MARKET Concern about long-term care financing has increased for several reasons. First, demographic trends show that the elderly are the fastest growing age group in the nation. Figure 1 depicts past and projected growth trends for the elderly to the year 2020. Kemper and Murtaugh (1991) estimate that 43 percent of the elderly will use nursing home care, that over half of those in nursing homes will stay for at least one year, and that 20 percent will remain five years or longer. The concern about paying for nursing home care will become more pronounced in the future, as the proportion of younger persons relative to older persons decreases, thereby making family care less feasible for many. Extended life expectancies, due to advances in medical science and increasingly healthy lifestyles, further increase the likelihood that long-term care outside of the family unit will be needed. Concern about long-term care financing arises not only from increasing utilization of services, but from the high cost of such services. Typical nursing home costs range from $35,000 to $65,000 or more per year, and costs are rising faster than inflation. Community-based residential care or home care is less expensive, but can still be prohibitive for middle- and-lower-income families. In 1995, national aggregate long-term care expenditures exceeded $100 billion annually, of which 44 percent was paid by Medicaid, 16 percent by Medicare, and 30 percent by individuals and their families. Private long-term care insurance represented only about 2 percent of benefit payments. [1] Reductions in state Medicaid funding are likely to have a significant impact on the financing of long-term care in the future, and another public sector solution to the problem of funding long-term care is unlikely, given efforts to control federal spending. …

Enabling Informed Consumer Choice in the Long-Term Care Insurance Market

ABSTRACT Provisions in the Health Insurance Portability and Accountability Act of 1996 (HIPAA) may increase private long-term care insurance sales without imposing substantially more stringent consumer-protection features. The ability of consumers to make informed choices when purchasing this complex product is examined in light of these changes. Data were collected through detailed examinations of policies and interviews with industry experts, insurance companies, agents, consumer groups, and regulators. Because of the complexity of this product, the goals of expanding consumer choice and ensuring that consumers are able to make informed decisions often work against each other. Mechanisms are discussed through which the government can facilitate informed choice and improve consumer protection. The authors contend that, because the government is providing tax incentives that encourage consumers to purchase the product, it has the responsibility to ensure that consumers understand the long-term care insurance they purchase.

223036 (E10, B23) Adverse selection, bequests, crowding out, and private demand for insurance: evidence from the long-term care insurance market : Sloan F.A., Norton E.C.,Journal of Risk and Uncertainty, Volume 15, Nr. 3, 1997, pp 201–220

223036 (E10, B23) Adverse selection, bequests, crowding out, and private demand for insurance: evidence from the long-term care insurance market : Sloan F.A., Norton E.C.,Journal of Risk and Uncertainty, Volume 15, Nr. 3, 1997, pp 201–220

Adverse Selection, Bequests, Crowding Out, and Private Demand for Insurance: Evidence from the Long-term Care Insurance Market

Adverse selection, moral hazard, and crowding out by public insurance have all been proposed as theoretical reasons for why the market for private long-term care insurance has been slow to evolve in the U.S. Using national samples of the elderly and near elderly, this study investigates which is most important. The data contain direct measures of risk aversion, expectations of future nursing home use and living to old age, and the bequest motive. For both groups, we find evidence of adverse selection, and, for the elderly, crowding out of private long-term care insurance by Medicaid. However, we do not find that demand for such insurance is motivated either by bequest or exchange motives.

Can regulation improve long-term care insurance? Lessons from the Medigap experience.

This article uses recent experiences from the Medigap market to draw conclusions about the advisability of alternative methods of regulating the market for long-term care insurance. The analysis is based in part on interviews of state insurance regulators, insurance companies, and interest-group representatives. The authors conclude that some regulation of the market is appropriate, but that the structure and extent of regulation found in the Medigap market would likely be inappropriate for the long-term care insurance market at this time.

Connecticut Partnership for Long‐Term Care

To the Editor:–The recent editorial on the “Connecticut Partnership for Long-Term Care” (October 1992, Vol. 40, No. 10) did not do that program justice. Wiener and Hanley question whether it is appropriate to use the means-tested Medicaid program as a mechanism to protect the assets of middle and upper income elderly. They ignored the fact that elder-law attorneys specializing in Medicaid estate planning are doing just that and doing it in a way that is damaging to both the fiscal and philosophical integrity of Medicaid, a program meant for the poor. The Partnership Program, in contrast, offers a positive response to this problem. It requires people to contribute to the cost of care before becoming eligible for benefits and does not require impoverishment. The Partnership offers an important extra benefit that can help assure policy makers that the elderly have reasonable options for protecting themselves against impoverishment. With this assurance should come more aggressive action to close the loopholes that allow abuse of the Medicaid system. Another concern raised by Wiener and Hanley is whether the poverty protection incentive will work. They suggest that asset protection may not be important to consumers who purchase long-term care insurance while avoidance of Medicaid is important. Let's be clear, the poverty protection is a benefit over and above that offered by most long-term care insurance currently marketed. Only lifetime coverage can assure protection from poverty, and for the majority of people, especially those most at risk of spend-down, lifetime coverage is not affordable. With the Partnership, people get the additional peace of mind that if their insurance runs out, they will not have to spend all their remaining resources or resort to gaming the system before Medicaid will help. The intent of the program is not to preserve people's estates, though this could be what some participants may want. The intent is to give individuals the next best thing to their health, the chance to preserve some financial independence when faced with physical dependence. Furthermore, with insurance helping to pay the bill, more people can receive long-term care as private-pay patients. Increased private patient census paying higher rates than those of Medicaid should serve to improve care quality, not reduce it. Another concern raised by Wiener and Hanley is whether the incentive program is worth the risk of failure. In truth their real fear is that it might succeed and erode support for a social insurance approach. Clearly the participating states feel their efforts are worth the risk. The growth of the private long-term care insurance market has tapered off recently. The backing of the state and the details of the Partnership Program can serve to bolster confidence in long-term care insurance. The unique insurance policies will carry a stamp of approval from the states, indicating they have meet rigid state certification requirements. As part of the program, educational campaigns will increase awareness among elders and their families about the lack of protection and their financial options. Regulatory oversight is also being strengthened to help consumer confidence. All participating insurers will be required to provide the state with data for program monitoring. The data will be used for a variety of special studies, including analysis of underwriting rules, utilization patterns and insured event criteria. To be sure, the Partnership Program is not a panacea for reforming our long-term care financing system. Held to the standard of being at least budget-neutral, its accomplishments cannot easily compete with the promises embodied in universal coverage financed through new social insurance taxes. But if progress on long-term care is to be made, the Clinton administration will need support for manageable improvements to our long-term care system that fall short of social insurance. One such step would be an improved state-based, means-tested program for long-term care to replace Medicaid's role. The Partnership model and an improved means-tested long-term care program in the states would be mutually complementary. Improvements to the Medicaid program cannot be sustained unless affordable and appealing private financing options can serve to keep people from using those benefits unless it is as a legitimate last resort. The Partnership Program serves to mitigate concerns about means testing: that programs for the poor are poor programs because they lack broad based political support. By linking the Partnership incentive to Medicaid, the constituency for the means-tested program should be enhanced rather than eroded.

New Perspectives on the Afford ability of Long-term Care Insurance and Potential Market Size

A study of over 6,000 elderly long-term care insurance purchasers shows that the typical policy sold costs $102 per month, covers 5 years of nursing home care and pays $69 per day in benefits. Close to one-third of the purchasers have incomes less than $20,000, most (63%) use some savings to pay for premiums, 37% spend more than 5% of income on policies. Most nonpurchasers cited reasons unrelated to policy cost to explain why they did not buy a policy.

Economic rationality, the affordability of private long-term care insurance, and the role for public policy.

This study uses data from the 1984 panel of the Survey of Income and Program Participation (SIPP) of the U.S. Bureau of the Census to develop new estimates of the potential market for private long-term care insurance. It found that this market is potentially significant--especially among individuals in the 65-69 age group who are willing to spend up to 50% of their discretionary income on such insurance--but considerably lower than previous estimates, such as those of Cohen and colleagues (1987).

Expanding the focus of health insurance education for Medicare beneficiaries.

Health insurance education plays an important role in helping consumers make informed decisions about their need for supplemental coverage. This article reviews findings on the knowledge of Medicare beneficiaries about their health insurance coverage. Then, current health insurance education programs are examined with regard to their ability to meet the needs of a competition-based public policy. Barriers outside the control of individuals that impede the growth of the long-term care insurance market are identified and the need for an alternative, broader form of health insurance education is suggested. Changes in the scope and content of health insurance education are proposed that would educate the elderly to their own needs as well as the larger policy issues. An expanded model of education based on the concept of the Swedish study circle is discussed to illustrate the possibility of combining individual knowledge and public debate about complex social issues.

High quality private long-term care insurance: can we get there from here?

The private long-term care insurance market has undergone rapid change in the last several years. Although the quality of policies has generally improved, problems remain. Consumer protection issues include the lack of adequate inflation protection features, how activities of daily living are measured, potentially high lapse rates and lack of nonforfeiture values, how home care benefits are defined, and the appropriate loss ratio standards. The concerns of consumer and elderly advocates about the quality of private long-term care insurance have prompted congress to consider the need for federal intervention. While there are numerous approaches that the federal government could take, mandatory standards substantially higher than the current model standards of the National Association of Insurance Commissioners may prove the most effective in improving the quality of policies on a nationwide basis.

FINANCING LONG–TERM CARE FOR THE ELDERLY

Provides an overview of the long-term care insurance market and why this market may fail and reviews the current federal role in providing health care for the elderly. Discusses possible financing of a public program, along he lines of Medicare, and the distributional consequences of alternative tax bases.

Caring for the disabled elderly: who will pay?

Caring for the Disabled Elderly analyzes the major options for reforming the way long-term care is financed. It first explores the potential market for private long-term care insurance and other private sector initiatives. Then it turns to the advantages and disadvantages of various public sector programs. The study recommends both a greatly expanded role for the private sector in financing long-term care and a new public insurance program.

Private Long-Term Care Insurance

Long-term care is now the most common cause of catastrophic illness costs for the elderly. Although acute care health insurance represents a mature market, private long-term care insurance is in its infancy and poised for development. This study presents a comparative analysis of simulation data, generated from the Brookings-ICF Long-Term Care Financing Model, for five alternative private long-term care insurance models. The simulation results indicate 1) the potential market for private long-term care insurance is substantial, 2) moderately comprehensive long-term care policies are affordable by a significant minority of the elderly, 3) policies are considerably more affordable to those under age 65, and 4) long-term care insurance has somewhat less potential to pay for nursing home costs for high risk groups than for other elderly.