LTC Testimony

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	TESTIMONY PENNSYLVANIA ASSOCIATION OF HEALTH UNDERWRITERS PA HOUSE INSURANCE AND AGING AND YOUTH COMMITTEES LONG TERM CARE INSURANCE August 4, 1999 Lima, PA Presented by Ross Schriftman, RHU, LUTCF Legislative Chair For Information: Ross Schriftman 1250 Easton Road, Suite 270 Horsham, PA 19044-1420 Phone: 215-682-7075 FAX: 215-682-7076 E-mail: RFS270@aol.com LONG TERM CARE INSURANCE PENNSYLVANIA HOUSE INSURANCE AND AGING AND YOUTH COMMITTEES CONTENTS OVERVIEW WHAT CONSUMERS NEED TO KNOW The Need for Long Term Care Insurance & Understanding its Importance Who Should Consider Purchasing Coverage? The Sales Process and Underwriting Considerations Selection of the Insurance Company Selection of the Agent Determining the Product to Select Definitions of Benefits and Activities of Daily Living Amount of Benefit Length of Benefit Elimination Period Types of Services Inflation Protection Non Forfeiture Benefits Waiver of Premium Provisions Shared Benefits Exclusions Information Provided by Insurers and Agents Information provided by the Department of Insurance, the Department of Aging and the National Association of Insurance Commissioners Internet as a Source for Long Term Care Insurance Information WHAT AGENTS NEED TO KNOW Continuing Education on Long Term Care Insurance and The Need Working with Other Professionals Testimony-Long Term Care Insurance PA House Insurance and Aging and Youth Committees August 4, 1999 WHAT IS GOVERNMENT’S ROLE? Tax Incentives Long Term Care Partnership Programs Mandates Decrease Choice and Increase Premium Rate Stabilization Issues Public Education SUMMARY ADDENDUMS Summary of long term care Long term care position paper - National Association of Health Underwriters Legislative summary - Federal and Pennsylvania Rate Stability Article - National Underwriter Magazine Press statement on Federal legislation - Americans for Long Term Care Security OVERVIEW My name is Ross Schriftman. I serve as Legislative Chair of the Pennsylvania Association of Health Underwriters (PAHU). Our members are primarily insurance agents who sell and service health, dental, disability and long term care insurance as well as other employee benefits. We work with individuals and businesses throughout the Commonwealth serving the needs of hundreds of thousands of our fellow citizens. Long term care insurance is an important part of our clients’ planning. We are here today to assist the committee in understanding the long term care insurance market by providing you with some insight into what happens in the marketing of this important product. We hope to also help you understand what the Commonwealth’s role can be in promoting that its citizens consider the purchase of adequate coverage to protect themselves and their families from the devastating expense of providing long term care services. Finally, we are providing information in this testimony to assist the general public in better understanding the need for long term care insurance and its proper role in their planning. According to an analysis from the Congressional Budget Office, total long term care services for the Year 2000 will reach more than $123 billion. Of that amount, only $5 billion will be paid for by long term care insurance. In contrast, the same study projects that in the year 2020, total expenditures for long term care services will be $207 billion with $36 billion covered by private long term care insurance. The disturbing number in the year 2020 projection is that government expenditures will top $125 billion. This amount is significantly greater than next year’s projection for government’s role which is pegged at $73 billion. It is apparent that if government doesn’t encourage the growth of private solutions to long term care needs, taxpayers will end up with most of the bill. According to an article in The Philadelphia Inquirer on August 22, 1999, the long term care component in the Medicaid Budget for 1986 was $600 million while the 1997 total expenditure was $2.7 billion. These amounts include both the Federal and Commonwealth share of the cost. The article goes on to point out that almost all of the expenditures where for in facility care, since only 1,746 Pennsylvanians received permission to receive Medicaid benefits for home care services. Home care is the fastest growing type of long term care expense according to the CBO study. Here is another disturbing number. According to Health Choice Consultants, in 1994 alone, employers lost $17 billion from reduced employee productivity relating to long term care needs of family members. These statistics as well as many others provide more than adequate reason for us to take action. We all need to recognize that private long term care insurance can help solve a financial drain for both the government and its citizens. I’m certain that is why your committees are holding this hearing today and I commend you for doing so. WHAT CONSUMERS NEED TO KNOW The Need for Long Term Care Insurance & Understanding its Importance There are several reasons people purchase long term care insurance. The most important is to protect assets. People work hard throughout their life to accumulate enough to maintain a quality of life they would like for themselves and their families. They may also wish to pass along some of their savings to their children or grandchildren. A long term illness or accident can turn those plans into a financial nightmare. Long term care services can cost a family up to $50,000 per year. Not too many people have the financial capacity to absorb such a tremendous cost. Ultimately, a person may qualify for Medicaid; but only after they have exhausted most of their lifetime of savings. The other reasons for purchasing coverage include the desire to maintain independence, the concern about maintaining control over ones’ life and the fear of being a burden to one’s children or being dependent on the government for financial help. In most cases, long term care insurance is the most efficient and most practical way to pay for these services. Long term care insurance will not prevent the need for services; it just makes it much easier to pay for it. Who Should Consider Purchasing Coverage? Long term care insurance is NOT a product that would be purchased by the poor, in most cases. Unless there are family members willing to assume the premiums, persons with very little income and very little assets should not expend the funds they have on long term care insurance. There are other pressing financial needs that take priority such as housing and food. The very wealthy can self-insure for the cost of long term care services. A person with more than $3,000,000 in liquid assets should be able to meet these expenses through use of investment income. Who Should Consider Purchasing Coverage? (Continued) Middle income and middle wealth citizens should seriously consider purchasing coverage. Someone with $500,000 in assets would most likely deplete their assets in a period of six to 10 years. Purchasing coverage would cost a small portion of interest income from investments. For example, a healthy 48 year old may only pay $600 per year in premiums for a long term care policy. Purchasing coverage should be considered well before retirement. 40% of Americans receiving long term care services are under the age of 65. The Sales Process and Underwriting Considerations Long term care insurance is a product primarily sold by agents to individual consumers. There is, at the same time, a growing number of businesses offering long term care insurance to their employees on the job site. The decision to actually purchasing coverage may occur at the first meeting between agent and consumer. However, usually the sale is made at the second or third appointment since there are a number of issues the purchaser needs to consider besides the plan design, benefits and price. Long term care insurance is a very personal product. Family members and other advisors many times play a role. Purchasers of this product are also usually very careful and thorough in their attempt to understand the policy. Even though there are instances of unfair or inappropriate sales practices, most purchasers are intelligent, active people who are not helpless in making their own financial decisions. For most products, people applying for coverage need to pass underwriting requirements. The major concern of insurers is that the person should be expected to maintain their ability to do all their daily activities without the aide of physical or personal assistance. Therefore, ailments such as arthritis and osteoporoses are a bigger concern to underwriters than heart operations. Underwriting requirements may include a personal or telephone interview. Sometimes there will be a request for medical records from the applicant’s physician. The underwriting process can, at times, be lengthy. Good underwriting is a key element to stable rates for the policyholders. Selection of the Insurance Company It is important for consumers to purchase coverage from companies who have made a long-range commitment to this market and have the experience and expertise. Product design, pricing, rate structure, claims processing, claims assistance, marketing practices and information services functions have to all be performed in a competent manner to be able to attract and retain clients. Agents need to know that the carrier will be efficient and fair with all their operational areas. Many agents represent several carriers so that they can “shop the market” for their clients. Because the product does not have a very long history, actuarial expertise among carriers is important. The consumer needs to ask questions such as “how long the carrier has been selling long term care insurance, what has been the history of rate increases, and is this the right carrier for my particular situation?” Selection of the Agent Using some of the same criteria in selecting a company, the consumer needs to be assured that the agent is committed to the long term care insurance market and understands the product and its benefits for his or her particular situation. Therefore, it makes sense to seek out a specialist. Some agents refer their business to other agents who have made long term care insurance a primary part of their business. The consumer can benefit greatly from this kind of service. The purchaser also should ask the agent about their credentials and background. Insurance industry degrees such as Registered Health Underwriter (RHU), Certified Financial Planner (CFP) and Chartered Life Underwriter (CLU) can indicate an agent’s commitment to the business and a more in tune understanding of the needs of a client as well as the ability to make good recommendations as to the appropriate product for the client. Determining the Product to Select There are so many companies, agents, products and benefits to select from that it can become an overwhelming task. However, consumers can organize their choices and make their decisions by determining what is most important to them. Here is a brief listing of those choices: DEFINITIONS OF BENEFITS AND ACTIVITIES OF DAILY LIVING The Insurance Department regulates the contract language for long term care insurance products. The policies are easy to read. Also, the plan outline that should be given to the client upon application is also understandable. Definitions should be carefully reviewed, especially the definitions concerning activities of daily living or ADL’s. ADL’s are a key element in determining when a person will receive benefits. ADL’s could include bathing, dressing, eating, transferring and toileting. Asking the “what if” questions about the ADL’s allows the consumer to put his or her self into a situation so that the purchasing can see how benefits may be paid if they reach a point in life when someone else must assist them in doing their activities of daily living. AMOUNT OF BENEFIT The daily (or monthly) benefit should be adequate to cover the costs of nursing or home care in the community where the individual believes they will eventually receive it. Random surveys of local nursing homes, home care services and adult day care programs help in pegging the proper amount of benefits to select. For example, in the Philadelphia region, semi-private room rates in nursing homes range from $130 to $160 per day in a recent survey I conducted. Home care services cost from $10 to $16 per hour. LENGTH OF BENEFIT The average length of stay in a long term care facility is about two and one half years. Remembering that statistics are NOT real people, most agents recommend at least 3 years of benefits. If affordable, a lifetime benefit should be considered. ELIMINATION PERIOD This is the length of time before benefits start paying after the insured meets the policy’s definition of needing services. Many people mistakenly assume that Medicare will pay the first 100 days of nursing care. This can be a very costly error. Medicare rules are very strict and only apply for skilled nursing facilities and certain home visits for treatment. A 100 day wait with the cost of a nursing facility at $150 per day results in an out-of-pocket cost to the policyholder of $15,000. In most cases, for only a few hundred dollars per year more in premiums, a “0-day elimination” period can be purchased, placing the $15.000 risk mentioned above on the insurance company. TYPES OF SERVICES There are numerous long term care service arrangements today. They run from skilled nursing facility, through intermediate and custodial nursing facility care to adult day care, assisted living facilities and home care services. Consumers need to review the various services provided within the policy. Newer services can also be included such as care management assistance, medical equipment to accommodate a home and medical alert systems. Some plans also provide assistance with food shopping, home maintenance, lawn services and even assistance with financial records. Finally, some companies now will even pay benefits for a friend or relative to perform home care services for the policyholder. To the credit of the long term care insurance carriers, they have continually upgraded the benefits and services that can be purchased by the public. This action recognizes the changing needs within long term care that are occurring in the community. INFLATION PROTECTION As indicated in the overview, expenditures for long term care services are growing rapidly. Much of this is related to the growth of an aging population. To service this need, the long term care industry is growing. New construction costs, regulations and other factors are contributing to rising costs of providing these health services. Long term care insurance products have options for the purchase of inflation protection. It is important to have this protection to match the rising costs of services. The question is affordability. Inflation protection is an expensive option. It can increase the premiums for coverage by 50% to 80%. This option needs to be carefully weighed by consumers and compared to other options such as self-insuring the inflation portion of long term care expenses by utilizing investment returns of the client. We believe government should not mandate that everyone have to take this benefit. We contend that it should be an offering only leaving the consumer the freedom to choose. NON FORFEITURE BENEFITS This is an option whereby the longer an individual has coverage, the longer the coverage will continue if premiums are discontinued. There is an added cost to this benefit. We believe government should not mandate non forfeiture benefits WAIVER OF PREMIUM PROVISIONS Most policies contain this feature. When the insured is on claim, premiums are waived under most policies. Some have a 90 day wait from the time the insured is eligible for benefits. There are also companies who will waive premiums upon the death of a spouse if both husband and wife had coverage and that the coverage was in force for 5, 7 or 10 years. This allows the survivor to be unburdened by premiums. SHARED BENEFITS Some policies allow a husband and wife to share each other’s benefits if one should exhaust the benefit period. We believe government should not mandate that this provision be required due to its added cost. EXCLUSIONS Consumers need to carefully review the exclusions that are contain in the policy and listed in the outline of coverage. Most companies exclude mental illness, drug and alcohol conditions and benefits that would be paid for by other sources su ch as workers compensation and Medicare. Alzheimer's and Senile Dementia are required to be covered and are so specified on the policy. Information Provided by Insurers & Agents The insurance company provides product brochures and outlines of coverage for each of their products. Consumers need to make sure they receive these documents for the particular policy they are purchasing when they make application. Any item that they are unclear about should be completely explained to them by the agent. Upon policy delivery, the consumer should make sure they understand the policy and review it carefully with the agent. If for any reason, the policy owner is not satisfied, a 30 day right of examination exists and they can return the policy to the agent or to the insurance company for a full refund. Information Provided by the Department of Insurance, the Department of Aging and the National Association of Insurance Commissioners (NAIC) The NAIC publishes “A Shopper’s Guide To Long Term Care Insurance.” It contains important information about long term care insurance products. It also lists the telephone numbers for both Apprise and the Department of Insurance. The agent should deliver this document to every consumer that is considering purchasing coverage. I personally give this publication to each person at the first interview. I find it an excellent source of unbiased information about long term care insurance. Internet as a Source for Long Term Care Insurance Information Although caution must always be taken concerning information on the Internet, there are several excellent sources of information about long term care insurance available. Here are a few: www.mrltc.com Continually updated site with articles and links including links to State Partnership programs. www.ltcweb.org Americans for Long-Term Care Security. A coalition of organizations supporting the need for long term care insurance. www.nahu.org Our National organization. This site contains position papers on health insurance issues including long term care. Contains links to “think tanks” and Federal and State websites. WHAT AGENTS NEED TO KNOW Continuing Education on Long Term Care Insurance and The Need Agent associations such as PAHU have been and will continue to promote understanding of long term care insurance through our educational programs. Because of the complicated nature of the long term care need which involves government programs, regulations, product designs and tax issues, an agent has to be proficient in order to properly serve his or client’s needs. The Commonwealth should do all it can to promote the educational knowledge of the agent force it licenses. Public confidence that agents know what they are doing is of critical importance if the market for long term care insurance is to expand. A consumer needs to ask his or her primary advisory for a long term care insurance specialist. Working with Other Professionals Last year I participated in an all day seminar on long term care. There were 500 people in attendance to hear many excellent speakers and to participate in several workshops. Those in attendance included not only insurance agents, but attorneys, accountants, stockbrokers and other advisors. Agents are working more closely today with other advisors on the issues surrounding long term care needs of their clients. The public needs to better understand how long term care decisions need to be made in their personal and financial planning. A team approach by a client’s advisors will achieve the best results. WHAT IS GOVERNMENT’S ROLE? Government needs to play an active role in promoting long term care insurance as a constructive solution to address this important issue. That role of government should include creation of incentives, maintaining flexibility, and providing adequate and appropriate oversight. Tax Incentives A number of initiatives have been developed into legislation introduced in the General Assembly. Tax deductions or tax credits for the premiums Pennsylvanians pay for long term care insurance is the right direction for the Commonwealth to take. Encouraging our citizens by rewarding them for doing the right thing, purchasing long term care insurance, sends a strong message about how our government is committed to this product. In the addendum to this testimony is a listing of these tax incentives as well as other legislative proposals. I commend Representatives Robert Godshall, Elinor Taylor, Nicholas Colafella and Senators Melissa Hart and Mike O’Pake as well as many others for their efforts in this area. Our Association has also testified in favor of setting a side a portion of the Tobacco settlement to cover the revenue shortfall relating to these tax breaks. In the long run, the Commonwealth will realize a large expenditure savings by reduction of dependence on Medicaid by its citizens. Every time an individual purchases long term care insurance, the likelihood of the Medicaid program ever being utilized by that individual is diminished. Long Term Care Partnership Program While we are addressing the Medicaid program, I want to mention our strong support for the work both the House and Senate are doing on the Long Term Care Partnership bills. Representative Reinard and Senator Holl, the prime sponsors of these bills have worked a long time on this issue and we commend their efforts. A partnership plan allows a person to qualify for Medicaid without “spending down” their assets if they purchase a long term care. Long Term Care Partnership Program (Continued) insurance policy approved under a partnership in the state they reside. Unfortunately, an impediment in Federal law needs to be removed so that Pennsylvania can go forward with our partnership program. The partnership concept is another example of how government and private industry can work together to encourage people to purchase long term care insurance. The more people would purchase coverage under such a program, the less likely they will ever have to reach the point of needing Medical Assistance. We will continue to work for passage of the legislation and are hopeful that legislation removing the Federal provision will be introduced shortly in Congress. Mandates Decrease Choice and Increase Premium One thing government should not do in relation to long term care insurance is to pass legislation mandating benefits or provisions of contracts that are sold to the public. Actions of this type make coverage unaffordable and limit consumers’ ability to design the plan appropriate to their needs. It also stifles innovation and flexibility. We do not know at this point, what consumers of long term care services will need in 10 or 20 years. Allow the insurers to develop offerings to meet the clients’ needs. Mandating that all policy holders must have inflation protection or shared benefits, for example, does not serve the consumers well and may result in certain individuals purchasing no coverage because of the additional cost or an unacceptable benefit design for what they desire. Let’s keep it flexible for them. Rate Stabilization Issues In the addendum of my testimony is an article relating to rate stability. Long term care insurance companies can change the premiums for policyholders with the approval of the Department of Insurance on a class basis. Rates do not increase, in most cases, by age or health condition of the insured. There has been concern that some carriers are charging too little or are approving for coverage individuals whose current medical condition does not warrant it. No one likes a rate increase. As agents, often we are the messengers of bad news. Therefore, we are very sensitive to rate stability issues. What can government do to help carriers maintain good rate stability? Mandating guaranteed premiums is not the answer. This will only create artificially high rates and slow the growth of the number of purchasers of coverage. Creating incentives for healthy, younger people to purchase coverage is the answer. Sound insurance principles are based on large pools of insured people and a constant flow of new, healthy risks. My experience has been that the ages of the purchasers of coverage have dramatically decreased. Where my average new client for long term care insurance was age 65, the average is now 55. Companies are beginning to offer this benefit in the workplace. A recent business survey by Hewitt Associates indicates that 46% of employers either offer this coverage or plan to within the next three years. Rate Stabilization Issues (Continued) By providing tax breaks, government will be doing much to encourage these younger workers to buy coverage, thus stabilizing rates. We believe the General Assembly has been on the correct path by your efforts in bringing about tax incentives for coverage and we commend you for those efforts. PUBLIC EDUCATION The Commonwealth should do all it can to encourage the public to better understand the role long term care insurance plays in their planning. I commend Representative Matthew Baker on all the cosigners of House Resolution 176 which expresses support of efforts to encourage the purchase of long term care insurance coverage. We stand ready to assist you in getting the word out to the public about the importance of this product. SUMMARY All the goals mentioned here are not achieved overnight. Currently, only 5% of the general public has long term care insurance. Government, insurance companies, agents, consumer groups and the business community are beginning to work together to address the issue. We are very encouraged by that effort. We stand ready to help in any way we can.
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