Long Term Care Insurance: Debunking The Myths

Anyone, no matter what age or state of health, may need long term care (LTC) services at some point in his or her life. Yet 72 percent of Americans say they are unable to pay for LTC without outside help.(1) For most, that help will come only after they have exhausted their personal assets and are forced onto welfare. Long term care insurance is a sensible and compassionate way to meet the nation's long term care needs. It can help protect Americans from financial ruin as they grow older and ease the fiscal burden on state and federal governments. Today, our nation's long term care financing system steers people toward impoverishment and reliance on Medicaid, a government welfare program. In the next century, Medicaid will not withstand the demographic tidal wave of aging baby boomers. Proposed cuts in Medicaid will present tremendous problems for the nation unless there is a fundamental shift to a system that relies more heavily on private ltc insurance. When asked, most Americans agree. According to a recent survey conducted by Luntz Research Companies for the American Health Care Association (AHCA), 76 percent of Americans said they want the government to shift from the current Medicaid financing program to one rooted in private LTC insurance.(2)

LTC Insurance: Compare the top companies, and get the best quote for your needs.

However, that survey also found that few Americans understand what LTC options exist and, as a result, few are taking adequate steps to prepare for the LTC needs they may face in the future. That's understandable among today's younger population, but it creates a serious problem for older Americans. The Luntz survey found that only one in three are financially prepared for the possibility that they may need LTC.

MYTH #1: I Will Never Need Long Term Care.

A poll by The Gallup Organization shows that 76 percent of Americans believe they will never have the need for a nursing home, an assisted living program, home and community-based care, or any other type of LTC service.⁽³⁾ But the fact is two out of five Americans will need nursing home care at some point in their lives.⁽⁴⁾ Further, a 1995 Harvard/Louis Harris survey found that one in five Americans over age 50 is at risk of needing long term care services during the next 12 months.⁽⁵⁾ According to the U.S. Census Bureau, the over-85 population is the fastest growing segment of the U.S. population, and one out of four people in that age group lives in a nursing home. Approximately 75 percent of nursing home residents are women. AHCA projects that the number of elderly living in nursing homes will increase 58 percent by 2020.

Most who do need nursing home care will require an extended stay. A full 55 percent of those who enter nursing homes will stay at least one year; 21 percent will remain five years or longer.⁽⁶⁾

LTC services are a bargain compared to hospital care, where consumers paid an estimated average of about $900 for a one-day stay in 1993.⁽⁷⁾ But sustained use of LTC can take a financial toll. It costs, for example, an average of $38,000 a year (or $105 a day) to live in a nursing home.⁽⁸⁾ An extended stay can run into the hundreds of thousands of dollars.

Failure to prepare for the cost of a nursing facility stay or other LTC is the primary cause of impoverishment among the elderly. The average American man can expect to spend $56,895 on LTC. The average woman will spend $124,370. Private health insurance policies offer limited, if any, coverage for LTC services. As a result, it can take only months -- or mere weeks -- from the time a person needs LTC until they are forced onto Medicaid by the depletion of personal resources.⁽⁹⁾

Source: LifePlans Inc. Long Term Care Utilization Model

In 1994, approximately 7.3 million elderly Americans needed LTC services. Experts predict this number will jump to nearly 9 million by the turn of the century. With the baby boom generation aging, estimates are that the of number people needing LTC services will increase to between 10 and 14 million by 2020, and 14 to 24 million in 2060.⁽¹⁰⁾

Myth #2: If I Do Need Long Term Care, Medicare Or My Health Insurance Will Pay For It.

Studies show that most Americans fail to prepare for the costs of LTC because they believe Medicare or their own health insurance plans will pay the bills, but the facts show otherwise.⁽¹¹⁾ According to Health Care Financing Administration data, two out of three nursing home residents -- about one million people -- now rely on the Medicaid program to pay for their care.

Medicare covers post-hospital skilled nursing and rehabilitation care for a maximum of 100 days with each illness. For the first 20 days, Medicare pays the full cost of a patient's care, but for the next 80 days patients must assume a substantial co-insurance payment. In 1996, for example, the patient's co-insurance payment totalled $92 per day. For a 100-day stay, the patient's out-of-pocket co-insurance costs alone would total $7,360.

Unfortunately, most people do not realize they must finance their LTC out of savings or assets until they are actually faced with the need for LTC. Because most people aren't financially prepared for the expense of LTC, they must turn to Medicaid for help. But Medicaid covers LTC only after a person is impoverished. Medicaid is welfare and welfare limits the number of choices people can make about their care. Despite popular belief, general health insurance plans and Medigap plans do not cover LTC.

For 1994, the Health Care Financing Administration reports that the nation spent $74.2 billion on nursing home care. Medicaid financed 51.6 percent, Medicare paid for 10.6 percent, out-of-pocket payments comprised 31.5 percent, and 3.8 percent came from other sources. Taxpayers are shouldering a heavy burden. Accounting for only 2.4 percent of nursing home costs in 1994, private insurance is clearly under-utilized as a payment source.⁽¹²⁾

Given efforts by Congress and the Administration to reduce Medicaid expenditures, it is doubtful that Medicaid will be able to sustain the level of support in paying for LTC, especially since our nation's population is rapidly aging. However, research finds that Medicaid expenditures would be reduced by $7,945 to $15,519 for every nursing home entrant who had a LTC insurance policy.⁽¹³⁾

Myth #3: I Cannot Afford Long Term Care Insurance.

As more and more elderly Americans understand the risks associated with the need for and the cost of LTC, they are choosing to protect themselves with LTC insurance.

Some interest groups -- vocal advocates for total government funding of the LTC system -- claim that most Americans cannot afford LTC insurance. However, the data show that a substantial number of recent purchasers of LTC insurance fall squarely into the middle class.

A study released by the Health Insurance Association of America (HIAA) in 1995 found a majority of LTC insurance purchasers (61 percent) have annual incomes of less than $35,000, and about one-third have assets valued at less than $30,000.⁽¹⁴⁾

The authors of the study conclude: "Thus, this insurance does represent a viable financing option for a growing number of retiring middle-class elders." ⁽¹⁵⁾

Certainly, LTC insurance is affordable when balanced against the astronomical costs incurred by a person who has no financial protection and needs care. The HIAA reports that the typical policy purchased by people age 65:⁽¹⁶⁾

• pays an average $86 dollar daily nursing home benefit
• pays an average $80 dollar daily home care benefit
• covers 5.1 years of nursing home care
• costs an average of $93 per month

That same study reports that purchasing LTC insurance at age 50 or younger can cut a monthly premium by half or more.

A study published in Health Affairs found that many elderly, middle-class Americans are willing to spend an average $70 monthly on Medigap insurance.⁽¹⁷⁾

If most middle-class Americans can afford Medigap insurance, then they can afford LTC insurance at an average cost of $93 per month. LTC insurance is a better bargain than Medigap insurance, particularly when purchased at age 50 or younger.

The need for LTC is a risk worth insuring against:

• The risk of catastrophic expenditures is not inconsequential -- 45 percent of those needing LTC can expect expenditures greater than $10,000.⁽¹⁸⁾
• The risk is largely unpredictable early on because the kinds of conditions that frequently lead to a need for LTC often are unforeseeable in youth (e.g., the onset of dementia or stroke).
• Those who need LTC rarely can afford to pay for it out of current income and assets. For example, in 1991, elderly women living alone had a median income of $9,740 -- about one-third the average annual cost of nursing home care at that time.

In addition, if the risks and costs of LTC are spread across a wider population, the costs for any one "unlucky" individual are far more affordable.⁽¹⁹⁾

The following tables detail the average annual costs of typical LTC policies, and provide a profile of those who purchase them.

Average Annual Premiums for Leading Individual and Group Association Long-Term Care Sellers in 1994*
Coverage Amount: $80/40 a day nursing home/home health care

Age	Base Plan	With Lifetime 5% Compounded Inflation Protection Only	With Nonforfeiture Benefit (NFB) Only	With NFB and Lifetime 5% Compounded Inflation Protection
50	$325	$659	$448	$924
65	$855	$1,538	$1,177	$2,186
79	$3,641	$5,095	$4,983	$7,077

Coverage Amount: $100/50 a day nursing home/home health care

Age	Base Plan	With Lifetime 5% Compounded Inflation Protection Only	With Nonforfeiture Benefit (NFB) Only	With NFB and Lifetime 5% Compounded Inflation Protection
50	$397	$809	$535	$1,118
65	$1,058	$1,950	$1,419	$2,607
79	$4,512	$6,314	$5,982	$8,492

*Generally, for a 20-month elimination period and four years of coverage. Nonforfeiture premium data not available for one insurer.
Source: Health Insurance Association of America LTC Market Survey, 1995

Key Policy Design Parameters Chosen by Long-Term Care Insurance Purchasers by Level of Income, 1994

	Level of Income
Policy Features	<$20,000	20,000 to $34,999	35,000 to $49,999	50,000 and Over
Nursing home benefit amount average Up to $40 $41 to $50 $51 to $70 $71 to $90 $90 and over	$77 6% 11% 27% 28% 28%	$81 3% 12% 26% 23% 37%	$85 3% 5% 26% 25% 40%	$92 2% 9% 15% 16% 58%
Home care benefit amount Average Up to $40 $41 to $50 $51 to $70 $71 to $90 $90 and over	$75 10% 18% 22% 21% 29%	$75 12% 19% 18% 19% 32%	$77 9% 14% 24% 21% 32%	$78 7% 27% 15% 13% 38%
Proportion choosing inflation protection	20%	31%	40%	45%
Average elimination period	40 days	48 days	61 days	65 days
Proportion choosing home care	63%	61%	63%	64%
Average annual premium Monthly premiums Up to $50 $51 to $75 $76 to $100 $101 to $125 $126 to $150 $151 and over	$1,351   18% 20% 17% 10% 10% 25%	$1,463   17% 16% 19% 11% 11% 26%	$1,390   14% 19% 18% 14% 13% 22%	$1,554   14% 21% 17% 10% 9% 29%

a. Refers to average nursing home duration
b. Lifetime coverage is evaluated as 10 years of coverage
SOURCE: LifePlans, Inc., analysis of 2,246 linked surveys and policy design information, 1994.

Myth #4: Long Term Care Insurance Is Not A Good Value.

Advocates of government funding for LTC claim that LTC insurance policies are not worth the cost of their premiums. This argument begs the following questions:

• Is the cost of a LTC insurance policy worth freedom of choice in regard to care?
• Is the cost worth the freedom from personal debt?
• Is the cost worth knowing that my family will not be saddled with the cost of my care?

LTC insurance purchasers list a wide variety of reasons for purchasing LTC insurance. The HIAA survey showed that the top reason was "to avoid depending on others for care and to preserve my independence." ⁽²⁰⁾

*Percentage of people who listed each reason for purchasing LTC insurance as "very important."

The HIAA survey makes it clear. A majority of Americans (59 percent) believe LTC insurance is worth the alternative: reliance on government.

The "worth" of LTC insurance can be measured on more than an individual level. More and more employers are beginning to realize the value of offering LTC insurance plans to their employees with an option for relatives to join. The "sandwich generation" -- adults caring for both young children and elderly parents -- often is stretched to the limit. Such pressure can affect performance in the workplace, resulting in lost productivity.

An article in Business & Health magazine notes the benefits employers receive when they offer LTC insurance to workers:

"For employers, the incentives for offering LTC insurance are employee satisfaction and productivity. Connecticut Community Care Inc., a state-licensed, private, non-profit care management agency based in Bristol, estimates that corporations lost an average of $220,000 a year per 500 employees as a result of their employees' care giving responsibilities. This excludes the costs of personal use of company telephones, increased payouts of health care benefits due to caregivers' stress, and productivity losses."⁽²¹⁾ LTC insurance is regulated to ensure the integrity of the products offered. According to a recent HIAA survey analysis 50 states have adopted laws and regulations affecting LTC insurance.

Additional Facts About LTC Insurance⁽²²⁾

• By the end of 1994, more than 3.8 million people had purchased LTC insurance policies, compared to 815,000 by December 1987. From 1987 to 1994, LTC insurance sales grew at an annual average rate of 25 percent.
• In 1994, 121 companies sold long term care insurance.
• By the end of 1994, 1,028 employers were offering LTC insurance plans to their employees. The number of small firms (1 to 500 employees) providing long term care insurance increased from 58 in 1990 to 567 in 1994

. Of the 1,028 employer-sponsored plans, at least 432 employers paid all or part of the employee premium.

1. Policies sold offered a wide range of benefit options and policy design flexibility at stable and affordable premiums. An in-depth analysis by HIAA of the 12 top sellers (responsible for 80 percent of all individual and group association policies sold in 1994) found:
2. All offered nursing home, home health care, and adult day care. Eleven plans also offered alternate care and respite care benefits. Hospice care was covered by 10 insurers.
3. None of the top sellers used a "medical necessity only" benefit trigger.
4. All plans are guaranteed renewable, have a 30-day free-look period, have a preexisting condition limitation of less than six months, cover Alzheimer's disease, sell to persons over age 80, and offer an unlimited lifetime nursing home maximum.
5. All plans conform to the National Association of Insurance Commissioners' Model Act and Regulation inflation protection.
6. All plans offer an optional non-forfeiture benefit to policyholders.

Conclusions

The current LTC financing system is bankrupting families and burdening taxpayers. Congress and the Administration are debating reduced government funding for Medicare and Medicaid. As the baby boom generation ages and the number of elderly Americans doubles, it is important to examine whether taxpayers can afford the tab for LTC. The cost of LTC is straining public budgets today. That pressure will increase as we enter the 21st century.

The LTC financing system can be reformed through a public policy that promotes the notion that people who can pay for their own care should pay for their own care. The 1995 Luntz survey found that most Americans support that concept. A full 86 percent said it made sense to develop a policy that encourages people to buy LTC insurance and a full 87 percent agreed that government assistance should be provided for those who are "genuinely destitute."⁽²³⁾

A sound reform plan would encourage private insurance to absorb a much greater share -- about 25 percent -- of our nation's LTC bill. Older Americans who have worked and paid taxes all their lives should not be forced onto welfare simply for needing LTC.

People who prepare for the cost of LTC can be secure in the knowledge that they have greater freedom to choose their care and that their assets (and the assets of spouses/families) are more secure.

SOURCES

(1) American Opinions on Reforming Medicaid: A national public opinion survey conducted by Luntz Research Companies. Nationwide survey conducted August 1-6, 1995; 3.
(2) American Opinions on Reforming Medicaid.
(3) Public Attitudes on Long Term Care: "The EBRI Poll": A National Public Opinion Survey Conducted by The Gallup Organization, Inc. Released August 1993; 15.
(4) Kemper, Peter, and Christopher M. Murtaugh. "Lifetime Use of Nursing Home Care." New England Journal of Medicine 1991; 324(9):595.
(5) Long Term Care Awareness Survey: A national public opinion survey conducted by the Harvard School of Public Health and Louis Harris & Associates. Released January 6, 1996; 2.
(6) New England Journal of Medicine 1991; 324(9):595.
(7) U.S. Bureau of the Census, Statistical Abstract of the United States: 1995.
(8) American Health Care Association.
(9) Wooldridge, Wilfred E. "Why Nursing Home Insurance?" Missouri Medicine October 1991; 88(10):694.
(10) U.S. General Accounting Office Report to Congressional Requesters. Long-Term Care:Diverse, Growing Population Includes Millions of Americans of all Ages. 1994: 4.
(11) Public Attitudes, 17.
(12) Health Care Financing Administration. Health Care Financing Review. Summer 1995:Volume 16, Number 4.
(13) Cohen, Marc A., Nada Kumar, and Stanley S. Wallack. "Long-Term Care Insurance And Medicaid." Data Watch Fall, 1994;134.
(14) Health Insurance Association of America. Who Buys Long-Term Care Insurance?:1994-95 Profiles and Innovations in a Dynamic Market. 1995; 16.
(15) Ibid; 18
(16) Ibid; 27
(17) Cohen, Mark A., Nanda Kumar, and Stanley S. Wallack. "Who Buys Long Term Care Insurance?" Health Affairs Spring 1992; 11(1):211.
(18) Lewin-VHI, inc. Long Term Care: Background Facts on Use and Financing June 1993; 23.
(19) Ibid; 23
(20) Health Insurance Association of America. Who Buys Long-Term Care Insurance?:1994-95 Profiles and Innovations in a Dynamic Market. 1995; 29.
(21) Tenser, James. "Long Term Care Insurance: The Rx for a Graying America." Business & Health Mid-March 1992;56.
(22) Health Insurance Association of America. Policy & Research Findings: "Long-term Care Insurance in 1994." March, 1996; 2.
(23) American Health Care Association/Gallup Organization, March 1993.