Aging Baby Boomers May Find Long-Term Care Elusive
Chuck Meadows moved in with his mother, Nancy, when the 82-year old widow could no longer care for herself because of dementia. It has made him think a lot about his own long-term care needs in retirement.
"Quite frankly it concerns me very deeply, not only for myself but for a lot of people in my peer group," said the 56-year-old Meadows of Laguna Niguel, Calif.
"My age group," he said, "They aren't really thinking long-term here. I think this is going to be a crisis in this country and it is not going to be pretty."
He's not alone in his concern. Nearly half of all long-term care services for the frail and elderly in the U.S. is paid by Medicaid, the state-federal health care program for low income people and the disabled.
The Affordable Care Act, also known as Obamacare, had included a provision for voluntary national long-term care insurance program. But early this year, Congress repealed the so-called CLASS Act (Community Living Assistance Services and Supports) when it was determined it would be too unwieldy and too costly to establish the system along with President Barack Obama's health plan.
"They walked away because they clearly found that they could not offer this product at a price point that anybody would afford," said Jesse Slome, the executive director of American Association for Long-Term Care.
Now, a congressional commission is charged with developing a plan for financing a sustainable long-term care system at a time when the industry is under pressure.
Costs at assisted living facilities and nursing homes have risen at an annual rate of more than 4 percent over the last five years, according to a Genworth study. During that period, interest rates have been at record lows. As a result, insurers have found it virtually impossible to generate enough investment growth to be able meet future claims.
Three major plan providers, Metlife, Prudential and Unum, have stopped selling individual policies within the last three years.
"Companies have had a very difficult time hitting profit objectives," said Marc Cohen, chief research and development officer at insurer LifePlans. "Many of the assumptions underlying the pricing of these policies didn't hold true."
Among the assumptions firms made when they began selling plans in the 1990s was that policyholders would let their coverage lapse at about the same rate they do life insurance products. The lapse rate for long-term care has proven to be much lower. Policyholders who buy coverage during their senior years tend to hold onto their coverage and collect on their claims.
"The largest claim that's still open is from a woman," said Slome. "She's been on claim for 15 years. Her insurance policy has paid out one point $8 million to date and it continues to pay. She only paid $881 for three years before her claim began."
The industry has responded to that kind of bad underwriting by tightening qualifications for the coverage, setting caps on benefits and raising prices.
With 76 million baby boomers reaching retirement age over the next decade, the need for long-term care services is expected to surge.
Cohen, co-author of a Scan Foundation study on long-term care reform, said it will take a combination of public and private sector initiatives. The government could provide reinsurance as backstop for long-term care underwriters, he said. He also believes more employers should help workers access coverage and save for long-term care, just as they do for retirement through 401(k)s.
"Less than 1 percent of employees in the United States are working in firms that offer private long term care insurance," said Cohen. "Taking advantage of the employer group market would be very important."
At a hearing last month by the congressional Commission on Long-Term Care, Joanne Lynn, the director of the Center for Elder Care and Advanced Illness? at the Altarum Institute, advocated for expanding Medicare and Medicaid reimbursement to cover home care for seniors. Both programs are geared to assisted living or nursing home care.
"We cannot get a home health aide to keep the person clean, or a good nutritious meal, or a place to live, thus saving a huge amount in medical costs down the road, unless we place the patient in nursing home facilities and the like, " she said.
Lynn proposed using an accountable care organization model, a coordinated care program that ties reimbursement rates to health outcomes rather than on the volume of services, which is now being used by Medicare.
But with the massive Obamacare program set to roll out next year, and still stoking controversy, some industry officials say the commission should focus on private market solutions.
"I don't see Americans ready to take on a new national program—not in the foreseeable future," said Slome.
The commission is expected to report its findings to Congress by October.