States moving to expand long-term care insurance

Kaiser Health NewsJuly 16, 2009 

WASHINGTON — Joe Donahue's mother, Alice, spent her last three years in a Connecticut nursing home, slowly succumbing to Alzheimer's disease. By the time she died in 1990 at age 86, her modest estate — about $200,000 — had been used up to pay for her care.

Once her savings, investments and house were gone, Medicaid stepped in to cover her nursing home bills until she died. The experience left Joe Donahue, who's now 81, frustrated and determined not to let the same thing happen to him.

"I want to have assets left to leave my kids," Donahue said.

In recent years, states have been moving aggressively to establish programs that encourage middle-income people who might otherwise spend down their assets and rely on Medicaid, the state-federal program for poor people and those with disabilities, to purchase private long-term care insurance instead.

It's a problem many middle-income families grapple with: They aren't well off enough to finance a lengthy stay in a nursing home comfortably, but they aren't so poor that they'll qualify for Medicaid immediately if they need long-term care.

Medicare, the federal health program for the elderly, covers little long-term care. Long-term care insurance, which pays benefits for a stay in a nursing home or assisted living facility as well as for home care, could offer some financial security.

However, it's failed to make substantial inroads; only about 10 percent of seniors have coverage. Most who buy it tend to be relatively affluent, earning more than $75,000 a year, with at least $100,000 in liquid assets.

The deal that states offer sounds sweet: Purchase a long-term care "partnership" policy, as it's called, and in the unfortunate event that you exhaust your insurance benefits and still need care, you can qualify for Medicaid and still retain some or all of your assets. Typically, Medicaid eligibility is limited to low-income people with assets of $2,000 or less.

For their part, states hope that partnership policies will relieve some of the pressure on their overburdened Medicaid programs, which currently pay the bills for about 70 percent of nursing home patients. To date, 43 states either have set up partnership programs or are in the process of doing so, according to the Center for Health Care Strategies, a nonprofit organization that provides technical assistance to help states develop these programs.

Under the policies, assets are protected on a dollar-for-dollar basis. Someone who wanted to protect $160,000 in assets, for example, might buy a policy that paid a benefit of $150 a day for three years, for a total value of $164,250. The daily benefit amounts that people choose should reflect the costs of long-term care in their areas.

Long-term care insurance policies, partnership or otherwise, generally begin to pay when someone is unable to perform daily activities such as dressing or eating, or is cognitively impaired. About half of all claims are for people with Alzheimer's disease or other cognitive problems.

The average nursing home stay is about 2.5 years, so people typically buy three to five years of protection, said Chad Shearer, a program officer at the Center for Health Care Strategies.

Private insurers can sell only state-approved policies, and some states establish other guidelines to protect consumers. They may set minimum daily benefit levels, for example, or guarantee that residents' policies will be honored even if the state partnership programs cease to exist.

Judging from the rush to set programs up around the country, it's clear that states are eager to test them.

In South Dakota, where the population is aging more rapidly than in other states, officials rolled out their program in July 2007, with 17 insurance carriers on board. In the first year they signed up 987 people, increasing long-term care insurance penetration by about 3 percent.

"We need all hands on deck to deal with it, and we see the partnership program having a role," said Kim Malsam-Rysdon, the deputy secretary of the South Dakota Department of Social Services.

Results from Connecticut, the first partnership state, whose program began in 1992, are somewhat encouraging. A state analysis found that of 39,000 policyholders, 980 have used partnership benefits. Just 57 of those people had to go on Medicaid, said David Guttchen, the director of the Connecticut Partnership for Long-Term Care. Estimated state savings since the program started, based on people who either delayed going on Medicaid or avoided it entirely: $7 million.

"For most of these folks, their private insurance proved to be sufficient," he said.

That's exactly what consumers and states are hoping that the partnership program achieves.

(Kaiser Health News, an editorially independent news service, is a program of the Kaiser Family Foundation, a nonpartisan health care policy-research organization that isn't affiliated with Kaiser Permanente.)

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