6/27/2005 Academy Health Annual Research Meeting, Boston, MA

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Effect of a State Social Insurance Plan on State

Medicaid LTC Lawrence H. Nitz, Professor

The University of Hawaii at Manoalnitz@hawaii.edu

Lisa Alecxih, Vice President Long Term Care

The Lewin Group

Lisa.alecxih@lewin.com

6/27/2005 Academy Health Annual Research Meeting, Boston, MA

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Hawaii CARE PLUS 2002-2003

• In 2002-2003 the Hawaii State Legislature passed a bill authorizing creation of a LONG TERM CARE (LTC) trust fund

• The fund was to be financed by an initial $10/month income tax surcharge on every Hawaii tax filer over the poverty line

• The benefit package was intended to cover approximately 75% of the care needed by a typical LTC user, in home or community care, initially 365 days at $70/day

• The right to benefits was to accumulate over a ten-year period, with 1/10 of the face benefit added for each year of participation.

6/27/2005 Academy Health Annual Research Meeting, Boston, MA

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Basic Assumptions• The staged acquisition of benefit rights, together with an initial

3 year delay of start of benefits will serve to deter “LTC Tourism”

• Low income workers should not be taxed for LTC benefits that they may qualify for under various Medicaid programs

• The LTC tax should be spread over the population for the entire exposure period, the whole life, rather than limited to working years

• The program should be a pay-as-you-go system to restrict the size of reserves required, since the whole population would be covered

• A separate legal entity, with its own qualified trustees, should be established to limit the possibilities of legislative raids on the Fund

6/27/2005 Academy Health Annual Research Meeting, Boston, MA

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Simulation Methodology

• Applied a version of the Brookings-Lewin-ICF Long Term Care Financing Model customized for the Hawaii Population

• Built a Base Case for current conditions in which private LTC insurance is sold with marketing assistance no stronger than communication and tax credit support

• Built a Social Insurance Case in which the proposed program was introduced

6/27/2005 Academy Health Annual Research Meeting, Boston, MA

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Overview of Results

• Prospective population served• Aggregate benefits to be paid out• NH patient usage of social insurance LTC• Coverage of social insurance LTC• Proportion of LTC costs paid by Medicaid by

family income• Proportion of LTC costs paid by Medicaid by

family assets• Payment of LTC costs by social insurance,

compared to base case payment by private LTC insurance

6/27/2005 Academy Health Annual Research Meeting, Boston, MA

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0

4000

8000

12000

16000

20000

24000

28000

Persons ServedBase Case

Persons ServedSocial Insurance

6/27/2005 Academy Health Annual Research Meeting, Boston, MA

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0

40

80

120

160

200

240

280

320

Social InsuranceLTC Coverage

Base Case LTCInsurance

6/27/2005 Academy Health Annual Research Meeting, Boston, MA

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Figure 3 Effective Social Insurance Impact

0

10

20

30

40

50

60

70

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55

Program Year

Perc

enta

ge o

f NH

Pop

ulat

ion

usin

g So

cial

Insu

ranc

e B

enef

it

NH with Social Insurance NH with Market Insurance

6/27/2005 Academy Health Annual Research Meeting, Boston, MA

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Figure 4 LTC Social Insurance Coverage

0

20

40

60

80

100

120

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55

Program Year

erce

ntag

e of

Pop

ulat

ion

Cov

ered

Social Insurance Base Case

6/27/2005 Academy Health Annual Research Meeting, Boston, MA

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Figure 5Medicaid Effects by Family Income

0

10

20

30

40

50

60

70

80

90

100

<7500 7500 -15000

15000- 20000

20000- 30000

30000- 40000

40000- 50000

50000+

Family Income

Per

cent

age

of N

H C

osts

Pai

d by

Med

ica

Medicaid, Base Case LTC Social Insurance

6/27/2005 Academy Health Annual Research Meeting, Boston, MA

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Figure 6Medicaid Effects by Family Assets

0

10

20

30

40

50

60

70

80

Asset Levels

Per

cent

age

of N

H C

osts

Pai

d by

M

edic

ai

Medicaid, Base Case LTC Social Insurance

6/27/2005 Academy Health Annual Research Meeting, Boston, MA

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Figure 7:Payment by LTC Insurance in Base and Social Insurance Cases

0

2

4

6

8

10

12

14

16

18

20

1- 30 31-60

61-90

91-364

1 - 2Y

2 - 3Y

3 - 4Y

4 - 5Y

5+ Y

Length of Stay

Per

cent

age

of N

H C

osts

Pai

d by

LT

C In

s

Private LTC Insurance, Base Case LTC Social Insurance

6/27/2005 Academy Health Annual Research Meeting, Boston, MA

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Conclusion

• Social insurance spreads benefits to the middle class

• It is possible to target a specific risk segment of the care continuum, in this case the early care portion

• General financial payments for early care might in fact be used to subsidize family NH expenses– Increasing expenditures from family funds– Increasing use of paid care where voluntary care had

been used previously

6/27/2005 Academy Health Annual Research Meeting, Boston, MA

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Reservations• Private insurers make systematic efforts to carve out portions

of the social insurance domain, with associated underwriting exclusions– The social insurance proposal reserved the entire segment

of care beyond 365 days for the private insurance sector• Lifestyle of community may affect the woodwork effect of

unanticipated demand for care– German program apparently affected by concentration of

city residents in 2 & 3 room apartments• Political leaders may not trust themselves or their successors

to appoint appropriately fiduciary trustees for such an LTC fund

• Broad expectation that everyone paying premium actually draws cash benefits, contrary to idea of insurance

6/27/2005 Academy Health Annual Research Meeting, Boston, MA

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References

• Alecxih, L. M. B. (2003). The Estimated Impact of Alternative Long Term Care Financing Proposals. Testimony before the Hawaii State Legislature. Honolulu, HI, The Lewin Group.

• Alecxih, L. M. B., J. Corea, et al. (1992, 2002). Long Term Care Financing Model: Model Assumptions. Alexandria, VA, The Lewin Group.

• LIMRA International and the Society of Acuaries, Long Term Care Experience Committee. (2004). Long-Term Care Insurance Persistency Experience. Windsor, CT, LIMRA International, Inc.

• Executive Office on Aging, O. o. t. G. (1991). Financing Long Term Care: A Report to the Hawaii State Legislature. Honolulu, HI, Executive Office on Aging, Office of the Governor.

• The Lewin Group. (1990, 2003). The Brookings-Lewin-ICF Long Term Care Financing Model. Arlington, VA, The Lewin Group.

• Hottinger, M. (2003). Testimony on Administration of Proposed LTC Financing Act. Honolulu, HI, Hottinger Consulting.

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• McCall, N. (2001). Who Will Pay for Long Term Care? Insights from the Partnership Programs. Washington, D. C., Academy for Health Services Research and Health Policy/Health Administration Press.

• Meiners, M. (2001). Reflections of a Partnership Insider on Long Term Care Financing. Who Will Pay for Long Term Care? Insights from the Partnership Programs. N. McCall.

• National Center for Health Statistics. (1984). National Nursing Home Survey. Hyattsville, MD,

• U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES, Centers for Disease Control and Prevention.

• Nitz, Lawrence H. Two Tails of Social Insurance for Long Term Care: Hawaii 1992 and 2002. Midwest Political Science Association, Chicago, IL, April 15, 2004.

• White House Task Force on Health Reform, L.-T. C. W. G. (1993). Long-Term Care, Working Group Draft. Washington, D. C., Government Printing Office.