Long-Term Care Financing Advisory Committee November 12, 2009

University of Massachusetts Medical School EBD Consulting

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Building a Roadmap for Financing Long-Term Services & SupportsMelding Private Insurance, a Contribution Program & Medicaid into a Cohesive Proposal

Long-Term Care Financing Advisory Committee

November 12, 2009

For Advisory Committee Policy Discussion Purposes

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Presentation

Refined Strawman Proposal LTC Partnership Contribution Program Combined Approach Impact on Medicaid

Future Medicaid analysis

Appendix


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Policy Discussion Purposes


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Section 1Refined Strawman Proposal



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Refinements to Strawman proposal since last month

LTC Partnership/Private LTC Insurance Identified affordable benefit package models Targeted middle income people who are at risk to spend down

Contribution Program Modeled a mandatory plan Analyzed premiums required to ensure solvency

Medicaid Program Assessed effect of LTC Partnership and Contribution on Medicaid Status quo eligibility rules for purposes of modeling Medicaid baseline


Preview: “Take-away” points

LTC Partnership: Private LTC insurance with good benefits can be made affordable to

younger middle income adults Group coverage with conversion requirement would increase take-up rate

Contribution Program: $75 daily benefit covers a significant amount of care and needs High uncertainty on how high to set premium rates in order to guarantee

solvency (because of uncertainty in disability/death rates, among other factors)

Medicaid Savings: Difficult to calculate, requires many assumptions

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For Advisory Committee Policy Discussions Only

Comprehensive and cohesive approach begins to emerge (assumes mandatory Contribution Program)

% FPL 100% 200% 300% 400% 500% 600% 1000% 2000%FPL (1) 10,836$ 21,672$ 32,508$ 43,344$ 54,180$ 65,016$ 108,360$ 216,720$

Age25354555657585

Continue to rely on Medicaid LTC Insurance may be affordable, but most will continue to rely on Medicaid Contribution program is affordable with subsidy Contribution program is affordable Can afford to participate in Contribution program and purchase supplementary LTC Insurance

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Framework for Evaluation &Key Assumptions



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Key questions for evaluating the proposal

Target Population How many people will benefit from the model? Who will not benefit?

Benefit Coverage What benefit does the model offer? Does it meet the need? How much LTS coverage does it provide?

Costs (Costs and Savings Impact Analysis) Who bears the costs? Is it cost effective?



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Assumptions and limitations of analysis

Assumptions Affordability: Target of 2% Modeled mandatory enrollment for Contribution Program 5% compound inflation (e.g. Premiums, LTS costs, Medicaid) Modeled individual policies, did not look at couples policies No assumptions made about tax treatment of the premiums/costs

Limitations of work Projection stops at 20 years Population subgroups by age & income (e.g. people who are disabled) Disability & death probabilities are critical No Return on Investment assumptions made Microsimulation model is highly recommended in order to develop legislation



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LTC Partnership/Private Insurance


LTC Partnership is worth considering

Comparison grid highlights key differences between MA asset protection provision (quasi-Partnership) and LTC Partnership

Important things to be gained from a LTC Partnership: Asset protection provided when purchase LTC insurance policy (in MA:

asset protection provided when individual enters nursing facility) Policies must cover community-based benefits (in MA: no requirement)

Choice is between existing MA asset protection rules or full LTC Partnership Federal law “grandfathered” MA quasi-Partnership rules, but do not

provide a way to amend these rules, except by implementing full LTC Partnership

Any new Program must protect people who bought LTC insurance policies under the quasi-Partnership rules


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LTC Partnership: Where did we leave off last month?

Last month, we looked at the Connecticut Partnership model.

We wanted to improve that model by: Creating an affordable LTC insurance benefit package Targeting middle income people who are at risk to spend down

In this section, we identify and model the features of two affordable LTC insurance benefit packages CalPERS Federal Long-term Care Insurance Program (FLTCIP)




Elements of the improved model

Who participates (target population)? People over the age of 25 years Incomes over $25,000 for under 65 Incomes over $30,000 for elderly people People who can pass health screen; excludes people with disabilities Assumed 15 percent of population over 25 would take up private insurance

What is the benefit? Daily benefit of up to $100 or $150 toward comprehensive LTS for up to 2

years

What is the cost? annual premiums vary by age, examples: $410 at age 25 $967 at age 55 $4,905 at age 85

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Two affordable models – benefit details

CalPERS Design FLTCIP Design (no Partnership yet)

Features Self Funded Insurance CarrierEnrollment Offered OfferedDaily Benefit Amount (DBA) $150 $100Health Screen Yes YesElimination Period 30 days 90 daysVested n/a n/aEligibility - Benefit Trigger 2 ADLs 2 ADLsBenefit Period 2 years 2 years Inflation Protection 5% 5%Lifetime Maximum -----$109,500----- -----$73,000-----


Who benefits: 69% of the population over age 25 would be eligible* to purchase a LTC insurance policy (estimate that only 15% will purchase)

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Insurance PartnershipMA Pop Eligible Participate Take Up Rate

25-35 818,744 594,736 123,668 21%35-44 955,201 693,858 144,279 21%45-54 1,000,687 726,899 175,773 24%55-64 747,266 542,814 131,259 24%65-74 428,866 240,851 40,811 17%75 and Older 441,862 248,150 42,048 17%Total 4,392,626 3,047,307 657,838 22%

% of Total Population 69% 15%

* Assumes low-income people and people who cannot pass health screen are not eligible to purchase an LTC insurance policy


Benefits covered: Both models cover substantial home care, most assisted living, and some nursing facility care

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CalPERS FLTCIPDaily Benefit Amount 150$ 100$

Coverage 54,750$ 36,500$

Long-Term Supports & Services Cost per YearHome-based Services 3 hours day/3 days week $ 10,296 100% 100% 5 hours day/5 days week $ 28,600 100% 100%

Assisted Living $ 51,480 100% 71%

Nursing Home Costs $ 105,485 52% 35%



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Slide from last month: Connecticut premiums unaffordable for middle income

Higher income people buy LTC insurance in CT (green) We need to make LTC insurance affordable for middle income (yellow)

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A % FPL 100% 200% 300% 400% 500% 600% 1000% 2000%FPL (1) 10,836$ 21,672$ 32,508$ 43,344$ 54,180$ 65,016$ 108,360$ 216,720$

B AgeCT Premium for 1

PolicyholderConnecticut Annual Premium as a Percentage of Annual Household Income:

25 $2,122 19.6% 9.8% 6.5% 4.9% 3.9% 3.3% 2.0% 1.0%35 $2,410 22.2% 11.1% 7.4% 5.6% 4.4% 3.7% 2.2% 1.1%45 $2,662 24.6% 12.3% 8.2% 6.1% 4.9% 4.1% 2.5% 1.2%55 $3,129 28.9% 14.4% 9.6% 7.2% 5.8% 4.8% 2.9% 1.4%62 $4,280 39.5% 19.7% 13.2% 9.9% 7.9% 6.6% 3.9% 2.0%67 $6,079 56.1% 28.1% 18.7% 14.0% 11.2% 9.4% 5.6% 2.8%72 $9,496 87.6% 43.8% 29.2% 21.9% 17.5% 14.6% 8.8% 4.4%77 $15,323 141.4% 70.7% 47.1% 35.4% 28.3% 23.6% 14.1% 7.1%82 $22,589 208.5% 104.2% 69.5% 52.1% 41.7% 34.7% 20.8% 10.4%85 $28,848 266.2% 133.1% 88.7% 66.6% 53.2% 44.4% 26.6% 13.3%



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Costs to the individual: Improved model is more affordable, particularly for younger middle income

Affordable Close to Affordability Threshold Unaffordable

% FPL 100% 200% 300% 400% 500% 600% 1000% 2000%FPL (1) 10,836$ 21,672$ 32,508$ 43,344$ 54,180$ 65,016$ 108,360$ 216,720$

Age FLTCIP25 410$ 3.8% 1.9% 1.3% 0.9% 0.8% 0.6% 0.4% 0.2%35 472$ 4.4% 2.2% 1.5% 1.1% 0.9% 0.7% 0.4% 0.2%45 661$ 6.1% 3.1% 2.0% 1.5% 1.2% 1.0% 0.6% 0.3%55 968$ 8.9% 4.5% 3.0% 2.2% 1.8% 1.5% 0.9% 0.4%65 1,518$ 14.0% 7.0% 4.7% 3.5% 2.8% 2.3% 1.4% 0.7%75 2,522$ 23.3% 11.6% 7.8% 5.8% 4.7% 3.9% 2.3% 1.2%85 4,905$ 45.3% 22.6% 15.1% 11.3% 9.1% 7.5% 4.5% 2.3%

Annual Premium as a Percentage of Annual Household Income: B

A


Additional cost if program provides subsidies: Older middle income would need subsidy in order to afford policy


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Age FLTCIP Premium

400% 500% 600%55 968$ 101$ -$ -$ 65 1,518$ 652$ 435$ 218$ 75 2,522$ 1,655$ 1,438$ 1,221$ 85 4,905$ 4,038$ 3,822$ 3,605$

% FPL

Annual Subsidy Required to Limit Premium to 2% of Income



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Group insurance could increase take up rate

What does a Group offer? Affinity, Simplicity to a large base No agent fees, but regulated in the same way as the individual market Would need to require rollover to retirement with no changes (group conversion)

Other State Models: All state employees State of Minnesota State of Michigan

CalPERS: 12-14% of eligible population Self-funded (no insurance company) to all active workers, retirees, & families More risky, if program does not perform well

The Federal Long-Term Care Insurance Program (FLTCIP) 6 percent of eligible population John Hancock is the Insurance Carrier Rate increase = Lapse in Mortality Rates (and decline in Rate of Return, ROR)


LTC Partnership: Effect on Medicaid

Potential savings to Medicaid If new middle income people buy LTC Insurance, then

fewer people would spend-down to Medicaid

Potential costs to Medicaid Helping people keep their assets could reduce Medicaid

revenue:If people were already buying LTC Insurance and would have spent down and Medicaid would have recovered their assets, then Medicaid would recover fewer assets

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Outstanding questions and considerations

Are we ready to recommend a LTC Partnership with these parameters?

Do we want to explore subsidizing older middle income people who are close to the affordability threshold?

Do we want to consider ways to increase participation? Target people at younger ages Encourage group coverage Provide financial incentives

Do we want to consider other mechanisms (e.g., LTC riders to life insurance policies) for promoting insurance for LTS?


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A Contribution Program


Contribution Program: Where did we leave off last month?

Last month, we looked at the CLASS model.

We wanted to improve that model by: Ensuring solvency over many years Ensuring high participation levels

In this section, we: Analyze the premiums required to ensure solvency Model a mandatory plan




Elements of the improved model

Who participates (target population)? People over the age of 25 years People of low to middle income Incomes over $25,000 for under 65 Incomes over $30,000 (roughly) for elderly people Nobody is excluded due to disability status 79% of population is eligible to participate, assumes 100% participate

(mandatory program)

What is the benefit? $75 cash daily benefit for LTS ($50 cash daily if 2 ADLS, $100 if 4 ADLs) Lifetime

What is the cost? $92 monthly premium, or $1,095 annual premium (derived from analysis) Premiums same for everyone regardless of age and income Premiums paid until person receives benefit (includes retirees)

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Contribution Program – benefit details

STRAWMAN PROPOSAL: CONTRIBUTION PROGRAM

Option Base

Features Enrollment MandatoryDaily Benefit Amount (DBA) $75 Health Screen NoElimination Period NoneVested - Before Eligible 5 YearsEligibility - Benefit Trigger 2 ADLsPlan Type Cash BenefitBenefit Period LifetimeInflation Protection 5%Lifetime Maximum No


Who benefits: 79% of population over age 25 would be eligible to participate (modeled mandatory program - 100% take-up)

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MA Pop Eligible Participate Take Up Rate

25-35 818,744 694,354 694,354 100%35-44 955,201 810,079 810,079 100%45-54 1,000,687 848,655 848,655 100%55-64 747,266 633,736 633,736 100%65-74 428,866 240,851 240,851 100%75 and Older 441,862 248,150 248,150 100%Total 4,392,626 3,475,824 3,475,824 100%

% of Total Population 79% 79%

Contribution Program


Benefits covered: A $75 daily benefit amount would cover most home care needs, but is insufficient for institutional care

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2009 Dollars 1 2 3Cash Daily $ 50.00 $ 75.00 $ 150.00

Cash Yearly $ 18,250.00 $ 27,375.00 $ 54,750.00

Percentage of Needs Met

Long-Term Supports & Services Home-based services 3 hours day/3 days week 100% 100% 100%5 hours day/5 days week 64% 96% 100%

Assisted Living 35% 53% 100% Nursing Home Costs 17% 26% 52%


Costs to the individual:Affordable for people at or above 500% FPL (green)People 400-500% FPL would require subsidies (yellow)People below 400% would continue to rely on Medicaid (red)

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% FPL 100% 200% 300% 400% 500% 600% 1000% 2000%

FPL (1) 10,836$ 21,672$ 32,508$ 43,344$ 54,180$ 65,016$ 108,360$ 216,720$

Age Contribution

25 1,095$ 10.1% 5.1% 3.4% 2.5% 2.0% 1.7% 1.0% 0.5%

35 1,095$ 10.1% 5.1% 3.4% 2.5% 2.0% 1.7% 1.0% 0.5%

45 1,095$ 10.1% 5.1% 3.4% 2.5% 2.0% 1.7% 1.0% 0.5%

55 1,095$ 10.1% 5.1% 3.4% 2.5% 2.0% 1.7% 1.0% 0.5%

65 1,095$ 10.1% 5.1% 3.4% 2.5% 2.0% 1.7% 1.0% 0.5%

75 1,095$ 10.1% 5.1% 3.4% 2.5% 2.0% 1.7% 1.0% 0.5%85 1,095$ 10.1% 5.1% 3.4% 2.5% 2.0% 1.7% 1.0% 0.5%

B

A

Annual Premium as a Percentage of Annual Household Income:

An individual with income = 400% FPL would require a subsidy of $228/year to limit spending to 2% of income


Uncertainty as to how high to set premiums to ensure solvency: Premiums are very sensitive to assumptions, particularly disability and death rates, and population projections

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Death & Disability Rate

Monthly Premium

Higher Range (Conservative)

Higher probabilities applied to

population over age 65

$91.21

Lower Range (Optimistic)

Same probabilities

applied to all age groups

$65.55



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Requires diligent oversight over revenues and expenses to ensure solvency

Enrollee Risk & Benefit

Coverage

Revenue: Premiums

ANDExpenditures:

Payments

Periodic Evaluation:Medicaid

Obligations&

Consumer Welfare

Actuarial Accuracy



Contribution Program: Effect on Medicaid

Potential savings to Medicaid Fewer people would spend-down to Medicaid, especially if

mandatory If Contribution program pays before MassHealth for

MassHealth-covered services, then there would be direct savings to Medicaid

Potential costs to Medicaid If include asset protection for Contribution benefits (like

Partnership), then Medicaid would recover fewer assets

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Outstanding questions and considerations

Are we ready to recommend a Contribution Program with these parameters?

Relationship to CommonHealth? For people with disabilities, does a Contribution Program pay first

(direct savings to Medicaid) or cover services that CommonHealth doesn’t cover?

Mandatory or auto-enrollment with voluntary opt-out? Consider various mechanisms for universal participation?

Consider ways to increase voluntary participation? Incentivize with Medicaid asset protection (like Partnership)? Conduct sensitivity analysis of lower participation rates?


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The Big Picture

Public & Private Insurance OptionsHow do they fit together?


Some people may wish to purchase both: people with higher assets who can afford both premiums


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Contribution FLTCIPContribution +

FLTCIPMonthly Premium 91$ 55$ 146$

Annual Premium 1,095$ 661$ 1,756$

Daily Benefit Amount 75$ 100$ 175$ Annual Coverage 27,375$ 36,500$ 63,875$

Long-Term Supports & Services Cost per YearHome-based Services 3 hours day/3 days week $ 10,296 100% 100% 100% 5 hours day/5 days week $ 28,600 96% 100% 100%

Assisted Living $ 51,480 53% 71% 100%

Nursing Home Costs $ 105,485 26% 35% 61%



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Does the refined Strawman proposal meet our principles?

Meets All Principles

Strengthens the safety net for low income (by deferring Medicaid spend-down)

Provides affordable options for middle income Supports stay-at-home preferences Increases private financing Limits pressure on state programs


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Changes necessary to implement Strawman proposal

Contribution Program State legislation with design specifications to support Committee’s

goals

Insurance reforms NAIC model act & regulations State LTC Partnership legislation with design specifications to meet

Committee’s goals Other insurance market reforms? e.g. group conversion policies Develop FDIC-like mechanism to insure policies against risk of insurer

insolvency?

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Medicaid

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Steps in Medicaid analysis

1. Establish Medicaid spending baseline

2. Quantify effects on Medicaid baseline of proposals

3. Identify gaps in participation/coverage

4. Identify and assess Medicaid improvements or expansions to fill gaps

5. Cost out Medicaid improvements/expansions




Assessing the impact on Medicaid

Key Features Status quo eligibility rules for purposes of modeling Medicaid baseline Uses Medicaid state plan LTS spending to model potential impact on Medicaid

(impact could be greater because excludes HCBS waiver spending and expenditures made on behalf of Medicaid members by other state agencies)

Methodology Calculate Medicaid baseline ($2.8 b) Focus on the baseline for elderly ($1.8 b.) Focus on the baseline for people with disabilities ($911 m.) Calculate the impact of each program and for each population on the baseline

The Contribution Program The LTC Partnership And, then Together

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Baseline Facts about Medicaid -State plan spending used for modeling purposes

Big role for Medicaid: Medicaid represents 37 percent of all long-term care spending on the elderly, including

all source

Elderly big spenders: Medicaid spending on the elderly represents 66 percent of total LTC spending on elders

and people with disabilities

Institutional bias: Spending on Nursing homes represents 77 percent of all spending on the elderly Spending on Nursing homes represents a SMALL percent of all $ on people who are

disabled

Total budget bigger than $2.7 billion: $3.4 billion is spent on LTS when include community-based waiver services for people

who are elderly and those who are disabled (ages 18-64)

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[Placeholder]The Big Picture: A Global Shift in Roles

$ % of total $ % of total $ % of totalIf we do nothing:private health insurancepersonal resourcesmedicaidTotal

with Partnership:private health insurancepersonal resourcesmedicaidTotal

with Contribution and Partnership:Contribution Programprivate health insurancepersonal resourcesmedicaidTotal

with MassHealth expansionContribution Programprivate health insurancepersonal resourcesmedicaidTotal

2010 2015 2020



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Conceptual example - How will the financing of LTS change under the Contribution Program for the elderly?

THE IMPACT OF NEW APPROACHES ON THE FINANCING OF LONG-TERM CARE

Baseline/Elderly Do Nothing Contribution Insurance Partnership

PublicMedicare 698,198,003$ 14.5% Might decrease Might decreaseMedicaid 1,802,098,087$ 37.3% Projected Decrease Projected DecreaseOther Public 225,706,895$ 4.7% Not sure Not sureTotal Public 2,726,002,984$ 56.5%Total Public less Medicaid 923,904,897$ 19.1%

PrivateOut of pocket 1,976,434,070$ 40.9% Projected Increase Projected IncreasePrivate LTC Insurance 125,369,859$ 2.6% No change Projected IncreaseThe Contribution Program -$ 0.0% Projected IncreaseTotal Private 2,101,803,929$ 43.5%

TOTAL 1, w/o Unpaid Care 4,827,806,914$ 100.0% Projected Decrease of Unpaid Projected Decrease of UnpaidUnpaid/Informal Care 3,510,996,137$ TOTAL 2, w/Unpaid Care 8,338,803,051$

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Next steps re: Medicaid

Continue to quantify effects on Medicaid baseline of proposals

Clarify resulting gaps in participation/coverage

Identify and assess Medicaid improvements or expansions to fill gaps

Cost out Medicaid improvements/expansions




Committee Business

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Committee Business

Public input process New Dates (confirmed):

Friday, December 11th from 1 PM – 3:30 PM, Needham Sheraton Thursday, December 17th from 5:30 PM – 7:30 PM, Northampton COA

Next meeting: Date: Thursday, December 10th, 2009 from 9:00 -11:30am Location: AARP - One Beacon Street, 23rd Floor

Future meeting reminder Additional meeting scheduled for either Thursday, February 11th or

February 25th

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Long-Term Care Financing Advisory Committee November 12, 2009

Documents

Transcript of Long-Term Care Financing Advisory Committee November 12, 2009