5 SUMMARY 86239 4 7 EBRI Introduction: the Long-Term Care Insurance Gap 2 Introduction Conclusion retirees additional andhealth dependents care has financing been increasing obligations at for Fatesworkers two to and four retirees. times the purchasing coverage at age 50. In at least one of these plans, the premium expanding has grown Othercase substantially, barriers managers'to consumer options raising ininterest the planning number incare purchasing of for policy high-cost coi_ercial options cases. andlong-term policy Also, general goals can be articulated for any system. These include: o Among the general population, recognition that neither Medicare nor most rate Frequent for anofinitial general and pervasive purchase inflation. legislative at age With 75 isplan changes $1,800 costs affecting a year. uncontrolled their tax-qualified despite employers' plans holders S. care2305insurance Among establishes morethethan general include: four-fold employer-based population, (I) inconfusion the long-term recognition past about few carethat years. the insurance neither long-term At asMedicare least a care welfare nine nor coverage plan, large most private insurance plans cover long-term care has come slowly. have attempts, exacerbated The health Committee their insurance faces apprehensions has a become difficult abouta providing significant challenge long-term sou as rcetheyof careconfront unpredictable insurance.the private presumably employers insurance have extending established plans ERISAcover protections long-term long-term from care carestate ashasantaxation come employee-pay-all slowly. and regulation Retirees benefit, and and provided by accident and health insurance, Medicare, retiree health plans, o The development of an insurance system. By spreading the cost of o Since few people have recognized the likelihood of needing long-tet_ long-term care need among a larger population than those immediately care, most do not plan to save sufficiently to finance care or budget to labor costs. Not surprisingly, employers have devoted substantial attention establishing enabling complexities For access nursing fiduciary of tothis home coverissue. acare, ge standards bythese tens Senator forplans of plan thousands Mitchell payadministration. $50 of has toemployees. articulated $i00 perBy day; Most establishing some for of major these home workers Medisa P policies, have only and begunMedicaid; to understand (2) isnorance their exposure or confusion to the about risk theof lifetime needing at risk, insurance would rationalize long-tez_ care financing. This purchase insurance. insurance system may be mostly private, mostly public, or a Statement of to attempting Nevertheless, to limitin and thecontrol last their two years, health at plan least liabilities. nine employers have health plans long-term issues recognize clearly: care, carethey employees' as pay a qualified $20 parents to $50 cafeteria-plan asperqualified day. Some dependents. benefit, plans S. do 2305 not pay alsoforallows care costly risk ofcommunity incurring ora institutional disabling condition; long-term and care,(3)asdenial an increasing by many number individuahave ls combination of private and public. Employer Response offered access to a long-term care insurance product to some part of their employer-based necessitated by plans Alzheimer's to be wholly Disease. or partially employee-financed with pre-tax faced that life the contains desperationthisofcontingency. caring for a The parent, anticipated spouse cost or child of public needing education chronic o Adequate coverage. Adequate coverage would guarantee access to Dallas L. Salisbury, o A growing number of employers are looking to more orthodox insurance needed care without imposing on participants unreasonable levels of Robert B. Friedland, Ph.D., models to help employees finance long-term care. currentNewor accounting former workforce. standards, At currently least six under additional development employersby have the Financial publicly earnings. This The policy market issue has emerged we face against is how overwhelming to target ourodds. limitedProducts resourceshave been necessary (and oftenuninsured, toincreasing) market out-of-pocket commercial assistancelong-term expense. for personal care insurance care. Currently, has been aansignificant estimated and to the elderly that are most in need .... I believe that the Deborah J. Chollet, Ph.D. Employer experience with retiree health insurance expressed Accounting their Standardsintention Board (FASB), to sponsor are likely long-te_to force care employers insurance. to focus A recent on a barrier structured Each insurance to market plan and industry limits priced development. plan will without liability, respondsoundtotypically the actuarial demandimposing for data.long-term a State lifetime care insurance maximum 13 million o Universal people, access. or 5 percent The system of the should population, be accessible require such to allcare. membersSince of insurance with the development of policies to meet the needs of the population. This goal raises issues of affordability for o New accounting procedures recognizing accruing liability for retiree survey our of aging 144 large population. companies indicated that 55 of these companies had or were vregulations of ariety fourHowever, of years issues andS. offederal 2305 nursing concerning doestax home nottheir laws clearly care are retiree (oraddress confusing themedical dollar issues andbenefits. equi ambiguous. that valent) relate Inand an to Recognizing aensuring exposure 90-day few peopleparticipants. have recognizedIf the the system likelihood reliedof on needing asset long-term accumulationcare,to most financedo health insurance could influence employers' willingness or ability to long-term care, this goal also raises issues of portability and asset assume responsibility for paying long-term care insurance premiums. then investigating the feasibility of long-tetm_ care as an employee benefit. that deductible that draft most workers to bestates orissued have exclusionary halong-te_ velater no this lawsperiod. care year, explicitly coverage FASB Some governing isat plans likely the offer point to long-tet_ require of an greatest option care that insurance, employers to probable index not plan Nevertheless, to save sufficiently this marketto is finance emerging care without or budget a full to purchase understanding insurance. among preservation. Finally, it raises the question of coordinating Through tax incentives, the federal government now encourages a long-term care financing with individual retirement saving and Before the Long-term care as an employee benefit: an emerKing market estimate Among those accrued who had liability not, 38 for companies retiree anticipated health benefits, conducting and include an evaluation unfundedin need: the benefits, National after accommodating Association retirement. increases of Current Insurance in employer theCommissioners cost group of care; (NAIC) products some developed will rely return ona model asset part providers or policy makers of what constitutes effective long-term care pensions (for example, targeting pension annuities for long-term care United States Senate substantialinsurance). and growing system of pension provision for retirees. That system 3 Committee on Finance o The limitations in the policies developed so far reflect insurers' the liability next two as years. a balance sheet entry; funding would become an income statement act accumulation. of Employer the and regulations Response premium Premiums if tothe assist arecovered priced state person legislators accordingdies . to before At the this participant's using time, 25 any states entry benefits. have age delivery, how alternative forms of reimbursement affect delivery, how to Subcommittee on Health hesitation to commit to long-term care insurance products as a result of provides an important part of the income that could pay for long-term care o Flexibility. Any financing system should acconm_odate individual May 27, 1988 insufficient data and uncertainty over present tax law. expense. Preliminary Forinformation many firms suggests unfunded that liability the average for retiree age of health the purchasers benefits of is enacted (older new someparticipants type statute paygovmore erning forprivate coveragelong-tet_ than younger care insurance; new participants) 15 have objectively assess patient needs, or how to coordinate care among different preferences for alternative forms of service delivery, including insurance and now helps finance long-term care services. community-based care, institutional care, and composites of Long Term Care Insurance as an Employee Benefit based substantial this employment Employer-sponsored their relati legislation based ve to cover assets; on along-term ge theis annual NAIC aboutcare model 40. planplans expense act. typically Another is a significant seven have states beenpercent have made providers and participants and sites. can maintain Finally,coverage this by market continuing has emerged premium payments without clear after Employers' residential, response medicalto this and personal new understanding care services has such been as mixed. life-care New communities. The system should also recognize families and assist o Insurers' tentativeness about entering the long-tet_ care market has pending of available activelegislation worker to active pay. based workers, Theonanticipated thetheir NAIC parents, model. FASB accounting and retirees. rules With could one jeopardize notable legislative they separatesignals from the from group. the Congress. Since these plans are relatively new, we have employee them benefits, in providing usually long-term provided through care. employee assistance programs, have been matched by employers' reluctance to institute new benefits or to We commend the Committee for undertaking the challenge of structuring a assume additional health care financing obligations for workers and their exception,ability employees to raise pay thecapital entire and premium. maintainSeparated present employees employee have benefit been no experience So far to nonesuggest of these the rate products at which have terminated been true employees group products: actually been formulated to assist workers in caring for disabled dependent parents, o Efficiency. Any financing system should pay providers in a manner retirees. workable system of long-term care financing in the United States, and stand that encourages cost-efficient service delivery and readily programs. able individuals to continue Forcanpublicly coverage be denied owned by paying covfirms, erage thebond due premium and to an stock at the existing prices same rate are or plus past likelyamedical charge to be continueThe Ambiguity limitations coverage. in the in Experience Internal the policies Revenue with developed Code employees regarding so failing far the reflect tax to status insurers' transferof spouses and accommodates children. technological These programs change.include financial planning services, Goals of a System of Long-Term Care Financing ready to assist the Committee in its efforts. for administrative cost. adversely affected as lower corporate earnings are reported. New accounting hesitation personal preretirement condition. long-tet_ and care toNevertheless, family lump-sum commit insurance counseling, topension reserves long-term these distributions support products has care affected group insurance offerinto therapy, the theproducts. tax-qualified pricing consumer serviceand Although referral considerable selling individual many and of Any of a number of alternative financing systems might meet these o The development of an insurance system. o Adequate coverage. procedures recognizing accruing liability for retiree health insurance could assessment retirement insurance savings over products. and accounts, searching placement Byhowever, for one services, and estimate, purchasing is asnot well premiums promising. individual as adult could day products. beItas care. ismuchlikely Flexible Inas particular, II percent that hoursa insurers are attracted by the profit opportunities of a new insurance line, goals. S. 2305 would encourage a mixed, private-public insurance system. To o Universal access. o Flexibility. influence the costs Annualof employers' premiums administration are willingness typically (unlessor age-related, the ability employeetoranging lea assume ves from the responsibility $120 firm)toand, $158 more for for they and lower significant leave recognize for insurance arrangements numberthe ofpurchased difficulty workers also at assist who ofagelimiting separate workers 65 if long-term from their with a financial disabled long-tet_ care insurance dependents. liabilities care insurance reserves yet In encourage the private market, the bill would clarify various tax code o Efficiency. offering were paying individuals substantially, given long-term a product the purchasing the same care attractive marketing tax insurance at status age to expenses 30, premiums. consumers. as and life(including $204 insurance to $384sales reserves.l for conm_issions) individuals For consumers, initially are less plan addition, will afail growing to continue number ofpayment employersif they are looking anticipate to more no in_ediate orthodox insurance need for provisions related to employer-sponsored and individual long-te[_ care Conclusion and are likely to be paid by the employer. models benefits. it has tonothelp Inbeen the employees clear contextwhether finance of priveither ate long-tet_ pensions, the care. benefits the Congress received is or now the considering premiums insurance plans, extending to qualified plans the same tax treatment as health o The Committee faces a difficult challenge as they confront the Issues related to financing long-term care as an employee benefit are _Dallas L. Salisbury is president of the Employee Benefit Research Institute complexities of this issue. Senator Mitchell has articulated the major paid Long-Term discussed would Care in haveD. Asthe An J. same Employee Chollet tax Benefit: treatment and R. An B. as Emerging Friedland, other health Market "Employer insurance Financing benefits or of Lon5 issuesTerm of Care assetInsurance preservation as an and Employee portability Benefit to ensure an ultimate stream of insurance. Qualified plan reserves (contributions and earnings) would be tax in Washington, D.C.; Robert B. Friedland is research associate, and Deborah J. issue clearly: "The policy issue we face is how to target our limited Long-Term Care." In R. M. Scheffler and L. F. Rossiter, eds. Private Sector Chollet is senior research associate. The views expressed in this statement resources to the elderly that are most in need." Involvement in Health Care: Advances in Health Economics and Health Services premiums. income for retirees in return for tax incentives (S. 1349). These issues are Emplo Goalsyerof experience a System ofwith Long-Term retiree Care health Financing insurance exempt, in the same manner as life insurance reserves are exempt, lowering are solely those of the authors and should not be attributed to the Employee Research 9 (Greenwich, CT: JAI Press, 1988). Benefit Research Institute, its officers, trustees, sponsors, or other staff. o Through tax incentives, the federal government now encourages a 3 R. Interest Levin andin R. long-term Frobom, careTheinsurance Corporate among Perspective the public onandLon_-Term among insurers Care: criticalInsurers' components tentati ofveness other programs about entering designed theto long-term provide economic care market security has premiums and encouraging wider participation. Conceivably, acute and substantial and growing system of pension provision for retirees. That Survey Report (Appendix 2) (Washington, DC: Washington Business Group on I U.S. Department of Heath and Human Services, "Catastrophic Illness system provides an important part of the income that could pay for for retirees. Health, In1987). debating alternative systems of long-term care financing, a number of been Expenses." matched The employer Report by employers' tocost the President, ofreluctance providingp. to78 health institute (November insurance new 1986).benefits to active or toworkers, assume long-tet_ care coverage could be underwritten in the same insurance plan, long-term care insurance and now helps finance long-term care services. EMPLOYEE BENEFIT RESEARCH INSTITUTE 2121 K Street, NW / Suite 600 / Washington, DC 20037-2121 o We commend the Committee for undertaking the challenge of structuring a Telephone 202-659-0670 FAX 202-775-6312 workable system of long-te_ care financing in the United States, and stand ready to assist the Committee in its efforts.