Long-Term Care Insurance
Partnership Programs Include Benefits That Protect Policyholders and Are Unlikely to Result in Medicaid Savings Gao ID: GAO-07-231 May 11, 2007Partnership programs allow individuals who purchase Partnership long-term care insurance policies to exempt at least some of their personal assets from Medicaid eligibility requirements. In response to a congressional request, GAO examined (1) the benefits and premium requirements of Partnership policies as compared with those of traditional long-term care insurance policies; (2) the demographics of Partnership policyholders, traditional long-term care insurance policyholders, and people without long-term care insurance; and (3) whether the Partnership programs are likely to result in savings for Medicaid. To examine benefits, premiums, and demographics, GAO used 2002 through 2005 data from the four states with Partnership programs--California, Connecticut, Indiana, and New York--and other data sources. To assess the likely impact on Medicaid savings, GAO (1) used data from surveys of Partnership policyholders to estimate how they would have financed their long-term care without the Partnership program, (2) constructed three scenarios illustrative of the options for financing long-term care to compare how long it would take for an individual to spend his or her assets on long-term care and become eligible for Medicaid, and (3) estimated the likelihood that Partnership policyholders would become eligible for Medicaid based on their wealth and insurance benefits.
California, Connecticut, Indiana, and New York require Partnership programs to include certain benefits, such as inflation protection and minimum daily benefit amounts. Traditional long-term care insurance policies are generally not required to include these benefits. From 2002 through 2005, Partnership policyholders purchased policies with more extensive coverage than traditional policyholders. According to state officials, insurance companies must charge traditional and Partnership policyholders the same premiums for comparable benefits, and they are not permitted to charge policyholders higher premiums for asset protection. Partnership and traditional long-term care insurance policyholders tend to have higher incomes and more assets at the time they purchase their insurance, compared with those without insurance. In two of the four states, more than half of Partnership policyholders over 55 have a monthly income of at least $5,000 and more than half of all households have assets of at least $350,000 at the time they purchase a Partnership policy. Available survey data and illustrative financing scenarios suggest that the Partnership programs are unlikely to result in savings for Medicaid, and may increase spending. The impact, however, is likely to be small. About 80 percent of surveyed Partnership policyholders would have purchased traditional long-term care insurance policies if Partnership policies were not available, representing a potential cost to Medicaid. About 20 percent of surveyed Partnership policyholders indicate they would have self-financed their care in the absence of the Partnership program, and data are not yet available to directly measure when or if those individuals will access Medicaid had they not purchased a Partnership policy. However, illustrative financing scenarios suggest that an individual could self-finance care--delaying Medicaid eligibility--for about the same amount of time as he or she would have using a Partnership policy, although GAO identified some circumstances that could delay or accelerate Medicaid eligibility. While the majority of policyholders have the potential to increase spending, the impact on Medicaid is likely to be small because few policyholders are likely to exhaust their benefits and become eligible for Medicaid due to their wealth and having policies that will cover most of their long-term care needs. Information from the four states may prove useful to other states considering Partnership programs. States may want to consider the benefits to policyholders, the likely impact on Medicaid expenditures, and the income and assets of those likely to afford long-term care insurance. The Department of Health and Human Services commented on a draft of the report that our study results should not be considered conclusive because they do not adequately account for the effect of estate planning efforts such as asset transfers. While some Medicaid savings could result from people who purchase Partnership policies instead of transferring assets, they are unlikely to offset the costs associated with those who would have otherwise purchased traditional policies.
GAO-07-231, Long-Term Care Insurance: Partnership Programs Include Benefits That Protect Policyholders and Are Unlikely to Result in Medicaid Savings
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Benefits That Protect Policyholders and Are Unlikely to Result in
Medicaid Savings' which was released on June 12, 2007.
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Report to Congressional Requesters:
United States Government Accountability Office:
GAO:
May 2007:
Long-Term Care Insurance:
Partnership Programs Include Benefits That Protect Policyholders and
Are Unlikely to Result in Medicaid Savings:
GAO-07-231:
GAO Highlights:
Highlights of GAO-07-231, a report to congressional requesters
Why GAO Did This Study:
Partnership programs allow individuals who purchase Partnership long-
term care insurance policies to exempt at least some of their personal
assets from Medicaid eligibility requirements. In response to a
congressional request, GAO examined (1) the benefits and premium
requirements of Partnership policies as compared with those of
traditional long-term care insurance policies; (2) the demographics of
Partnership policyholders, traditional long-term care insurance
policyholders, and people without long-term care insurance; and (3)
whether the Partnership programs are likely to result in savings for
Medicaid.
To examine benefits, premiums, and demographics, GAO used 2002 through
2005 data from the four states with Partnership programs”California,
Connecticut, Indiana, and New York”and other data sources. To assess
the likely impact on Medicaid savings, GAO (1) used data from surveys
of Partnership policyholders to estimate how they would have financed
their long-term care without the Partnership program, (2) constructed
three scenarios illustrative of the options for financing long-term
care to compare how long it would take for an individual to spend his
or her assets on long-term care and become eligible for Medicaid, and
(3) estimated the likelihood that Partnership policyholders would
become eligible for Medicaid based on their wealth and insurance
benefits.
What GAO Found:
California, Connecticut, Indiana, and New York require Partnership
programs to include certain benefits, such as inflation protection and
minimum daily benefit amounts. Traditional long-term care insurance
policies are generally not required to include these benefits. From
2002 through 2005, Partnership policyholders purchased policies with
more extensive coverage than traditional policyholders. According to
state officials, insurance companies must charge traditional and
Partnership policyholders the same premiums for comparable benefits,
and they are not permitted to charge policyholders higher premiums for
asset protection.
Partnership and traditional long-term care insurance policyholders tend
to have higher incomes and more assets at the time they purchase their
insurance, compared with those without insurance. In two of the four
states, more than half of Partnership policyholders over 55 have a
monthly income of at least $5,000 and more than half of all households
have assets of at least $350,000 at the time they purchase a
Partnership policy.
Available survey data and illustrative financing scenarios suggest that
the Partnership programs are unlikely to result in savings for
Medicaid, and may increase spending. The impact, however, is likely to
be small. About 80 percent of surveyed Partnership policyholders would
have purchased traditional long-term care insurance policies if
Partnership policies were not available, representing a potential cost
to Medicaid. About 20 percent of surveyed Partnership policyholders
indicate they would have self-financed their care in the absence of the
Partnership program, and data are not yet available to directly measure
when or if those individuals will access Medicaid had they not
purchased a Partnership policy. However, illustrative financing
scenarios suggest that an individual could self-finance care”delaying
Medicaid eligibility”for about the same amount of time as he or she
would have using a Partnership policy, although GAO identified some
circumstances that could delay or accelerate Medicaid eligibility.
While the majority of policyholders have the potential to increase
spending, the impact on Medicaid is likely to be small because few
policyholders are likely to exhaust their benefits and become eligible
for Medicaid due to their wealth and having policies that will cover
most of their long-term care needs.
Information from the four states may prove useful to other states
considering Partnership programs. States may want to consider the
benefits to policyholders, the likely impact on Medicaid expenditures,
and the income and assets of those likely to afford long-term care
insurance.
HHS commented on a draft of the report that our study results should
not be considered conclusive because they do not adequately account for
the effect of estate planning efforts such as asset transfers. While
some Medicaid savings could result from people who purchase Partnership
policies instead of transferring assets, they are unlikely to offset
the costs associated with those who would have otherwise purchased
traditional policies.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-231].
To view the full product, including the scope and methodology, click on
the link above. For more information, contact John E. Dicken at (202)
512-7119 or dickenj@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
Partnership Policies Must Include Certain Benefits Not Required of
Traditional Policies, and Insurance Companies Cannot Charge Higher
Premiums for Asset Protection in Partnership Policies:
Compared with Traditional Long-Term Care Insurance Policies, Two of
Four States Subject Partnership Policies to Additional Review, and All
Four States Require Additional Agent Training:
Long-Term Care Insurance Policyholders Are Generally Wealthier than
Those Without Such Insurance, and Partnership Policyholders Are
Typically Younger than Traditional Long-Term Care Insurance
Policyholders:
Partnership Programs Unlikely to Result in Savings for Medicaid Largely
Because of the Asset Protection Benefit of Partnership Policies:
Concluding Observations:
Agency and State Comments and Our Evaluation:
Appendix I: Data and Methods for Analysis of Long-Term Care Insurance
Benefits and Demographics:
Appendix II: Explanation of the Simplifying Assumptions Used in the
Illustrative Scenarios:
Appendix III: Comments from the Department of Health & Human Services:
Appendix IV: Comments from the Four States with Partnership Programs,
California, Connecticut, Indiana, and New York:
Appendix V: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: Percentage of Partnership and Traditional Long-Term Care
Insurance Policyholders Purchasing Benefits from 2002 through 2005:
Table 2: Household Income and Household Asset Distribution among
Partnership Policyholders and Comparison Populations in Partnership
States and Nationally:
Table 3: Demographic Characteristics of Partnership Policyholders and
Comparison Populations in Partnership States and Nationally:
Figure:
Figure 1: Financing of Long-Term Care Nursing Facility Stays Under
Three Scenarios:
Abbreviations:
ADL: activities of daily living:
ACS: American Community Survey:
CBO: Congressional Budget Office:
CMS: Centers for Medicare & Medicaid Services:
DOI: Department of Insurance:
DRA: Deficit Reduction Act of 2005:
HHS: Department of Health and Human Services:
HIPAA: Health Insurance Portability and Accountability Act of 1996:
HRS: Health and Retirement Study:
IADL: instrumental activities of daily living:
NAIC: National Association of Insurance Commissioners:
OBRA '93: Omnibus Budget Reconciliation Act of 1993:
UDS: Uniform Data Set:
United States Government Accountability Office:
Washington, DC 20548:
May 11, 2007:
The Honorable Max Baucus:
Chairman:
The Honorable Charles E. Grassley:
Ranking Member:
Committee on Finance:
United States Senate:
The Honorable John D. Rockefeller, IV:
United States Senate:
In 2004, national spending on long-term care, which includes care
provided in nursing facilities, totaled $193 billion and nearly half of
that was paid for by Medicaid, the joint federal-state program that
finances medical services for certain low-income adults and children.
In contrast, private insurance paid for about $14 billion worth of long-
term care--about 7 percent of the total cost. The demand for this type
of care is likely to increase as the proportion of those in the
population age 65 and older--those most likely to need long-term care-
-increases. With Medicaid financing nearly half of the long-term care
costs nationwide, policymakers are concerned that, without changes in
how long-term care is financed, the growing demand for this type of
care will continue to strain the resources of federal and state
governments.
In the late 1980s the Robert Wood Johnson Foundation provided start-up
funds for programs in eight states--California, Connecticut, Indiana,
Massachusetts, New Jersey, New York, Oregon, and Wisconsin--aimed at
helping to shift some of the responsibility for financing long-term
care from Medicaid to private long-term care insurance. Four of the
states that received funds--California, Connecticut, Indiana, and New
York--established the programs. These four state-run long-term care
programs, which are known as Partnership programs, encourage
individuals to purchase long-term care insurance by providing an
incentive--specifically, allowing those who purchase long-term care
insurance policies through the program to exempt some or all of their
personal assets from Medicaid eligibility requirements should the
policyholders exhaust their long-term care insurance benefits and need
to continue financing their long-term care. Without the exemption,
before individuals could receive Medicaid benefits they would typically
have to spend their assets on their long-term care until the assets met
or fell below certain Medicaid thresholds. Medicaid does not allow for
asset protection for long-term care insurance policies purchased
outside of Partnership programs.[Footnote 1] In order to implement
their Partnership programs, the four states with Partnership programs
had to obtain approval from the Centers for Medicare & Medicaid
Services (CMS), the agency within the Department of Health and Human
Services (HHS) that oversees Medicaid, and amend their state Medicaid
plans to allow them to exempt the assets of Partnership program
participants from Medicaid eligibility requirements.[Footnote
2],[Footnote 3]
Since the early 1990s, the treatment of Partnership programs under
federal law has changed. Although a number of states established, or
were authorized to establish, programs prior to the enactment of the
Omnibus Budget Reconciliation Act of 1993 (OBRA '93), OBRA '93
prohibited additional states from establishing similar programs. The
legislation was enacted, in part, because of concerns about potential
costs to Medicaid, but allowed California, Connecticut, Indiana, and
New York to maintain their programs.[Footnote 4],[Footnote 5] More
recently, the Deficit Reduction Act of 2005 (DRA) authorized all states
to establish Partnership programs that meet certain criteria and
required the original 4 participating states to maintain the existing
consumer protections in their Medicaid plans. DRA provisions are
intended, in part, to allow states to provide an incentive for
individuals to take responsibility for their own long-term care needs
rather than relying on Medicaid. According to the National Association
of Health Underwriters, prior to the enactment of DRA, there was
legislative activity in 19 additional states to begin development of a
Partnership program. As of October 2006, the only states with active
Partnership programs were the original 4 states: California,
Connecticut, Indiana, and New York.[Footnote 6] However, HHS indicated
that as of February 2007, CMS had approved Partnership program state
plan amendments in 6 states: Florida, Georgia, Idaho, Minnesota,
Nebraska, and Virginia. Although the program appears to be expanding
beyond the original 4 states, concerns about the potential cost to
Medicaid of expanding the program remain an issue. In 2005, the
Congressional Budget Office (CBO) estimated that repealing the
moratorium on new Partnership programs could increase Medicaid spending
by $86 million between 2006 and 2015.[Footnote 7]
States are responsible for overseeing Partnership programs and
regulating the Partnership programs as well as the traditional long-
term care insurance policies sold in their states. As more states
consider establishing Partnership programs, there is interest, on the
part of Congress and others, in understanding how the four states with
Partnership programs designed and regulate their Partnership programs,
who purchases Partnership policies, and how these programs will impact
Medicaid financially.
You asked us to analyze the experience of the four states with
Partnership programs. In August 2005, we provided you with a briefing,
which summarized aspects of the design of these Partnership programs
and included demographic information on Partnership
policyholders.[Footnote 8] In this report, we updated our briefing
information and provided a more detailed analysis of the Partnership
programs. Specifically, we examined (1) the benefits and premium
requirements of Partnership policies as compared with those of
traditional long-term care insurance policies, including information on
benefits purchased by policyholders; (2) the extent to which states
oversee Partnership policies as compared with their oversight of
traditional long-term care insurance policies; (3) the demographics,
including asset and income levels, of Partnership policyholders,
traditional long-term care insurance policyholders, and people without
long-term care insurance; and (4) whether the Partnership programs are
likely to result in savings for Medicaid.
To compare the benefits and premium requirements of Partnership and
traditional long-term care insurance policies, we reviewed state
regulations, and interviewed Partnership program officials and
department of insurance (DOI) officials in each of the four states with
Partnership programs-California, Connecticut, Indiana, and New York. To
compare the benefits purchased by Partnership policyholders and
traditional long-term care insurance policyholders, we obtained data
from 2002 through 2005 from two sources. Our data source for benefits
purchased by Partnership policyholders was the Uniform Data Set (UDS)-
-a data set with information on Partnership policyholders compiled by
officials in each of the four states with Partnership programs from
data provided by participating insurers.[Footnote 9] Our data source
for benefits purchased by traditional long-term care insurance
policyholders was from a survey we conducted of five of the largest
long-term care insurance companies in the individual long-term care
insurance market.[Footnote 10]
To examine the extent to which states oversaw Partnership policies
compared with state oversight of traditional long-term care insurance
policies, we reviewed state regulations and Partnership program
documents, and interviewed officials from Partnership programs, long-
term care insurance companies, and each Partnership state's DOI, the
entities that are responsible for regulating insurance policies,
including long-term care insurance policies, that are sold in the
states. We reviewed state regulations, Partnership program documents,
and conducted interviews about how training requirements for insurance
agents who sell Partnership policies compared with training
requirements for agents who sell traditional long-term care insurance
policies.
To examine the demographics, including income and assets levels, of
Partnership policyholders, traditional long-term care insurance
policyholders, and individuals without long-term care insurance, we
used data from three sources. First, to calculate the household income
and assets of Partnership policyholders, we used available survey data
from a sample of Partnership policyholders in California and
Connecticut. We restricted our analysis to the income and asset data
from these two states because Indiana's data were not sufficiently
detailed to include in our analysis, and New York was not able to
provide us with data from recent years. We combined multiple years of
these data in order to increase the sample size.[Footnote 11] To
estimate the household income of individuals without insurance in
California and Connecticut, we used data from the American Community
Survey (ACS) for 2004 published by the U.S. Census Bureau. Finally, we
used national data from the Health and Retirement Study (HRS) for 2004,
to compare household income and household assets for those individuals
with traditional long-term care insurance and those without long-term
care insurance.[Footnote 12] The HRS is a national survey sponsored by
the National Institute on Aging and conducted by the University of
Michigan of individuals over the age of 50.[Footnote 13] The HRS
collected information about retirement, health insurance, savings, and
other issues confronting the elderly. To examine the age, marital
status, and gender of Partnership policyholders, traditional long-term
care insurance policyholders, and individuals without long-term care
insurance, we used data from the UDS and the HRS.
To examine whether the Partnership programs in the four states are
likely to result in savings for Medicaid, we assessed (1) available
state survey data of Partnership policyholders and (2) the options an
individual has for financing long-term care and the time it would take
for the individual to become eligible for Medicaid under three
illustrative scenarios. We used the illustrative scenarios because the
Partnership programs in the four states have only been operating since
the early 1990s, and as yet there are no available data describing when
or if Partnership policyholders would have accessed Medicaid. As a
result, there are insufficient data available to directly measure
whether the Partnership programs are associated with increased or
decreased Medicaid spending. We used available survey data in
California, Connecticut, and Indiana to determine what Partnership
policyholders report they would have done to finance their long-term
care needs if there had not been a Partnership program in their
state.[Footnote 14] In addition, we assessed three scenarios that
represent the three main options an individual has for financing long-
term care: financing using a Partnership policy, financing using a
traditional long-term care policy, and self-financing without any long-
term care insurance. The latter two scenarios describe the financing
options that a Partnership policyholder could use if the Partnership
programs did not exist. We used the three scenarios to explore how long
it would likely take before the individual depicted in our scenarios
would become eligible for Medicaid with a Partnership policy and--in
the scenarios in which Partnership programs did not exist--with the
other two financing options. In the scenarios, if, in the absence of a
Partnership program, an individual using a traditional long-term care
insurance policy or relying on self-financing is likely to become
eligible for Medicaid sooner than the same individual would have using
a Partnership policy, we consider the Partnership programs to be a
potential source of savings for Medicaid. In contrast, if the same
individual delays Medicaid eligibility using a traditional long-term
care insurance policy or self-financing, when compared with the time it
would take the individual to become eligible for Medicaid using a
Partnership policy, we consider the Partnership program to be a
potential source of increased spending for Medicaid. To develop our
scenarios, we made several simplifying assumptions. These include the
following:
* The individual depicted in the scenarios has $300,000 in assets, and
in two of our scenarios a long-term care insurance policy worth
$210,000-
-assets and benefits that are typical of many individuals with long-
term care insurance--and the individual receives long-term care in a
nursing facility with costs for a year of care of $70,000, about equal
to average nursing facility costs nationwide in 2004.
* The individual has assets that are no less than the value of the
individual's Partnership policy--that is, the individual does not
overinsure his or her assets.
* The individual is unmarried. While most Partnership policyholders are
married at the time they purchase a Partnership policy, they are
unlikely to require long-term care for many years, and their marital
status can change. Most individuals who are admitted to a nursing
facility are unmarried.
Where possible, we use data from surveys of Partnership policyholders
to support our assumptions. We also explored whether adjusting the
assumptions changed the conclusions we could draw. Although our
scenarios represent the choices facing a single individual, the results
of this analysis are applicable beyond this individual. For example,
the relative impact on Medicaid spending across the scenarios is
independent of the amount of assets owned by the individual or the
level of the individual's insurance coverage.
As part of our efforts to examine whether the Partnership programs are
likely to result in savings for Medicaid, we also examined the
likelihood that the population of Partnership policyholders will ever
become eligible for Medicaid. To assess this likelihood, we examined
the long-term care insurance benefits and income of Partnership
policyholders. We also assessed the number of people with Partnership
policies who accessed Medicaid as of October 2006.
Based on discussions with state officials and reviewing documentation
on uniformly collected insurer data and surveys of policyholders, we
determined that the information we used was sufficiently reliable for
our purposes. We also examined reports on the Partnership program from
the CBO, the Congressional Research Service, and other research
organizations. Appendix I provides information on the data and methods
used for our analyses of long-term care insurance benefits,
policyholder income, assets, age, gender, and marital status. Appendix
II provides more information about the illustrative scenarios, the
simplifying assumptions underlying the scenarios, and the effect on our
analysis of adjusting these assumptions. We conducted our work from
September 2005 through May 2007 in accordance with generally accepted
government auditing standards.
Results in Brief:
In the four states with Partnership programs, Partnership policies must
include certain benefits not generally required of traditional long-
term care insurance policies, and insurance companies cannot charge
higher premiums for asset protection in Partnership policies.
Partnership policies must include certain benefits, such as inflation
protection and minimum daily benefit amounts, while traditional long-
term care insurance policies may include these benefits but are
generally not required to do so. Partnership policies include these
benefits in order to increase the likelihood that Partnership
policyholders will have sufficient long-term care insurance coverage to
pay for a significant portion of their long-term care. For example,
Partnership policies must include inflation protection, which increases
the amount a policy pays over time to account for increases in the cost
of care, and minimum daily benefit amounts, which are set at levels
designed to cover a significant portion of the costs of an average day
in a nursing facility. Though traditional long-term care insurance
policyholders are able to purchase most of the same benefits as
Partnership policyholders, in comparing these two groups we found that
a higher percentage of Partnership policyholders purchased policies
from 2002 through 2005 with more extensive coverage--for example,
higher levels of inflation protection and coverage for care in both
nursing facility and home and community-based care settings. Officials
in states with Partnership programs told us that companies selling long-
term care insurance are not permitted to charge Partnership
policyholders higher premiums for the asset protection benefit--
Partnership and traditional long-term care insurance policies with
otherwise comparable benefits must have equivalent premiums. However,
Partnership policies are likely to have higher premiums because they
are required to have inflation protection and other benefits that are
not required for traditional long-term care insurance policies.
According to state officials, compared with traditional long-term care
insurance policies, Partnership policies in two Partnership states are
subject to additional review, and in all four Partnership states,
insurance agents who sell Partnership policies are subject to
additional state training requirements compared with agents who sell
only traditional long-term care policies. While all long-term care
insurance policies are reviewed by the DOI in each state, Partnership
policies in California and Connecticut are also reviewed by Partnership
program offices. This additional review is designed by these states to
ensure that the Partnership policies that are issued meet all specific
Partnership regulatory requirements, and the insurance companies
issuing these policies meet the data reporting and other administrative
requirements. Before they can sell Partnership policies, long-term care
insurance agents are required by each of the four Partnership states to
undergo training specific to the state's Partnership program, in
addition to the training that is required for those who sell
traditional long-term care insurance. This specialized training
typically provides information on long-term care planning, Medicaid,
Medicare, the specific benefits required by the state's Partnership
program, and how policies sold through the program differ from
traditional long-term care insurance policies.
Partnership and traditional long-term care insurance policyholders tend
to be relatively wealthy with higher incomes and more assets, compared
with those without insurance. At the time they purchased their
Partnership policies, more than half of Partnership policyholders over
55 in California and Connecticut had monthly household incomes of
$5,000 or greater, and more than half of all households had assets of
$350,000 or greater. Partnership policyholders in the four states with
Partnership programs are also younger on average than traditional long-
term care insurance policyholders. In addition, a higher percentage of
Partnership and traditional long-term care insurance policyholders are
married rather than unmarried, and female rather than male.
Available survey data from three states with Partnership programs and
our three illustrative financing scenarios together suggest that the
Partnership programs are unlikely to result in savings for Medicaid and
may result in increased Medicaid spending. Based on surveys of
Partnership policyholders in California, Connecticut, and Indiana, we
estimate that, in the absence of a Partnership program in their state,
80 percent of Partnership policyholders would have purchased a
traditional long-term care insurance policy. Our long-term care
financing scenarios suggest that it takes longer for an individual with
a traditional long-term care insurance policy to become eligible for
Medicaid than it would take the same individual to become eligible for
Medicaid if he or she owned a Partnership policy. Therefore, the 80
percent of surveyed Partnership policyholders may represent a potential
source of increased spending for Medicaid, as Medicaid is likely to
begin paying for the long-term care of these policyholders sooner than
if they had held traditional long-term care insurance policies instead.
The survey data also indicate that the remaining 20 percent of surveyed
policyholders would not have purchased any long-term care insurance if
Partnership programs did not exist. Data are not yet available to
directly measure when or if these individuals will access Medicaid had
they not purchased a Partnership policy. However, our scenarios suggest
that an individual who self-finances his or her long-term care without
any long-term care insurance is likely to become eligible for Medicaid
at about the same time as the individual would using a Partnership
policy, though there were some circumstances that could accelerate or
delay the individual's time to Medicaid eligibility. While the majority
of Partnership policyholders have the potential to increase spending,
we also anticipate that the impact of these programs is likely to be
small because few policyholders will become eligible. Partnership
policyholders tend to have incomes that exceed Medicaid eligibility
thresholds and insurance benefits that cover most of their long-term
care needs.
With DRA authorizing all states to implement Partnership programs,
information on the Partnership policies and policyholders from the four
states with Partnership programs may prove useful to other states
considering implementing such programs. States may want to consider the
benefits to Partnership policyholders, the likely impact on Medicaid
expenditures, and the incomes and assets of those likely to be able to
afford long-term care insurance.
We received comments on a draft of this report from HHS and state
officials from California, Connecticut, Indiana, and New York. HHS
commented that our study results should not be considered conclusive
and the simplified scenarios were flawed because they did not
adequately account for the effect of asset transfers. HHS also noted
that our data sources were unlikely to yield accurate data on asset
transfers and criticized the report for not incorporating a review of
the literature on this issue and the analyses conducted by the four
states with Partnership programs. The four states disagreed with our
conclusion that the Partnership programs are unlikely to result in
Medicaid savings, and like HHS, commented that our scenarios did not
adequately account for the impact of asset transfers. California,
Connecticut, and New York objected to our methodology for estimating
the financial impact of the program on Medicaid. California and
Connecticut suggested that our analysis should have included results
from two Partnership policyholder survey questions that they consider
in their own analysis of the Partnership program.
We maintain that the evidence suggests that the Partnership program is
unlikely to result in savings for Medicaid, despite limited data and
program experience. As discussed in our draft report, some savings to
Medicaid could be associated with individuals who would have
transferred their assets and become eligible for Medicaid sooner in the
absence of the Partnership program. However, we noted that these
savings are unlikely to offset the potential costs associated with
policyholders who would have purchased traditional long-term care
insurance in the absence of the Partnership programs. We did not
provide a review of the literature on asset transfers because--as we
previously noted in our March 2007 report on the subject--the evidence
on the transfer of assets to become eligible for Medicaid coverage for
long-term care is generally limited.[Footnote 15] However, in response
to HHS' comments, we have amended our draft report to make the
discussion of asset transfers more prominent in the body of our report
and to include reference to the 2007 GAO study. We also maintain that
our methodology for estimating the financial impact of the program on
Medicaid is sound and disagree with California and Connecticut
regarding the appropriateness of using the two survey questions.
Specifically, by relying on the responses from these questions, the
method California, Connecticut, and Indiana use to evaluate Medicaid
costs underestimates the percentage of people who would have purchased
traditional policies in the absence of the Partnership program, while
their method of evaluating Medicaid savings overestimates the
percentage of people who would transfer assets.
Background:
Long-term care comprises services provided to individuals who, because
of illness or disability, are generally unable to perform activities of
daily living (ADL)--such as bathing, dressing, and getting around the
house--for an extended period of time.[Footnote 16] These services can
be provided in various settings, such as nursing facilities, an
individual's own home, or the community.[Footnote 17] The typical 65-
year-old has about a 70 percent chance of needing long-term care
services in his or her life.[Footnote 18] Long-term care can be
expensive, especially when provided in nursing facilities. In 2005, the
average cost of a year of nursing facility care was about
$70,000.[Footnote 19] In 1999, the most recent year for which data were
available, the average length of stay in a nursing facility was between
2 and 3 years.[Footnote 20]
Long-Term Care Insurance:
Long-term care insurance is used to help cover the cost associated with
long-term care. Individuals can purchase long-term care insurance
policies directly from insurance companies, or through employers or
other groups. The number of long-term care insurance policies sold has
been small-about 9 million as of 2002, the most recent year for which
data were available. About 80 percent of these policies were sold
through the individual insurance market and the remaining 20 percent
were sold through the group market.
Long-term care insurance companies generally structure their long-term
care insurance policies around certain types of benefits and related
options.
* A policy with comprehensive coverage pays for long-term care in
nursing facilities as well as for care in home and community settings,
while a policy with coverage for home and community-based settings pays
for care only in these settings.
* A daily benefit amount specifies the amount a policy will pay on a
daily basis toward the cost of care, while a benefit period specifies
the overall length of time a policy will pay for care. Data from 2002
through 2005 show that the maximum daily benefit amounts can range from
less than $100 to several hundred dollars per day, while benefit
periods can range from 1 year to lifetime coverage.[Footnote 21]
* A policy's elimination period establishes the length of time a
policyholder who has begun to receive long-term care has to wait before
his or her insurance will begin making payments towards the cost of
care. According to data from 2002 through 2005, elimination periods can
range from 0 to at least 730 days.[Footnote 22]
* Inflation protection increases the maximum daily benefit amount
covered by a policy, and helps ensure that over time the daily benefit
remains commensurate with the costs of care.
There can be a substantial gap between the time a long-term care
insurance policy is purchased and the time when policyholders begin
using their benefits, and the costs associated with long-term care can
increase significantly during this time. A typical gap between the time
of purchase and the use of benefits is 15 to 20 years: the average age
of all long-term care insurance policyholders at the time of purchase
is 63, and in general policyholders begin using their benefits when
they are in their mid-70s to mid-80s. Usually, automatic inflation
protection increases the benefit amount by 5 percent annually on a
compounded basis. A policy with automatic 5 percent compound inflation
protection and a $150 per day maximum daily benefit in 2006 would be
worth approximately $400 per day 20 years later. Another means to
protect against inflation is a future purchase option. This option
allows the consumer to increase the dollar amount of coverage every few
years at an extra cost. Some future purchase options do not allow
consumers to purchase extra coverage once they begin receiving their
insurance benefit and the opportunity to purchase extra coverage may be
withdrawn should the consumer decline a predetermined number of premium
increases. A policy with a future purchase option may be less expensive
initially than a policy with compound inflation protection. However,
over time the policy with a future purchase option may become more
expensive than a policy with compound inflation.
Without inflation protection, policyholders might purchase a policy
that covers the current cost of long-term care but find, many years
later, when they are most likely to need long-term care services, that
the purchasing power of their coverage has been reduced by inflation
and that their coverage is less than the cost of their care. For
example, if the cost of a day in a nursing facility increases by 5
percent every year for 20 years, a nursing facility that costs $150 per
day in 2006 would cost about $400 per day 20 years later in 2026. A
policy purchased in 2006 with a daily benefit of $150 without inflation
protection would pay $150 per day--or 38 percent--of the daily cost of
about $400 in 2026. The remaining $250 of the daily cost of the nursing
facility care would have to be paid by the policyholder.
Long-term care insurance policies may also include other benefits or
options. For example, policies can offer coverage for home care at
varying percentages of the maximum daily benefit amount. Some policies
include features in which the policy returns a portion of the premium
payments to a designated third party if the policyholder dies. Some
policies provide coverage for long-term care provided outside of the
United States or offer care-coordination services that, among other
things, provide information about long-term care services to the
policyholder and monitor the delivery of long-term care services.
Many factors impact the premiums individuals pay for long-term care
insurance. Notably, long-term care insurance companies typically charge
higher premiums for policies with more extensive benefits. In general,
policies with comprehensive coverage have higher premiums than policies
without such coverage, and policyholders pay higher premiums the higher
their maximum daily benefit amounts, the longer their benefit periods,
the greater their inflation protection, and the shorter their
elimination periods. For example, in Connecticut, if a 55-year-old man
decided to buy a 1-year, $200 per day comprehensive coverage policy, in
2005 it would have cost him about $1,000 less per year than a
comparable 3-year policy. Similarly, the age of an applicant also
impacts the premium, as premiums typically are more expensive the older
the policyholder at the time of purchase. For example, in Connecticut,
a 55-year-old purchasing a 3-year, $200 per day comprehensive coverage
policy in 2005 would pay about $2,500 per year, whereas a 70-year-old
purchasing the same policy would pay about $5,900 per year. Health
status may also affect premiums. Insurance companies take into account
the health status of an applicant to evaluate the risk that he or she
will access long-term care services. If an applicant has a medical
condition that increases the likelihood of the applicant using long-
term care services, but does not automatically disqualify the applicant
from purchasing insurance, the applicant may receive a substandard
rating from an insurance company, which may result in a higher
premium.[Footnote 23]
Long-Term Care Insurance Regulation:
Regulation of the insurance industry, including those companies selling
long-term care insurance, is a state function. Those who sell long-term
care insurance must be licensed by each state in which they sell
policies, and the policies sold must be in compliance with state
insurance laws and regulations. These laws and regulations can vary but
their fundamental purpose is to establish consumer protections that are
designed to ensure that the policies' provisions comply with state law,
are reasonable and fair, and do not contain major gaps in coverage that
might be misunderstood by consumers and leave them unprotected.
The Health Insurance Portability and Accountability Act of 1996 (HIPAA)
specified conditions under which long-term care insurance benefits and
premiums would receive favorable federal income tax treatment.[Footnote
24] Individuals who purchase policies that comply with HIPAA
requirements, which are therefore "tax-qualified," can itemize their
long-term care insurance premiums as deductions from their taxable
income along with other medical expenses, and can exclude from gross
income insurance company proceeds used to pay for long-term care
expenses. Under HIPAA, tax-qualified plans must begin coverage when a
person is certified as: needing substantial assistance with at least
two of the six ADLs for at least 90 days due to a loss of functional
capacity, having a similar level of disability, or requiring
substantial supervision because of a severe cognitive impairment. HIPAA
also requires that a policy comply with certain provisions of the
National Association of Insurance Commissioners' (NAIC) Long-Term Care
Insurance Model Act and Regulation adopted in January 1993. This model
act and regulation established certain consumer protections that are
designed to prevent insurance companies from (1) not renewing a long-
term care insurance policy because of a policyholder's age or
deteriorating health, and (2) increasing the premium of an existing
policy because of a policyholder's age or claims history. In addition,
in order for a long-term care insurance policy to be tax-qualified,
HIPAA requires that a policy offer inflation protection. The NAIC,
which represents insurance regulators from all states, reported in 2005
that 41 states based their long-term care insurance regulations on the
NAIC model, 7 based their regulations partially on the model, and 3 did
not follow the model.
Medicaid:
Medicaid is the primary source of financing for long-term care services
in the United States. In 2004, almost one-third of the total $296
billion in Medicaid spending was for long-term care. Some health care
services, such as nursing facility care, must be covered in any state
that participates in Medicaid. States may choose to offer other
optional services in their Medicaid plans, such as personal
care.[Footnote 25]
Medicaid coverage for long-term care services is most often provided to
individuals who are aged or disabled. To qualify for Medicaid coverage
for long-term care, these individuals must meet both functional and
financial eligibility criteria. Functional eligibility criteria are
established by each state and are generally based on an individual's
degree of impairment, which is measured in terms of the level of
difficulty in performing the ADLs and IADLs. To meet the financial
eligibility criteria, an individual cannot have assets or income that
exceed thresholds established by the states and that are within
standards set by the federal government. Generally, the value of an
individual's primary residence and car, as well as a few other personal
items, are not considered assets for the purpose of determining
Medicaid eligibility.[Footnote 26] Individuals with high medical costs
and whose income exceeds state thresholds can "spend down" their income
on their long-term care, which may bring their income below the state-
determined income eligibility limit. In all four states with
Partnership programs, for the purpose of obtaining Medicaid
eligibility, individuals are allowed to deduct medical expenses,
including those for long-term care, in order to bring their incomes
below the state-determined thresholds.
In order to meet Medicaid's eligibility requirements, some individuals
may choose to divest themselves of their assets--for example, by
transferring assets to their spouses or other family members.[Footnote
27] However, those who transfer assets for less than fair market value
during a specified "look-back" period--a period of time before an
individual applies for Medicaid during which the program reviews asset
transfers--may incur a penalty, that is, a period during which they are
ineligible for Medicaid coverage for long-term care services. Evidence
of the extent to which individuals transfer assets for less than fair
market value to become financially eligible for Medicaid coverage for
long-term care is generally limited and often based on anecdote.
However, our March 2007 report on asset transfers suggests that the
incidence of asset transfers is low among nursing home residents
covered by Medicaid.[Footnote 28] Nationwide, about 12 percent of
Medicaid-covered elderly nursing home residents reported transferring
cash during the 4 years prior to nursing home entry, and the median
amount transferred was very small ($1,239). The percentage of nursing
home residents not covered by Medicaid who transferred cash was about
twice that of Medicaid-covered nursing home residents. However, the
median amount of cash transferred as reported by non-Medicaid covered
residents and Medicaid-covered residents did not vary greatly.[Footnote
29] In addition to the nationwide analysis, our report summarized an
analysis of a sample of approved Medicaid nursing home applicants in
three states who generally applied to Medicaid in 2005 or before, and
found that about 10 percent of applicants had transferred assets for
less than the fair market value during the 3-year look-back period
before Medicaid eligibility began. The median amount transferred was
about $15,000. DRA tightened the requirements on Medicaid applicants
transferring assets by extending the look-back period for all asset
transfers from 3 to 5 years. In addition, DRA changed the beginning
date of the penalty period. Prior to enactment of DRA, the penalty
period started on the first day of the month during or after which
assets were transferred. DRA changed this so that the penalty period
now begins on the first day of the month when the asset transfer
occurred, or the date on which the individual is eligible for medical
assistance under the state plan, and is receiving institutional care
services that would be covered by Medicaid were it not for the
imposition of the penalty period, whichever is later. The extension of
the look-back period and the redefinition of the penalty period may
reduce transfers of assets.
Long-Term Care Partnership Programs:
The Partnership programs are public-private partnerships between states
and private long-term care insurance companies. Established in 1987 as
programs funded through the Robert Wood Johnson Foundation, the
programs are designed to encourage individuals, especially moderate
income individuals, to purchase private long-term care insurance in an
effort to reduce future reliance on Medicaid for the financing of long-
term care. As of October 2006, the original four Partnership programs
in California, Connecticut, Indiana, and New York remained the only
active Partnership programs.[Footnote 30]
Partnership programs attempt to encourage individuals to purchase
private long-term care insurance by offering them the option to exempt
some or all of their assets from Medicaid spend-down requirements.
However, Partnership policyholders are still required to meet Medicaid
income eligibility thresholds before they may receive Medicaid
benefits. In the four states with Partnership programs, those who
purchase long-term care insurance Partnership policies generally must
first use those benefits to cover the costs of their long-term care
before they begin accessing Medicaid.[Footnote 31] In 2006, there were
about 190,000 active Partnership policies, out of the approximately
218,000 Partnership policies that had been sold since the inception of
the Partnership programs.[Footnote 32],[Footnote 33] Between September
2005 when we last reported on the Partnership programs, and August
2006, the number of Partnership policies in the four states combined
increased by about 10 percent.[Footnote 34]
The four states with Partnership programs vary in how they protect
policyholders' assets. The Partnership programs in California,
Connecticut, Indiana, and New York have dollar-for-dollar models, in
which the dollar amount of protected assets is equivalent to the dollar
value of the benefits paid by the long-term care insurance policy. For
example, a person purchasing a long-term care dollar-for-dollar
insurance policy with $300,000 in coverage would have $300,000 of
assets protected if he or she were to exhaust the long-term care
insurance benefits and apply for Medicaid. However, New York's program
also offers total protection. That is, those who purchase a
comprehensive long-term care insurance policy, covering a minimum of 3
years of nursing facility care or 6 years of home care, or some
combination of the two, can protect all their assets at the time of
Medicaid eligibility determination. In Indiana, in addition to the
dollar-for-dollar models, the Partnership program offers a hybrid model
that allows purchasers to obtain dollar-for-dollar protection up to a
certain benefit level as defined by the state; all policies with
benefits above that threshold provide total asset protection for the
purchaser.
Under DRA, any state that implements a Partnership program must ensure
that the policies sold through that program contain certain benefits,
such as inflation protection.[Footnote 35],[Footnote 36] DRA also
requires that Partnership policies provide dollar-for-dollar asset
protection. Insurers are not allowed to offer Partnership policies that
provide the total asset protection feature found in Partnership
policies in New York and Indiana.[Footnote 37] DRA also requires
Partnership policies to include consumer protections contained in the
NAIC Long-Term Care Insurance Model Act and Regulation as updated in
October 2000. DRA established specific requirements for Partnership
policies that do not apply to traditional long-term care insurance
policies sold in the Partnership states, such as inflation protection
and dollar-for-dollar asset protection. DRA prohibits states from
creating other requirements for Partnership policies that do not also
apply to traditional long-term care insurance policies in the four
states with Partnership policies. The Partnership programs in
California, Connecticut, Indiana, and New York, which were implemented
before DRA, are not subject to these specific requirements, but in
order for those programs to continue, they must maintain consumer
protection standards that are no less stringent than those that applied
as of December 31, 2005.
Partnership Policies Must Include Certain Benefits Not Required of
Traditional Policies, and Insurance Companies Cannot Charge Higher
Premiums for Asset Protection in Partnership Policies:
The four states with Partnership programs require that Partnership
policies include certain benefits--such as inflation protection and
minimum daily benefit amounts--while traditional long-term care
insurance policies may include these benefits but are not generally
required to do so. Compared with policyholders of traditional long-term
care insurance policies, a higher percentage of Partnership
policyholders purchased policies with more extensive coverage. In the
four states, insurance companies are not allowed to charge
policyholders higher premiums for policies with asset protection, and
Partnership and traditional long-term care insurance policies with
comparable benefits are required to have equivalent premiums.
The Four States Require Partnership Policies to Include Certain
Benefits Not Required for Traditional Long-Term Care Insurance
Policies:
In general, the four states with Partnership programs require that
Partnership policies sold in their states include certain benefits that
are not required for those states' traditional long-term care insurance
policies. A state DOI official told us that they have these benefit
requirements for Partnership policies in order to protect policyholders
by helping to ensure that benefits are sufficient to cover a
significant portion of their anticipated long-term care costs and to
protect the Medicaid program by reducing the likelihood that
policyholders will exhaust their benefits and become eligible for
Medicaid.
In addition to asset protection, which by definition Partnership
policies include, all four states require Partnership policies to
include inflation protection.[Footnote 38] Three of the four
Partnership states--California, Connecticut, and New York--require that
Partnership policies include inflation protection that automatically
increases benefit amounts by 5 percent annually on a compounded
basis.[Footnote 39] The four states do not require traditional long-
term care insurance policies to include inflation protection, though
insurance companies in these states are required to offer inflation
protection as an optional benefit. While policies with inflation
protection may include coverage that is more commensurate with expected
future costs of care, these policies can be two or three times as
expensive as policies without inflation protection. For example, in
2005 a long-term care insurance policy with a $200 daily benefit, a 3-
year benefit period, and inflation protection cost about $3,000 per
year for a 60-year-old male; the same policy cost about $1,350 per year
without inflation protection. An insurance company official told us
that the additional cost of inflation protection is the primary reason
individuals do not buy a Partnership policy.
The four states with Partnership programs also require minimum daily
benefit amounts for all Partnership policies, while in three of the
Partnership states, traditional long-term care insurance policies are
not subject to this requirement.[Footnote 40] According to Partnership
and DOI officials in California and Connecticut, minimum daily benefit
amounts are required for Partnership policies in order to prevent
consumers from purchasing coverage that would be insufficient to cover
a substantial portion of the cost of their care. According to
Partnership program materials from New York, for example, the average
daily cost of long-term care in a nursing facility in New York was
about $263 per day in 2004. Anything less than New York's 2004 minimum
daily benefit amount of $171 for nursing facility care would therefore
have required out-of-pocket payments for policyholders of more than one-
third of the cost of their nursing facility care. In 2006, the required
minimum daily benefit amounts for nursing facility care in Partnership
policies ranged from $110 per day in Indiana to $189 per day in New
York.
In the four states with Partnership programs, Partnership policies are
subject to minimum nursing facility benefit period requirements
established by the states, but some traditional long-term care
insurance policies are not subject to these same requirements. In
California and Indiana, Partnership policies are required to have
dollar coverage that provides for at least 1 year of care in a nursing
facility, while traditional long-term care insurance policies are not
subject to a minimum benefit period requirement.[Footnote 41] In New
York, Partnership policies are required to have minimum nursing
facility benefit periods ranging from 18 months to 4 years, depending
on the type of coverage an individual purchases, while certain
traditional long-term care insurance policies are required to have 1-
year minimum nursing facility benefit periods. In Connecticut,
Partnership and traditional long-term care insurance policies are both
required to have 1-year minimum benefit periods for care provided in
nursing facilities.
Partnership and traditional long-term care insurance policies both
typically include elimination periods, which establish the length of
time a policyholder who has begun to receive long-term care has to wait
before receiving long-term care insurance benefits. The four states
with Partnership programs limit the length of the elimination periods
that can be included in Partnership policies. Two of the four states,
Connecticut and New York, also generally limit the elimination period
included in traditional long-term care insurance policies. In 2006, the
elimination period for Partnership policies in California was no more
than 90 days, while New York had a 100-day limit[Footnote 42] and
Indiana had a 180-day limit. In Connecticut, the elimination period
limit for both Partnership and traditional long-term care insurance
policies was 100 days. According to a New York Partnership program
staff member, in New York the elimination period for traditional
policies was generally no more than 180 days. The effect of increasing
the elimination period is to increase the out-of-pocket costs
policyholders incur in paying for their long-term care. One official
from an insurance company that sells long-term care insurance policies
told us that having long elimination periods could quickly deplete an
individual's assets, which might make the asset protection under the
Partnership program less valuable.
Unlike traditional long-term care insurance policies, Partnership
policies in the four states must cover or offer case management
services.[Footnote 43] Case management services can include providing
individual assessments of policyholders' long-term care needs,
approving the beginning of an episode of long-term care, developing
plans of care, and monitoring policyholders' medical needs. According
to a Partnership program official, by helping policyholders assess
their medical needs and develop a plan of care, case management
services can help policyholders use their benefit dollars efficiently.
Partnership program officials in California, Connecticut, and Indiana
explained that their states require that Partnership policies cover
case management services provided through state-approved intermediaries
that are independent of insurance company control. Partnership program
officials in New York told us that Partnership policyholders have the
option to seek case management services from independent case
management service providers, but they can also elect to receive case
management services from their own insurance company. Traditional long-
term care insurance policies are not required to cover case management
services, though some may offer them as an optional benefit. In
addition, some insurance companies that sell traditional long-term care
insurance policies may directly provide case management services.
Insurance companies in the four states with Partnership programs are
subject to restrictions on the types of coverage they can offer in
Partnership policies, while they are allowed to offer traditional long-
term care insurance policies with more coverage options. In California,
Connecticut, and Indiana, insurance companies can only offer
Partnership policies with two types of coverage: an option that covers
only nursing facility care, and a comprehensive option that covers
nursing facility care as well as care provided in the home and in
community-based facilities.[Footnote 44] In New York, insurance
companies may only offer Partnership policies that cover comprehensive
care. The four states do not allow insurance companies to offer
Partnership policies in their state that exclusively cover care
provided in the home and in community-based facilities. However, in the
four states, insurance companies can offer traditional long-term care
insurance policies with nursing facility care only, home and community-
based facility only, and comprehensive coverage options.
Partnership Policyholders Purchased Policies with Benefits That Were
More Extensive Than Those Purchased by Traditional Policyholders
Nationwide:
In the four states with Partnership programs, traditional long-term
care insurance policies can include--and individuals can therefore
choose to purchase--generally the same benefits found in Partnership
policies.[Footnote 45] However, Partnership policyholders tended to
purchase benefits that are more extensive than those purchased by
traditional long-term care insurance policyholders. We found that from
2002 through 2005, a higher percentage of Partnership policyholders
purchased policies with more extensive coverage compared with
policyholders who purchased traditional long-term care insurance
nationally. Specifically, more Partnership policyholders purchased
policies with higher levels of inflation protection and coverage that
includes care in both nursing facility and home and community-based
care settings. See table 1 for a summary of the benefits purchased by
Partnership and traditional long-term care insurance policyholders. For
example, while all Partnership policyholders had policies from 2002
through 2005 with the required inflation protection that generally
increases daily benefit amounts by 5 percent annually, about 76 percent
of traditional long-term care insurance policyholders had policies with
some form of inflation protection. Similarly, during this period, 64
percent of all Partnership policyholders had policies that included
daily benefit amounts of $150 or greater, while 36 percent of
traditional long-term care insurance policyholders nationwide had
policies that provided daily benefit amounts at this level or greater.
While these differences may reflect the benefit requirements found in
Partnership policies, they may also reflect the incentive offered by
the asset protection benefit of Partnership policies, which may
influence consumers deciding whether to buy a Partnership or
traditional long-term care insurance policy. The differences may also
reflect the demographic and financial characteristics of the people
living in the four states with Partnership programs relative to other
states.
Table 1: Percentage of Partnership and Traditional Long-Term Care
Insurance Policyholders Purchasing Benefits from 2002 through 2005:
Inflation protection.
Yes;
Partnership[A]: 100%;
Traditional long-term care insurance policyholders[B]: 76%.
No;
Partnership[A]: 0;
Traditional long-term care insurance policyholders[B]: 16.
Other[C];
Partnership[A]: 0;
Traditional long-term care insurance policyholders[B]: 8.
Daily benefit amount.
Less than $100;
Partnership[A]: 0;
Traditional long-term care insurance policyholders[B]: 11.
$100 to $149;
Partnership[A]: 35;
Traditional long-term care insurance policyholders[B]: 53.
$150 to $199;
Partnership[A]: 40;
Traditional long-term care insurance policyholders[B]: 25.
$200 and greater;
Partnership[A]: 24;
Traditional long-term care insurance policyholders[B]: 11.
Benefit period.
1 year;
Partnership[A]: 3;
Traditional long-term care insurance policyholders[B]: 3.
More than 1 and less than 3 years;
Partnership[A]: 13;
Traditional long-term care insurance policyholders[B]: 11.
3 years;
Partnership[A]: 37;
Traditional long-term care insurance policyholders[B]: 23.
More than 3 years but not unlimited;
Partnership[A]: 30;
Traditional long-term care insurance policyholders[B]: 37.
Lifetime/unlimited benefit;
Partnership[A]: 19;
Traditional long-term care insurance policyholders[B]: 26.
Elimination period.
Less than 30 days;
Partnership[A]: 3;
Traditional long-term care insurance policyholders[B]: 8.
30 days to 89 days;
Partnership[A]: 23;
Traditional long-term care insurance policyholders[B]: 21.
90 days;
Partnership[A]: 47;
Traditional long-term care insurance policyholders[B]: 60.
More than 90 days;
Partnership[A]: 27;
Traditional long-term care insurance policyholders[B]: 11.
Coverage type.
Comprehensive[D];
Partnership[A]: 99;
Traditional long-term care insurance policyholders[B]: 91.
Nursing facility-only;
Partnership[A]: 1;
Traditional long-term care insurance policyholders[B]: 3.
Other[E];
Partnership[A]: 0;
Traditional long-term care insurance policyholders[B]: 6.
Sources: GAO analysis of the four states' UDS Partnership data and data
provided by five insurance companies selling traditional long-term care
insurance.
Note: Percentages may not add to 100 due to rounding.
[A] Reported values for daily benefit amount, benefit period, and
elimination period include nursing facility data, but not home care
data.
[B] Approximately 2 percent of people nationwide with long-term care
policies have Partnership policies. Thus, although the data may include
a number of Partnership policyholders, about 98 percent of these people
are likely to have traditional long-term care insurance. Because this
is only 2 percent, we consider this as a reasonable proxy for
traditional long-term care policyholders.
[C] Includes policies with a future purchase option (7 percent) and
policies with a deferred inflation option (1 percent). Enrollees who
select a deferred inflation option may increase benefits at a later
date that they choose.
[D] Comprehensive coverage insurance policies provide benefits for both
nursing facility-only and home care services.
[E] Includes home care coverage.
[End of table]
Insurance Companies Cannot Charge Partnership Policyholders Higher
Premiums for Asset Protection, and Premiums for Partnership Policies
Must Be Equivalent to Premiums of Traditional Policies That Have
Comparable Benefits:
According to state officials, the four states with Partnership programs
require Partnership and traditional long-term care insurance policies
to have equivalent premiums if the benefits offered--except for asset
protection--are otherwise comparable. According to information from one
state's Partnership program, one reason for this requirement is that,
unlike other insurance company benefits, insurance companies do not
provide asset protection to Partnership policyholders. Instead, the
four states with Partnership programs provide the asset protection
benefit by allowing Partnership policyholders to protect some or all of
their assets from Medicaid spend-down requirements. However, because
Partnership policies are required to have inflation protection and
other benefits that traditional long-term care insurance policies are
not required to have, Partnership policies are likely to have higher
premiums. According to a Connecticut state official, in 1996, before
the state required that Partnership and traditional long-term care
insurance policies have equivalent premiums for the same benefits,
Partnership policies were 25 to 30 percent more expensive than
traditional long-term care insurance policies with comparable benefits.
The official further explained that after the requirement was
established, sales of Partnership policies in Connecticut more than
tripled.
Compared with Traditional Long-Term Care Insurance Policies, Two of
Four States Subject Partnership Policies to Additional Review, and All
Four States Require Additional Agent Training:
State officials told us that, while both Partnership and traditional
long-term care insurance policies undergo reviews by the DOI in each of
the four states with Partnership programs, Partnership policies in
California and Connecticut also undergo another review by state
Partnership program officials.[Footnote 46],[Footnote 47] California
and Connecticut Partnership program staff review Partnership policies
to determine whether the policies include the benefits mandated by
Partnership regulations, and whether the insurance companies can meet
additional data reporting and other administrative requirements. The
programs' staff also try to ensure that the policies can be easily
understood and contain all of the required language. The Partnership
program offices in California and Connecticut perform their review of
policies first, and then pass the application on to the DOI for further
review.
DOI officials in California and Connecticut told us that the
Partnership office review of Partnership policies tends to be lengthier
for insurance companies than the DOI review. A DOI official explained
that when insurance companies add new benefit options to policies, the
Partnership review can take longer. Other factors that may slow the
Partnership review process include the time spent coordinating between
the Partnership program and the state DOI, and the time it takes for
insurance companies to learn how to complete the Partnership review
process for the first time. State officials in Indiana and New York--
where reviews of new Partnership policies are conducted by the DOI and
not a separate Partnership program office--told us that it generally
takes the same amount of time for Partnership and traditional long-term
care insurance policies to pass through the review process.
Before they can sell Partnership policies, insurance agents are subject
to additional state training requirements compared with agents who sell
only traditional long-term care insurance policies. Although each of
the four states with Partnership programs has somewhat different
requirements, in general the states require Partnership agents to
undergo about a day of training specific to the Partnership program in
addition to the training that the states require for those who sell
traditional long-term care insurance.[Footnote 48],[Footnote 49]
Partnership program training typically includes information on topics
such as long-term care planning, Medicaid, Medicare, the specific
benefits required by the Partnership program, and how Partnership
policies differ from traditional long-term care insurance policies.
According to some state officials, agents need training on the
Partnership program and Medicaid in order to understand the program and
provide appropriate advice to their clients. In 2006, in three of the
four states all Partnership program training was conducted in person,
rather than via correspondence or on the internet; however, in New York
agents completed an online internet-based course as well as classroom
training as part of the Partnership program training. According to
state officials, all four Partnership states require that the provider
of this specialized Partnership training be approved by the state DOI,
and in Connecticut, the training is provided exclusively by Partnership
program staff.
Despite the complexity of long-term care insurance products, DOI
officials in three states with Partnership programs reported that long-
term care insurance policies, including Partnership policies, garner
few complaints from policyholders. For example, from 1998 to 2005 the
New York Insurance Department received an average of two to three
complaints about Partnership policies each year (there were 51,262
active Partnership policies in the fourth quarter of 2005 in New York).
During this time period, according to data from the New York state DOI,
complaints about all long-term care insurance policies in New York
related to issues such as the interpretation of policy provisions,
premium amounts, and refusals to issue policies.
Long-Term Care Insurance Policyholders Are Generally Wealthier than
Those Without Such Insurance, and Partnership Policyholders Are
Typically Younger than Traditional Long-Term Care Insurance
Policyholders:
Long-term care insurance policyholders--that is, both Partnership
policyholders and traditional long-term care insurance policyholders--
are more likely to have higher incomes and more assets than people
without long-term care insurance. On average, Partnership policyholders
are younger than traditional long-term care insurance policyholders.
Those with long-term care insurance policies are also more likely to be
female rather than male, and married than unmarried.
Long-Term Care Insurance Policyholders Generally Have Higher Incomes
and More Assets than Those Without Long-Term Care Insurance:
In examining Partnership policyholders in two states, traditional long-
term care insurance policyholders nationwide, and those without long-
term care insurance nationwide, we found that Partnership and
traditional long-term care policyholders are more likely to have higher
incomes than those without such insurance.[Footnote 50] In California
and Connecticut--the two states with Partnership programs for which we
had data--at the time they purchased a policy, 55 percent of
Partnership policyholders over age 55 had monthly household incomes of
$5,000 or greater. In comparison, 43 percent of all households with
people over age 55 in these states had monthly household incomes at
this level at the time they were surveyed.[Footnote 51],[Footnote 52]
Similarly, at the national level, when surveyed, 46 percent of
traditional long-term care policyholders over age 55 had monthly
household income of $5000 or greater, whereas 29 percent of those
individuals over age 55 without long-term care insurance had such
incomes.[Footnote 53] We also found that more than half (53 percent) of
Partnership policyholders had household assets of $350,000 or more in
California and Connecticut. Data on the asset levels of all households
in those states were not available for our comparison. Nationwide, 36
percent of traditional long-term care insurance policyholders and 17
percent of people without long-term care insurance had household assets
exceeding $350,000 (see table 2).
Table 2: Household Income and Household Asset Distribution among
Partnership Policyholders and Comparison Populations in Partnership
States and Nationally:
Monthly household income ranges[H].
