Benefits Business

Long-term care costs are high and rising

Long-term care costs are high and rising

By Len Strazewski

The costs keep increasing and the need becomes clearer every day—but the national long-term care insurance program contained in federal health reform legislation doesn't look like it will be the answer to the nation's growing nursing home and assisted living expense problems.

In late September, the Obama administration closed the federal office that administered the Community Living Assistance Services and Support Act (CLASS), the legislation that established an optional government-funded, long-term care insurance program. While the closing doesn't necessarily mean the end of the program, the decision comes after a highly critical report from Republican lawmakers.

The report was issued by the Repeal CLASS Working Group made up of Republican leadership in both the House and Senate charged with overseeing implementation of the new health care law.

The report identifies a series of government documents and reports that challenged the financial viability of the program as early as 2009. For example, the report cites research released by the chief actuary of the Centers for Medicare and Medicaid Services showing that the CLASS program was not fiscally sound and would lead to an "insurance death spiral" caused by adverse selection.

In addition to the bill sponsors and the Congressional Budget Office, officials of the Department of Health and Human Services also challenged enrollment estimates based on premiums that were already artificially low.

The Working Group noted that low enrollment could lead to an unfunded employer mandate to provide the coverage—just to create a viable premium pool.

"This report is further confirmation that the Obama administration willfully chose to ignore the fiscal insolvency of the CLASS program in order to achieve a political victory by pushing the president's health care bill through Congress," said Sen. John Thune (R-S.D.), co-chair of the Working Group. "The CLASS Act is a ticking time bomb that will place taxpayers' money at risk due to fatal flaws in the entitlement program's design and structure. The American people had a right to know the information revealed in our report before they were put on the hook to pay for this massive new entitlement program."

"The CLASS Act is billed as an insurance program for long-term care, but really it's just a huge and very costly government accounting trick," said Sen. Lindsey Graham (R-S.C.). "Remember Enron accounting? Well, I believe even Enron executives would be embarrassed by the accounting gimmicks created by the CLASS Act."

Tough situation

"The president and the Democrats are in an impossible situation," explains Jesse Slome, executive director of the American Association for Long-Term Care Insurance in Washington, the national trade group representing the long-term care insurance industry. "If Democrats throw CLASS under the bus, it opens the door for attacks on other aspects of health care law. If they defend what they know is an unsustainable program, they are open to political attack as the party that never met an unsustainable entitlement program they didn't like."

Slome adds that the eventual repeal or transformation of the CLASS Act will not eliminate the emerging national problem. "Our aging population will require more long-term care than ever," Slome explains. "Most people have no plan in place and will become increasingly dependent on already strapped and limited taxpayer-supported programs like Medicare and Medicaid. Our hope is that a solution that works for all is found, and sooner rather than later."

Sales of private long-term care insurance have been growing very slowly, and coverage is available from many employers only as a voluntary, employee-paid benefit. Agents and brokers who market the coverage report that fewer than 10% of eligible employees sign up.

However, a program for federal employees is growing steadily. More than 45,000 federal employees, spouses and same-sex domestic partners signed up for the Federal Long Term Care Insurance Program (FLTCIP) during the open enrollment period earlier this year—bringing program totals to about 270,000, according to the Office of Personnel Management, which administers benefits for federal employees.

The open enrollment period, which ran from April 4 to June 24 this year, allowed these individuals to sign up for LTC coverage with abbreviated underwriting, which means they had to answer fewer health questions during the enrollment process.

"We've seen strong support for the program in federal agencies, and ultimately in the number of people who applied and were accepted into the program," OPM Director John Berry said in a statement. "OPM is proud of the success of the FLTCIP—one of the most flexible, inclusive and affordable long-term care insurance programs, designed to help employees plan for their needs as they age."

The open enrollment was the first major open period since OPM initiated the program and was the first time eligibility was extended to same-sex domestic partners. OPM said it received more than 300 applications from same-sex domestic partners.

The federal program has also been a catalyst for some growth in private plans. "The federal program is the nation's largest group plan," notes AALTCI's Slome. "In addition to those enrolling in the plan, we estimate some 10,000 or more individuals purchased private coverage as a result of all the promotion.

"We were receiving as many as 30 calls a day from consumers during the open enrollment period," Slome adds. "As a result, we expect overall industry sales for 2011 will be higher than 2010—a most welcome occurrence."

Costs keep rising

Meanwhile, the costs of long-term care continue to grow, say long-term care insurance providers that conduct ongoing research on the cost of care. Americans who provide care for aging parents—one of the largest categories of long-term care—lose an estimated $3 trillion in wages, pension and Social Security benefits when they take time off, according to "The MetLife Study of Caregiving Costs to Working Caregivers: Double Jeopardy for Baby Boomers Caring for Their Parents."

The study was conducted by the MetLife Mature Market Institute in New York with the National Alliance for Caregiving and the Center for Long Term Care Research and Policy at New York Medical College. The research indicates that the number of adults providing care has tripled since 1994. Losses average $324,044 for women and $283,716 for men.

"Nearly 10 million adult children over the age of 50 care for their aging parents," reported Sandra Timmermann, director of the MetLife Mature Market Institute. "Assessing the long-term financial impact of caregiving for aging parents on caregivers themselves, especially those who must curtail their working careers to do so, is especially important, since it can jeopardize their future security."

Families that rely on outside services pay a steep price for keeping their work lives intact. According to the eighth annual survey conducted by Genworth Financial, Inc., in Richmond, Virginia, the median annual cost of long-term care in an assisted living facility grew to $39,135 this year, up 2.4% from 2010. Costs for private nursing home care rose 3.4% to $77,745. However, the average cost of in-home services remained stable at $19 per hour for home health aides.