Essential Criteria for Long-Term Care Financing Reform Proposals

KEY POINTS: The increasing growth in state Medicaid budgets due in part to the long-term care (LTC) needs of a growing elderly population combined with the low level of penetration into the potential market by private LTC insurance have prompted a number of proposals for reforms in the way LTC is financed in the United States. Proposals for reform of the LTC system to provide access to affordable long-term care for the elderly in the United States need to address the seven essential criteria if the reforms are to be of value and to endure for the long term. Any proposal that fails to do so will yield LTC reforms that are less valuable and less likely to endure. Some recent attempts at reforming how long-term care is financed in the United States have failed because they did not adequately consider these seven essential criteria. For example, the CLASS Act enacted as part of the Affordable Care Act—and subsequently repealed—failed to consider at least two of the criteria: Affordability and Financial Soundness and Sustainability.     1850 M Street NW Suite 300 Washington, DC 20036 202-223-8196 | www.actuary.org Craig Hanna, Director of Public Policy Cori Uccello, Senior Health Fellow © 2016 American Academy of Actuaries All rights reserved. Members of the Long-Term Care Criteria Work Group include: Bruce Stahl, MAAA, ASA, chairperson; Rhonda Ahrens, MAAA, FSA; Lo Linda Chow, MAAA, FSA; Chris Giese, MAAA, FSA; Clark Heitkamp, MAAA, FSA; Laurel Kastrup, MAAA, FSA; David Klever, MAAA, FSA; Brad S. Linder, MAAA, ASA; Ronald Ogborne, MAAA, FSA, CERA; David Plumb, MAAA, FSA; Allen Schmitz, MAAA, FSA; P.J. Eric Stallard, MAAA, ASA, FCA.	For a print-ready PDF of this page, click here. Essential Criteria for Long-Term Care Financing Reform Proposals Introduction The increasing growth in state Medicaid budgets due in part to the long-term care (LTC) needs of a growing elderly population combined with the low level of penetration into the potential market by private LTC insurance, have prompted a number of proposals for reforms in the way LTC is financed in the United States. Proposed reforms can be expected to address both public and private financing mechanisms, as well as mechanisms involving both types of financing.   In 2012, the American Academy of Actuaries hosted a roundtable, “A National Conversation on Long-Term Care Financing,” comprised of stakeholders from public policy, actuarial, research, private provider, and retirement benefits backgrounds to discuss potential reforms to the LTC system. Building further upon that conversation, the Academy’s LTC Criteria Work Group developed criteria in the following areas that should be considered in any discussion on reform: Coverage (with reference to how many individuals are covered by the reform);  Comprehensiveness of benefits; Quality of care;  Understandability and choice;  Affordability;  Risk management and cost control; and  Financial soundness and sustainability. This issue brief offers an overview of each area.

Reform proposals should consider the level and makeup of coverage—how many people are expected to be covered and the attributes of those people. Both the total number of people covered and the attributes of those covered will be affected by whether the LTC system is mandatory or voluntary.

Reform proposals should describe how the LTC system will provide coverage to subsets of the population having different attributes. Subsets of the population will have differing needs for LTC services and differing abilities to pay for such services. Examples of population attributes to consider include:

1. Demographic characteristics, such as age, gender, and marital status;
2. Health status characteristics, such as current general health condition and need for LTC services, and expected future need for LTC services; and
3. Wealth and income characteristics, which could be measured in various ways such as value of assets or lifetime income earned.

Likely the most influential feature driving the number and attributes of people covered under an LTC system is whether it uses a mandatory or voluntary design for providing coverage. Voluntary designs will likely have participation levels below 100 percent, while mandatory designs by definition imply all (or nearly all) individuals are covered under the system. Alternatively, a hybrid system could be constructed that blends features of both. For example, the system may provide a mandatory component that does not cover all expected LTC needs, with an option to purchase additional coverage on a voluntary basis.

The design of voluntary programs should anticipate not only the expected number of people covered but also the mix of individuals by the population attributes noted above, as the attributes of individuals covered will have a large impact on program costs. Proposed voluntary designs should anticipate enrollment counts for the various attribute groups, and clearly define how they will control costs based on that expected mix of individuals. Design elements that can address this risk include:

1. Underwriting to understand potential current and future LTC needs;
2. Vesting periods before benefits can be accessed to address individuals currently needing LTC;
3. Limiting the target population to those with expected lower LTC needs (e.g., those actively working); and
4. Use of active or passive enrollment (i.e., opt-in/optout).

Reform proposal should require performance of sensitivity testing and careful consideration of the interaction of expected enrollment mix, expected LTC needs, and revenue needed to cover those LTC costs.

II. Comprehensiveness of Benefits
Reform proposals should clearly communicate the comprehensiveness of benefits provided by the LTC system—that is, the amount of risk that is covered by the system should be defined clearly, including benefit criteria and benefit limitations. Communicating the comprehensiveness of benefits requires an understanding that the needs of the targeted population vary by geographic regions, as well as transparency in stating the levels and types of care being provided. The following concerns should be addressed when determining a proposed reform’s level of comprehensiveness. When communicating this comprehensiveness, it is important to understand and communicate how these challenges interact.

1. Location of Care—Where can members receive care? This includes, but is not limited to, nursing homes, assisted living facilities, and care given in the home. Proposals should have clear definitions for the locations of care and for the handling of transitions to different care settings. In addition, proposals should be able to address the continually changing manner of providing care in these settings as well as the future evolution of new and innovative care settings. Future care settings may include alternatives to today’s typical home and community care systems, such as those that are modeled after Continuing Care Retirement Communities, those that use new types of informal care, and those that use rehabilitation center/ transition care centers, to name a just a few possibilities.


2. Eligibility of Care—When is a member’s care covered as part of the proposed plan? Common measurements define the severity of an individual’s impairment. For example, eligibility may be defined in terms of an inability to perform activities of daily living or an evaluation of cognitive impairment. Eligibility for care provided in certain settings or locations may depend on the nature or degree of an individual’s impairment.


3. Limits of Total Coverage—What are the overall coverage limits, and how do benefits used under the program count toward these limits? This includes clearly defining when coverage starts, the duration of coverage, and how this program will interact with other programs and/or coverages. Proposals should set forth elimination or waiting periods in the program. The duration of coverage can be defined in terms of a maximum dollar amount or in terms of a maximum period of time.


4. Limits on the Level of Care Covered—What are the maximum amounts paid during a specified period of time? Common time periods used for this type of limit have been daily or monthly maximums. Proposals should clearly describe whether the maximums increase with inflation or continue at current levels, and whether they vary by location of care. Proposals should define whether periodic benefits are paid in full or whether the benefits are limited to the actual expenses that the member incurs. Finally, proposals should be clear as to how the benefits are coordinated with other private and public means of payments.

1. Quality Measurement and Assessment Framework (Qualitative and Quantitative)
   A standardized framework is needed to monitor and objectively benchmark the quality of the care. For example, Medicare’s rating systems (Five-Star Quality Rating System for nursing homes and Home Health Star Ratings for home health care providers) cover a wide range of metrics and could be used as a benchmark for objective standards for all existing types of providers of care. Also, AARP state scorecards offer an objective measure that could be modified to accommodate provider performance.

2. Quality Incentives
   Quality incentives should be considered for the overall industry as well as for individual providers. Though not necessarily an exhaustive list, the key incentive targets might include:

1. The supply of providers in a geographic area (assuming quality depends on adequate supply);
2. Evidence-based caregiver training (e.g., family caregiver support training for cognitively impaired patients);
3. Appropriate location of care within a facility or residence;
4. Appropriate care transition (e.g., reducing re-admission to hospitals);
5. Consumer transparency related to the structure of the care provided, including expected length of care, location of care policies, and what situations the provider of care could accommodate or not (e.g., assisted living facilities may not be able to provide adequate care for severe conditions);
6. Suitability and accountability of the provider of care (e.g., consider whether a family member has the capability, credentials, and training to provide care at home); and
7. Prevention (e.g., fall prevention, safety, wellness management, medication management, and activity level).

3. Quality Awareness
   Awareness of the quality of care is needed from both a provider and a patient perspective. Awareness can be achieved with initial education, access to and readability of educational resources, and identification of what types of coverage the patient is eligible to receive. Education and educational resources may include information regarding fall prevention, wellness management, medication management, safety features, the availability of services and providers, and services that help the provider and caregiver perform their work well for the long term. Educational resources may also make users aware of other services available, whether charitable, publicly operated, or private.

  Affordability varies by level and source of family or individual income, type of coverage, other household expenses, whether the program costs are permitted to change over time, and other factors. Therefore, affordability is a key financial issue for each purchaser. The “purchaser” may be an individual or a family unit. A family unit, frequently having two wage earners, is an important point for consideration because LTC programs could consider the impact of benefits and services on the family unit. Affordability may be usefully described on an after-tax, available-dollars basis including income and assets, both of which will likely change over the life of the purchaser. Households would likely subtract expected amounts spent for necessities such as food, clothing, shelter, transportation, medical care, and prescription drugs. Their remaining funds drive the ability to pay the LTC program contributions, so that the purchaser may ask, “What part of my/our remaining funds would I be willing to give up as a contribution in order to purchase the LTC benefit?”
 
Purchasers should consider the continuing affordability of the program over their remaining lifetime. Continued affordability will be influenced by the contribution structure of the program. A program could be designed like Medicare Part B or Part D, with increasing premiums that are redetermined annually, or with a levelized premium structure like that of many insurance products. In the case where the purchaser expects to live on a fixed retirement income without inflation adjustment, the affordability of the LTC program may become strained for them if the program is subject to anticipated continual jumps to higher contribution levels (by design), or unanticipated increases (e.g., rate increases on levelized premiums). Programs without guarantees or limits on contributions or benefits will require purchasers to carefully evaluate their answer to the affordability question over the long term, especially in the case of those with fixed retirement income and when the initial participation decision was based on contribution levels near a purchaser’s upper bounds of affordability.