Long-term Care Coverage
for Tribal Nations:
A Call to Action
By
Jonathan Shreve, FSA,
and
Jill Van Den Bos, MA
1099 18th Street, Suite 3100 Denver, CO 80202-1931 303.299.9400
Thank you for requesting our Long
‑
term Care
White Paper for Tribal Nations.
We hope you will find it informative.
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A Growing Crisis
The long-term care crisis is one of the most difficult issues facing the tribal population today.
What is Long-Term Care Coverage?
Long-term care coverage offers a valuable safety net to a tribe’s elderly and their families.
Current Tribal Attitudes about Long-Term Care Insurance
Common misconceptions about long-term care funding sources mean many tribal members fail to plan for their future. American Indians often have a greater
than average need for long-term care as they age, but have very poor access to true group long-term care coverage.
Optimal Funding
Providing true group long‑term care coverage on a self‑insured basis may make offering this coverage more appealing.
A Call to Action
If we act now and work collaboratively to invest for the future, we can avoid this looming crisis and ensure quality care for you and your tribal members.
The authors of this article have written a book entitled True Group Long-Term Care. This book was published in June 2004 by the International Foundation of Employee Benefit Plans (IFEBP) and develops many of these ideas in greater detail.
1
A Growing Crisis
The long-term care crisis is one of the most difficult issues facing American Indians today. American Indian elderly have a 50% higher rate of disability than the other American elderly.1 Thus, American Indians often have a greater need for long-term care services than the average American, while simultaneously having fewer resources to pay for this care. As the population ages and the percentage of the elderly population increases dramatically, Medicaid, the primary source of nursing home funding in the United States, will not be able to keep pace with the demand for services. As well, many eligible tribal members do not join the Medicaid program even though they are eligible and therefore do not receive Medicaid coverage. With increasing medical costs and shrinking budgets, it is likely that the federal and state governments will be forced to further reduce Medicaid benefits to control spending. These factors will make it harder for families to afford long-term care for their elderly and will force more people to choose between putting their loved ones in a Medicaid facility and caring for them in the home. However, with the changes in family roles such as more mothers working, it is becoming difficult for elderly needing care to receive it from family or community members. Over time, this trend will increase the dependence on external long-term care facilities and home health care.
American Indian elderly have a greater need for long-term care services than the American population at large. Figure 1 compares recent data on the percentage of the 65+ population that needs assistance with various activities of daily living (ADLs)2:
Figure 1: Percentage Needing Assistance with ADLs
0% 5% 10% 15% 20% 25% 30% 35%
Bathing Dressing Eating Get In/Out
of Bed
Walking Toileting
Total US 65+ American Indian 65+
Even with this large proportion of the 65+ American Indian population that needs assistance, demographic data shows that only 6.5% of American Indian elderly are currently receiving long-term care services.3 American Indian elderly rank high in terms of need and low in terms of access to such care.
Many American Indians are uninsured or covered by Medicaid. Currently, 27% of all American Indians are uninsured, and 19% are covered by Medicaid4. In the entire US, Medicaid covers
2
roughly two-thirds of nursing home residents5, but this payment system is already hamstrung and is getting more precarious. Medicaid reimbursement rates are low, typically only 72% of the amount paid by private sources and commercial insurance.6 These rates are often inadequate to cover the expenses incurred by the facilities.7 As a result, long-term care providers are struggling financially. Since 1999, six of the top fifteen nursing facility chains have filed for bankruptcy. Four have since emerged, but the industry still subsists on extremely weak profit margins8. Low Medicaid reimbursement rates have left nursing homes financially compromised and raised issues regarding access, discrimination, and quality of care for Medicaid recipients compared to private paying residents. Thus, Medicaid is struggling to provide enough coverage under today’s circumstances while the baby boom generation has yet to hit the system. The inability to pay for long-term care services threatens to become worse. As America’s population grows older, the over-burdened Medicaid system will face greater demand for services without a concurrent increase in funding. Chart 1 presents 2005, 2015, and 2025 US population projections by age9. The total population is growing, which is driven by the growth of the over 65 population.
Chart 1
Population Projection By Age over Tim e
0 5 10 15 20 25 30 to 34 40 to 44 50 to 54 60 to 64 70 to 74 80 to 84
Population (in Millions)
2005 2015 2025
Source: U.S. Census Bureau, National Population Projections-Summary Tables
As the median age of the population shifts upward, the amount of money put into the Medicaid fund by working adults will not keep pace with the funds necessary to pay for the services incurred by elderly Americans. In 2000, adults over age 65 totaled about 35 million individuals (12.4% of the population) but by 2030, they will represent over 70 million individuals or 20% of the population10. Chart 2 presents the growing size of the over 65 American Indian population.
Chart 2: American Indian Population Over 65
0 50 100 150 200 250 300 350 400 450 500 2000 2005 2010 2015 2020 2025 2030 P o p u la ti on ( in T hous a n ds )
The impact of the growth in the over-65 population is expected to be felt at the beginning of year 2010 when the “baby boomers” begin to turn 65. Experts believe that without extensive systematic changes, Medicaid cannot subsist much beyond 2010 and cannot survive the impact of the baby boomers11. Using U.S. Census projections and the Milliman
Long-Term Care Guidelines, we estimate that the
demand for nursing home services will increase by 48% from 2000 to 202012,13. This increase does not include any increases in the cost of providing the services.
The average amount the federal government spends per American Indian patient from Medicaid coverage is far lower than the national average and is shrinking even further. In 1977, the average federal expenditure per American Indian patient was 75% of the national average. By 1999, it had dropped to 34%.14.
3
What is Long-Term Care Coverage?
When offered by insurers, long-term care coverage provides a variety of coverage for the costs of nursing home, assisted living, home health and other care. Common coverages include nursing home and skilled nursing facility stays, home health care, personal assistance such as homemaker care and meal preparation. Some plans cover adult day care, transportation, and other caregiver support. These services may be delivered either in a nursing facility, and assisted living facility, or the patient’s home.
Many Americans mistakenly assume that Medicare or private health insurance will cover the cost of long-term care. Because they believe that nursing home costs are covered by other sources, they fail to plan for their future long-term care needs. Only about 3% of people have long-term care insurance15,16. However, the New England Journal of Medicine estimates that 43% of people turning 65 will eventually enter a nursing home17.
Nursing home services are very expensive. The average annual cost of a semi-private room in a nursing home is $57,765.18 This is more than most American Indians can afford to pay out of pocket. Nearly three out of five American Indian elderly live below 200% of the poverty line.19 Medicaid
requires that families exhaust their assets before a family member is eligible for nursing home coverage and, unfortunately, the majority of nursing home residents have had to do this. This sequence of events is catastrophic for a spouse who is left at home with limited assets. However, as the need for services outpaces the available funding and the government starts reimbursing at lower rates and tightening qualification requirements, even this option may disappear.
It is estimated that 25% of all households have one adult providing care for an elderly person. This number is expected to increase substantially over the next ten years.20 It is likely that this value is significantly higher for American Indian households, because of the stronger culture of community among the American Indian people. Care giving for a dependent adult in the home can be very stressful physically, financially, and emotionally. In fact, caregivers are less healthy and more likely to die early than non-caregivers.21 Providing assistance with ADLs can require full-time effort and constant supervision. It can also put increased financial hardship on families covering care expenses that are not covered by medical insurance.
4
Current Tribal Attitudes About Long-Term Care Insurance
Tribal governments are in a unique position to sponsor government long-term care programs, which will significantly increase members’ coverage for long-term care services. While this is an enormously valuable safety-net benefit, it can be provided for a lower cost than many may think. Organizations such as the National Indian Council on Aging (NICOA) are working extensively to increase awareness for the need for long-term care coverage and service infrastructures. With the current interest in understanding the need for long-term care for tribal governments, it is clear that tribal governments are beginning to offer richer benefits to tribal members. Many tribal governments are working very hard to offer new insurance coverage to help protect its members. When a tribal government is considering adding these benefits, they must also consider the critical importance of long-term care coverage. Insurance products are traditionally designed to protect against financial destitution.
Medical coverage protects people against catastrophic
medical bills, life insurance protects against the loss of income due to death, disability insurance protects against financial hardship in the event of loss of income, and pension plans protect against the loss of income after retirement. Long-term care is the notable remaining financial catastrophe against which Americans generally have no protection. Indeed, the probability that an working age employee will one day face a nursing home stay is greater than either the probability of disability or premature death while employed 22,23,24, yet the financial fallout from those events is protected with common insurance employer-provided group benefits. Chart 3 summarizes these various risks.25,26,27.
Chart 3
Risks for Age 25 Individuals
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% % Death Before Age 65 % Disabled Before age 65 % Who Use Long Term Care in their Lifetime Male Female
Source: Society of Actuaries, 1990-95 US SOA Basic Female, Age Nearest and 1990-95 US SOA Basic Male, Age Nearest Mortality Tables 369 and 371, Transactions: 1984 Reports of Mortality, Morbidity and Other Experience, Group Long-Term Disability, Table I-1A, and Milliman USA, Long Term Care Guidelines
Many insurers offer group long-term care products, which can be distributed through an organization, such as tribal governments, usually passing on the full cost to the member. But these “convenience” benefits are not consistent with the safety net provision goals of the true
insurance due to the low participation rates among eligible members. Low participation undermines the reasons for providing benefits in the first place, and offers little in the way of a safety net for the covered population.
In order to provide a meaningful safety net benefit in this important and often neglected area, tribal governments need to find a method for offering this coverage such that participation is encouraged. The following section introduces some ideas for how to design a plan to accomplish these goals.
Long-term care is the notable remaining financial catastrophe against which Americans generally have no protection.
5
Optimal Funding for True Group Long-Term Care Insurance
Most insurance benefits can be provided either on an insured or a self-insured basis. While self-funding is uncommon for long-term care coverage, the unique characteristics of the American Indian tribal governments make this a reasonable option.
Many tribal governments, when interesting in adding long-term care coverage for their members, try to contract with a large insurer. However,
since large insurers structure plans for the standard American market, there are many deficiencies in their available offerings. For example, it will be very difficult for a tribal government to convince a large insurer to design a plan that covers members that are currently in nursing homes. Insurance companies are worried about adverse selection, which is the risk that those members that elect to join the plan will be the ones that using a disproportionate amount of services. This adverse selection causes the average cost per covered member to be much higher than the overall average would be. Also, there might be differences in the desired
plan designs for this population. Since community and culture are very strong in the American Indian people, it is likely that the desired plan design would include an emphasis on caregiver benefits and in home care.
The primary advantages of a self-funded plan are control and cost. Sponsors typically decide to self-fund coverage because (a) the risk represented by the benefits does not appear to warrant the risk and profit charges of the insurer, (b) if unfavorable fluctuations are system wide (such as low interest rates), the insurer will still expect the sponsor to pay for the bad experience and (c) it allows the sponsor more control over the design of the program.
All of these benefits apply to the self-funding of long-term care coverage. As a brand new coverage, the natural inclination is to assume that the risk would be too great. However, long-term care coverage has a risk profile most like pension plans. Most of the funding for long-term care occurs well in advance of the need for services (a typical age of long-term care benefit initial users is age 80,
compared to pension benefits, which typically start at age 65). If a fund has a gain or loss, these costs could be amortized over a period of years - just like in a pension plan.
The costs charged by an insurer include risk charges and profit margin, as well as commissions. These costs can be avoided or reduced in a self-funded arrangement. In addition, many states are requiring insurers to use rates that can hold up under “moderately adverse” experience. While this is a prudent regulatory policy, it also causes insurers to include margins in their premium rates that will turn into additional profits under less than adverse circumstances. Sponsors could also choose to leave such margin in their rates, but could convert the additional funding to additional benefits if the adverse events do not emerge. Sponsors could, on the other hand, strip the margins out of their contributions, understanding that adjustments may need to be made in the future in the case of unfavorable experience. With self-insurance, such state regulation is removed, allowing the tribal government to decide how to proceed.
Tribal governments know the needs of their members better than others. Therefore, self funding will allow tailoring of the coverage to the exact culturally and traditionally correct types of coverage.
6
Call to Action
The 2002 Roundtable of the Indian Health Service, National Indian Council on Aging, and Agency on Aging highlighted a key fact about long-term care: Tribal resources are becoming increasingly important to meeting long-term care needs. A report included in this roundtable states:
“Resources may be drawn from tourism, casinos or other tribal enterprises. With regard to long-term care, the commitment of resources by an individual tribe becomes critical to its ability to assess its own capacities, to start funding a long-term care program, and to meet gaps in covered services. Successful adaptation of diverse resources, therefore, can create a foundation
for a long-term care program.”28
If we continue to ignore the need to plan for the aging American Indian population and their care needs, Tribal Governments we will find themselves
in a state of crisis hurting thousands of American Indian elderly and families. The negative impact will affect families, tribes, the US government, the long-term care industry and cost billions of dollars to society. The answer is to create a safety net to protect tribal members against the financial destitution of a welfare system. If we act now and work collaboratively to invest for the future, we can avoid this looming crisis and ensure quality care for our loved ones and ourselves.
7
About the Authors
Jonathan is a Principal with the Denver office of Milliman. He leads the Health practice, which he started in 1992. He joined the firm in 1987.
Jon has worked in the long-term care insurance field for over 15 years. His work in this area includes pricing, product development, valuations of blocks of business, filing, and large group offerings. He has recently co-authored the book True Group
Long-Term Care. In this book he emphasizes
methods by which employers can offer long-term care coverage in an effective and efficient fashion using principles similar to other true group benefits such as pension.
Jon is a major contributor to Milliman’s research efforts, including primary authorship of the Milliman Small Group and Individual Medical Underwriting Guidelines, as well as being a substantial contributor to the Long-Term Care Guidelines and Retiree Medical Cost Guidelines. He is Chairman of Milliman’s Care Guidelines Division.
Email Jon at [email protected].
Jill Van Den Bos, MA, is a consultant in the Denver Health practice of Milliman. She joined the firm in 1992.
Jill has worked in the long-term care insurance field for approximately 12 years. She has assisted clients in the pricing and design of long-term care policies, valuation of blocks of business, and state filings. Jill, with Jon Shreve, is co-author of the book True
Group Long-Term Care.
Jill has also published a number of articles on long-term care and on Pharmacoeconomics from an actuarial perspective. She has contributed to Milliman’s internal research on long-term care costs, the Long-Term Care Guidelines. She has a bachelor’s degree from Davidson College and a master’s degree from UCLA.
8
About Milliman
Milliman is an international independent actuarial and management consulting firm with offices in 35 cities throughout the United States and in Burmuda, Hong Kong, London, Melbourne, Seoul, and Tokyo. In addition, Milliman is a founding member of Milliman Global, a prominent international affiliation of actuaries and consultants. Founded in 1947, Milliman is a highly respected and trusted business partner that has demonstrated the highest professional standards on behalf of its clients. The Denver office was opened in 1983 with the addition of a health practice in 1992.
Milliman maintains a reputation for excellence and professionalism. We offer independent, competent, and impartial services that are always in the best interest of our clients. Our professionals adhere to a strict code of ethics with an assurance of confidentiality. We do not accept commissions or contingent compensation.
To discuss how we can be of assistance to you please contact your Milliman consultant or the authorsat
Jon Shreve, FSA, MAAA Principal and Consulting Actuary
(303) 672-9090
Jill Van Den Bos, MA Consultant
9
1
National Indian Council on Aging, The Needs of Indian Elders, (July 10, 2002)
2
National Resource Center on Native American Aging, Activity Limitations among Native American Elders, Report 01-2. (October 2001)
3
Indian Health Service, Benson, William F., Long Term Care in Indian Country Today: A Snapshot, (2002)
4
Kaiser Family Foundation, Key Facts: Race, Ethnicity & Medical Care, (October 1999)
5
Centers for Medicare and Medicaid Services, Health Care Industry Market Update, (May 20, 2003).
6
David C. Grabowski, “A Longitudinal Study of Medicaid Payment, Private-Pay Price and Nursing Home Quality”, International Journal of Health Care Finance and Economics 4, 5-26, 2004.
7
BBO Seidman, LLP, A Briefing Chartbook on Shortfalls in Medicaid Funding for Nursing Home Care prepared for the American Health Care Association, (July 11,2002).
8
Centers for Medicare and Medicaid Services, Health Care Industry Market Update, (May 20, 2003).
9
U. S. Census Bureau, National Population Projections-Summary Tables, (January 13, 2000).
10
U. S. Department of Health and Human Services, Administration on Aging, A Profile of Older Americans, (2002).
11
Moses, Stephen. The Myth of Unaffordability: How Most Americans Should, Could, and Would Buy Private Long-Term Care Insurance, (Center for Long-Term Care Financing, September 1, 1999).
12
U.S. Census Bureau, U.S. Interim Projections by Age, Sex, Race, and Hispanic Origin, (March 18, 2004). Retrieved from http://www.census.gov/ipc/www/usinterimproj/natprojtab02a.xls
13
Milliman USA, Long Term Care Guidelines, (July 1 2002).
14
Indian Health Service, Benson, William F., Long Term Care in Indian Country Today: A Snapshot, (2002)
15
America’s Health Insurance Plans, Long Term Care Insurance, (June 10, 2004). Retrieved from http://www.ahip.org/content/default.aspx?bc=39|341|328. on June 18, 2004.
16
U.S. Census Bureau, Population and Household Economic Topics, (June 18, 2004). Retrieved June 18, 2004 from http://www.census.gov/population/www/ .
17
P. Kemper and C. M. Murtaugh, “Lifetime use of nursing home care”, New England Journal of Medicine Vol 324 No 9 (Feb 28, 1991).
18
Mature Market Institute, The Metlife Market Survey of Nursing Home and Home Care Costs, (August 2003).
19
National Indian Council on Aging, The Needs of Indian Elders, (July 10, 2002)
20
Mature Market Institute, The Metlife Juggling Act Study, (November 1999).
21
Kalb, C. “How TLC Makes You Sick,” Newsweek May 31, 2004, 62.
22
Society of Actuaries. 1990-95 US SOA Basic Female, Age Nearest and 1990-95 US SOA Basic Male, Age Nearest, (Mortality tables 369 and 371), Retrieved March 23, 2004, from Table Manager Program version 3.0 at
http://www.soa.org/tablemgr/tablemgr.asp.
23
Society of Actuaries, Transactions: 1984 Reports of Mortality, Morbidity and Other Experience, “Group Long-Term Disability, Table I-1A”, (St. Joseph, Michigan: Imperial Printing Company, 1988), 247.
24
Milliman USA, Long Term Care Guidelines, (July 1, 2002).
25
Society of Actuaries. 1990-95 US SOA Basic Female, Age Nearest and 1990-95 US SOA Basic Male, Age Nearest, (Mortality tables 369 and 371), Retrieved March 23, 2004, from Table Manager Program version 3.0 at
http://www.soa.org/tablemgr/tablemgr.asp.
26
Society of Actuaries, Transactions: 1984 Reports of Mortality, Morbidity and Other Experience, “Group Long-Term Disability, Table I-1A”, (St. Joseph, Michigan: Imperial Printing Company, 1988), 247.
27
Milliman USA, Long Term Care Guidelines, (July 1, 2002).
28
