Long-Term Care Insurance: Proposals to Link Private Insurance and Medicaid Need Close Scrutiny

Published by the Government Accountability Office on 1990-09-10.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

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                                                  IZt?por*t,t,o t,lre Chairman, Subcommittw
GAO                                               on I~ktalt,h and Long-Term Care,
                                                  Select Committee on Aging,
                                                  I Iousc of‘ Representatives

                                                   LONG-TERM CARE
                                                   Proposals to Link
                                                   Private Insurance
                                                   and Medicaid Need
                                                   Close Scrutiny


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          United States
GAO       General Accounting Office
          Washington, D.C. 20548

          Human Resources Division


          September lo,1990

          The Honorable Edward R. Roybal
          Chairman, Subcommittee on Health
            and Long-Term Care
          Select Committee on Aging
          House of Representatives

          Dear Mr. Chairman:

          This report responds to your request for information on proposed state
          demonstration projects using private insurance in conjunction with
          public programs such as Medicaid to finance long-term care costs. These
          projects are an outgrowth of planning grants made to eight states (Cali-
          fornia, Connecticut, Indiana, Massachusetts, New Jersey, New York,
          Oregon, and Wisconsin) by the Robert Wood Johnson Foundation (RWJF).
          The purpose of the grants is to promote long-term care insurance for the
          elderly, thus helping them avoid impoverishment resulting from long-
          term care needs.

          The states envision different types of projects. Most have proposed dem-
          onstrations that would allow persons who purchase a qualifying private
          long-term care insurance policy to become Medicaid-eligible after the
          policy pays for a period of long-term care costs. Participants would not
          have to “spend down” or deplete as much of their assets as is now
          required to meet program eligibility thresholds. Implementation of the
          projects, however, requires that the Medicaid program waive certain
          statutory requirements such as those relating to spend-down. The
          Department of Health and Human Services (HHS), which administers
          Medicaid at the federal level, has authority to do so for demonstration
          projects, However, the proposed RWJF demonstrations will operate for
          periods longer than allowed under Medicaid’s current statutory
          authority. Consequently, legislation is needed to allow HHS to authorize
          these demonstrations. During the last congressional session, two bills
          were introduced, though not enacted, to give HHS such authority.

          Your office expressed two main concerns about authorizing these

      l   Would the projects result in increased costs to Medicaid? Because long-
          term care insurance can be relatively expensive, the persons choosing to
          participate in these projects may be those with higher incomes who ordi-
          narily would not be expected to become eligible for Medicaid.

          Page 1               GAO/HRlWO-154   Long-Term   Care Insurance-Medicaid   Link Proposed

                   . Could the states adequately safeguard consumer interests? Recent
                     studies have questioned the restrictiveness of private long-term care
                     policies and the adequacy of state consumer protection regulations.

                     With these concerns as a backdrop, your office asked for our views on
                     the projects. Specifically, we were asked to consider whether the
                     projects’ designs reasonably assure (1) no additional Medicaid costs and
                     (2) adequate consumer protection.

                     Our results are summarized below and discussed in more detail in
                     appendix I.

                     Several factors will determine how successful the RWJF projects are in
Results in Brief     developing long-term care insurance for the elderly that coordinates
                     with Medicaid benefits while not increasing Medicaid costs. One is the
                     extent to which the projects encourage purchase of such insurance by
                     the persons most likely to become Medicaid-eligible if they needed ser-
                     vices-those who would have to spend down their assets. If instead,
                     higher income individuals predominate among the participants, they
                     could add to Medicaid rolls and hence to overall Medicaid costs. Projects
                     that mitigate the risks of increases in Medicaid costs are those that
                     incorporate features to (1) make insurance more affordable to lower
                     income persons and (2) limit the amount of assets that individuals can
                     protect from Medicaid’s spend-down requirements.

                     Consumer protection is another factor. The projects will involve the
                      states in an activity that has its risks-promoting   long-term care insur-
                      ance products. These are relatively new products that are evolving rap-
                      idly-often   more rapidly than states’ regulatory and oversight
                      mechanisms. For the RWJF projects to work as intended, there needs to
                      be reasonable assurance that the long-term care insurance products
                      being sold and endorsed by the states under their projects provide ade-
                      quate coverage that will be available to purchasers when needed.
                      Should subsequent problems arise with the products because of such
                      factors as coverage restrictions or an insurer’s financial difficulties, pro-
                     ject participants may look to the states to provide the coverage that was
                      expected of the insurer. Consequently, states should have adequate reg-
                      ulatory standards and oversight mechanisms to help ensure that such
                      products give consumers reasonable protection.

                     Further, by virtue of their involvement in the promotion of private long-
                     term care insurance, states also will have added responsibilities to

                     Page 2               GAO/HlU%~154   Long-Term   Care Insurame-Medicaid   Link Proposed

                    ensure that consumers understand any risks associated with the policies
                    offered under these projects. The policies can lessen, but may not elimi-
                    nate, an individual’s risk of impoverishment as a result of catastrophic
                    long-term care costs. For example, consumers who choose to participate
                    in such projects by buying approved long-term care insurance would
                    continue to be at risk for high out-of-pocket costs. These could stem
                    from several sources, including payments for services not covered under
                    their insurance policy or the difference between what the policies pay
                    and billed charges. Thus, states need to ensure that the information and
                    counseling consumers need to make informed decisions is made

                    Appendix II provides a brief description of each state’s project.

                    The proposed projects could reduce significantly the financial hardships
Matters for         that some elderly endure as a result of catastrophic long-term care costs.
Congressional       Additionally, the projects could provide a key source of information on
Consideration       the use of long-term care services by project participants. Such informa-
                    tion could help insurers in developing long-term care products that best
                    meet consumers’ needs and are affordable. It also could assist state reg-
                    ulators in developing better standards and oversight mechanisms to
                    increase consumers’ protection, and educational campaigns to inform
                    them of the appropriateness of long-term care insurance options.

                    Linking private insurance coverage with Medicaid, however, has its
                    risks. The states participating in these projects currently account for
                    nearly half of all Medicaid expenditures. Unlike other Medicaid demon-
                    strations, these proposed projects could operate for 20 or more years.
                    Thus, the proposed demonstrations would represent a fundamental
                    change in the way Medicaid determines eligibility. Further, if the pro-
                    posed demonstration projects are not structured correctly, the Medicaid
                    program could experience cost increases, while consumers risk not
                    achieving the benefits they expected.

                    Accordingly, adequate safeguards to minimize these risks should be
                    carefully designed and incorporated into the projects at the outset. If the
                    Congress wishes to give HHS authority to approve demonstration
                    projects such as those proposed by the RWJF grantee states, it should
                    consider including the following in the legislation:

                l   Statutory requirements to minimize the financial risks to the Medicaid
                    program and to consumers and

                    Page 3              GAO/HID-90-154   Long-Term   Care Insurance-Medicaid   Link Proposed

l   Requirements that the Secretary of Health and Human Services prepare
    interim reports to the authorizing committees on whether the statutory
    requirements are meeting their intended purposes.

    As arranged with your office, unless you publicly announce its contents
    earlier, we plan no further distribution of this report until 30 days from
    its issue date. At that time, we will send copies of it to the Secretary of
    Health and Human Services, the Director of the Office of Management
    and Budget, and other interested parties. We also will make copies avail-
    able to others on request. Please call me at (202) 275-5451 if you or your
    staff have any questions concerning the report. The major contributors
    to this report are listed in appendix III.

    Sincerely yours,

    Janet L. Shikles
    Director, Health Financing
       and Policy Issues

    Page 4              GAO/m90-154    Long-Term   Care Insurance-Medicaid   Link Proposed
Page 5   GAO/HRD-90.154   LowTern   Cam InmrammMedicaid   Link Propoetnl

Letter                                                                                                           1

Appendix I                                                                                                       8
Long-Term Care         Background
                       Scope and Methodology
Insurance: Proposals   Cost of Projects to Medicaid Uncertain                                               11
to Link Private        States Should Be Required to Adopt Existing Regulatory                               15
Insurance and          States Should Provide Adequate Consumer Education                                    17
Medicaid Need Close    Conclusions                                                                          18
Scrutiny               Matters for Congressional Consideration                                              19

Appendix II                                                                                                 20
State Project
                       Indiana                                                                              22
                       Massachusetts                                                                        24
                       New Jersey                                                                           26
                       New York                                                                             28
                       Wisconsin                                                                            29
                       Oregon                                                                               32

Appendix III                                                                                                34
Major Contributors
to This Report


                       HHS       Department of Health and Human Services
                       HMO       health maintenance organization
                       NAIC      National Association of Insurance Commissioners
                       RWJF      Robert Wood Johnson Foundation

                       Page 6             GAO/HRD-90-154   Long-Term   Care Insurance-Medicaid   Link Proposed
Page 7   GAO/IIRBBO-154   Long-Term   Care ImurammMedicaid   Link Propoeed
Appendix I

Long-Term Care Insurance: Proposals
to Link Private Insurance and Medicaid
Need CloseScrutiny
                            Long-term care refers to a wide range of medical and support services
Background                  provided to persons who have lost some or all capacity to function on
                            their own due to a chronic illness or condition and are expected to
                            require such services over a prolonged period of time. For most people,
                            the costs of long-term care can be catastrophic. Nursing home care, for
                            example, currently costs in excess of $25,000 per year. For this reason,
                            financing long-term care services has become a major problem for the
                            elderly and their families and for federal and state governments.

Long-Term Care              Because of the limited coverage of such care under other public pro-
Financing Split Betw ‘een   grams and private health insurance, Medicaid is the largest payer for
                            long-term care services. In 1988, an estimated $42 billion was spent on
Public and Private          nursing home care nationally. Such expenditures have been divided
                            almost evenly between public programs and private sources, with Medi-
                            caid accounting for the vast majority of the public funds.

                            Medicaid has become the long-term care payment source for many
                            middle-income elderly persons. In most states, they can become eligible
                            for Medicaid through the spend-down pr0cess.l That is, they become eli-
                            gible once their income, less expenses incurred for medical services, has
                            been reduced to Medicaid’s income eligibility threshold (which varies
                            considerably by state). In addition to meeting income limits, Medicaid
                            applicants must deplete all but about $2,000 of their assets, excluding
                            the homeq2Once a person has spent down to Medicaid eligibility levels,
                            Medicaid will help pay nursing home bills. However, the Medicaid recip-
                            ient is required to contribute much of his or her income toward the cost
                            of care.

                            Many insurers, providers, and policy analysts believe that the growing
                            population of elderly and their current financial status signal a strong
                            market for future growth of private sector financing mechanisms. The
                            market for long-term care insurance, while still relatively small, is

                            ‘The process applies in the 36 states and District of Columbia that have a “medically needy option”
                            as a part of their Medicaid program. This option extends coverage to individuals who are ineligible
                            for cash assistance on the basis of income but whose income and resources are insufficient to meet
                            their medical needs. A medically needy person establishes eligibility through a spend- down process
                            that occurs once the person’s income, after deducting medical or remedial service expenses, has been
                            reduced to the state-set income eligibility threshold. In the remaining states, Medicaid eligibility is
                            established on the basis of applicants’ income and assets.

                            ‘A Medicaid spousal impoverishment provision that became effective September 30, 1989, provides a
                            partial exemption of spend-down requirements to spouses of Medicaid nursing home residents. Such
                            spouses now are entitled to keep $816 in monthly income and the greater of $12,000 in assets or one-
                            half of the couple’s assets up to a maximum of $60,000 (excluding their home).

                            Page 9                      GAO/HRD-90-164      Long-Term   Care Insurance-Medicaid     Link Proposed
                      Appendix I
                      Long-Term Care Imurance: Proposals
                      to Link Private Insurance and Medicaid
                      Need Close Sc~tSny

                      expanding. As of December 1989, more than 1.6 million long-term care
                      insurance policies were in force, an increase of 36 percent over 1988.3

                      Private long-term care insurance policies typically offer nursing care
                      indemnity benefits. That is, they pay a set amount each day for a speci-
                      fied period of time that a policyholder stays in a covered facility. A
                      policy may or may not cover all types of long-term care, and different
                      policies may define long-term care services or facilities differently.
                      There is considerable variation among private long-term care policies in
                      terms of coverage, the amounts payable per day of service, duration of
                      coverage, and other conditions affecting the value of policies.

                      For his or her policy, a long-term care policyholder normally pays a
                      fixed annual premium, which is set at the time the policy is first issued.
                      Older individuals who obtain long-term care coverage pay significantly
                      higher premiums than younger individuals because the likelihood of
                      needing long-term care services increases with age. Persons aged 85 or
                      older are most at risk of needing long-term care, and the average age of
                      persons obtaining individual policies in 1988 was 70.

                      Both the government and consumers can benefit potentially from an
                      expanded long-term care insurance market. The government can benefit
                      if middle-income elderly no longer rely on Medica.id for assistance in
                      paying for extended long-term care services, and consumers can benefit
                      if spending-down to meet Medicaid eligibility levels is delayed or
                      avoided. However, many long-term care insurance policies have been
                      found to be deficient in such matters as coverage, eligibility for benefits,
                      and inflation protection. Further, recent studies have shown that poli-
                      cies tend to be too expensive for most elderly to purchase.

Robert Wood Johnson   To address the concerns about costs of long-term care and inadequate
Foundation Projects   policies, as well as how to proceed with new national financing strate-
                      gies, the Robert Wood Johnson Foundation established its Program to
                      Promote Long-Term Care Insurance for the Elderly. In response to the
                      need for programmatic and empirical experience, the Foundation gave
                      planning grants to eight states (California, Connecticut, Indiana, Massa-
                      chusetts, New Jersey, New York, Oregon, and Wisconsin). The grants

                      3Survey data from a Health Insurance Association of America publication dated March 1990.

                      Page 9                    GAO/HRD-90-164     Long-Term   Care Insurance-Medicaid   Link Propowd
  Appendix I                                                                                     .
  Long-Term Care Insurance: Proposals
  to Link private Insurance and Medicaid
  Need Close Scrutiny

  finance investigation of the potential role of a public/private                      insurance
  partnership in long-term care financing.4

  A major purpose of the RWJF program is to help the elderly avoid the
  impoverishment required to establish Medicaid eligibility and reduce the
  reliance of middle-income elderly on Medicaid. In addition, the projects
  focus on consumer education and improving the value of long-term care
  insurance products. Each state project plans to

. work with insurers to develop policies that better meet the long-term
  care needs of the elderly and are more affordable;
. establish stronger regulatory controls over long-term care insurance;
. establish consumer education programs to better inform the elderly
  about the limitations of public financing and the availability of private
  long-term care insurance.

  Appendix II provides a brief description of each state project.

  Two basic approaches to promoting the purchase of long-term care
  insurance have evolved from the eight states: (1) offering purchasers
  protection of assets and/or income protection from Medicaid’s spend-
  down requirements based on the benefits they receive from the insur-
  ance policies they buy and (2) subsidizing premiums or coinsurance and
  deductibles for long-term care insurance policies that meet state require-
  ments. Implementing the income and/or asset protection provisions of
  the projects would require waivers of current Medicaid spend-down
  requirements. All but one of the states have proposed or are considering
  such provisions. Waiving such requirements is the basis of concern
  among federal and state officials that high-income individuals will
  become eligible for Medicaid, thereby increasing costs to the program.
  The concern is heightened because the eight participating states account
  for about 44 percent of Medicaid’s total expenditures.

  While HHS has broad authority to waive Medicaid requirements for dem- .
  onstration projects, the proposed RWJF demonstrations will operate for
  periods longer than allowed under current statutory authority.6 During
  the past congressional session, legislation was introduced in the House

  4The timetable for completion of the planning phase varies by state; however, all planning should be
  completed by the fall of 1990.
  %nder its demonstration authority, HHS can grant waivers of Medicaid requirements for up to
  2 years; however, a state may request an extension of the initial waiver.

  Page 10                    GAO/HRD-90-164      Long-Tern   Care Insurance-Medicaid    Link Proposed
                      Appendix I
                      Long-Term Care Insurance: Proposals
                      to Link Private Ineurance and Medicaid
                      Need Close Scrutiny

                      of Representatives (H.R. 2499) and passed in the Senate (S. 1998) to
                      allow the Secretary of HHS to authorize extended demonstration projects
                      such as those proposed by the RWJF grantee states. The bills authorized
                      HHS to grant 6- or lo-year waivers, which HHS may renew for an addi-
                      tional 6 years at a state’s request. HHS could grant the waivers for up to
                      10 state Medicaid programs after determining that the states’ projects
                      would be (1) cost-effective and efficient and (2) not inconsistent with
                      the purposes of the Medicaid program. Both bills contain language that
                      assures policyholders participating in the projects of continued Medicaid
                      eligibility should the demonstrations or waivers be terminated. In addi-
                      tion, the Senate bill would require the state seeking a waiver to assure
                      HHS that it will not approve a long-term care insurance policy unless it
                      meets standards at least as stringent a those recommended by the
                      National Association of Insurance Commissioners (NAIC).6

                      We examined documents on the demonstration projects provided by the
Scopeand              RWJF project director and interviewed officials of HHS and various public
Methodology           interest groups such as the American Association of Retired Persons. In
                      New York and Connecticut, where projects have advanced beyond the
                      initial planning phase, we interviewed project officials. Additionally, we
                      analyzed data from selected studies, reports, and books concerning the
                      elderly and long-term-care-related issues.

                      We obtained additional information on the remaining six projects
                      through telephone interviews with project officials. To gather informa-
                      tion on the states’ legislation and regulations regarding long-term care
                      insurance, we contacted officials in the states’ departments of insurance.
                      Our work was performed between January and March 1990 in accor-
                      dance with generally accepted government auditing standards.

                      The ultimate effect of the RWJF projects on Medicaid costs is uncertain
Cost of Projects to   and will depend on several factors. Among the determinants are the
Medicaid Uncertain    income and assets of the persons who participate and the insurance cov-
                      erage they buy, which can be known only after the projects are
                      underway. Another factor is the participants’ subsequent use of long-
                      term care services, for which it will take 20 or more years to develop
                      sufficient data. Further, while each of the proposed demonstration

                      “The NAIC is an organization comprising the heads of the insurance regulatory agencies in each state,
                      the District of Columbia, and U.S. territories. It provides a forum for state insurance officials to dis-
                      cuss common problems, standardize the annual reporting of financial information by insurance com-
                      panies, and develop model legislative acts and regulations for adoption by the states.

                      Page 11                      GAO/HRD-90-154     Long-Term    Care Insurance-Medicaid     Link Proposed
                         Appendix I
                         Long-Term Care Insurance: Proposals
                         to Link Private Insurance and Medicaid
                         Need Close Scrutiny

                         projects is intended to either reduce or not increase Medicaid costs, the
                         projects’ cost estimates do not always include all relevant factors that
                         may increase costs.

Costs Can Increase If    The RWJF projects’ success in not increasing Medicaid costs will depend
                         in part on the extent to which they encourage the purchase of long-term
Projects Attract High-   care insurance by persons who are most likely to become Medicaid-
Income Persons           eligible if they need services -those who would have to spend down
                         their assets. If instead, higher income individuals predominate among
                         the participants, they could add to Medicaid rolls and hence to overall
                         Medicaid costs.

                         A recent study found that 58 percent of all nursing home residents
                         remained non-Medicaid patients during their stays and only 7 percent
                         spent down during their stays to become Medicaid-eligible.’ The
                         remaining 35 percent were Medicaid-eligible when they entered. Suc-
                         cessfully targeting the 7 percent of the population who spend down is
                         the key to attaining the projects’ cost containment goals.

                         Yet this population may be unable to participate in the projects, because
                         they are likely to have relatively low incomes and assets and hence be
                         unable to afford long-term care policies. A recent study examining the
                         cost of policies from nine companies found that policies offering a basic
                         range of services averaged $1,346 annually for a 67-year-old (based on
                         January 1990 prices). Policy prices escalate with a person’s age, and by
                         age 77 premiums averaged $3,208. Reportedly, less than 20 percent of
                         persons between the ages of 65 and 79, the target market for most long-
                         term care insurers, could afford such policies.s

                         Because of their income and assets, individuals who could afford such
                         insurance coverage are the least likely to become eligible for Medicaid,
                         except in instances of long lengths of stay. Nearly two-thirds of nursing
                         home stays, however, have been for 6 months or less and only about 16
                         percent of persons stayed for longer than 2 years, Further, individuals
                         with higher incomes are also the least costly to Medicaid when they do
                         become eligible for benefits. This is because the Medicaid program
                         requires persons to use their i.ncome after deductions to offset their

                         7Korbin Liu, Pamela LX&y, and Kenneth Manton, “Medicaid Spenddown in Nursing Homes,” The Ger-
                         ontologist, Vol. 30, No. 1, Feb. 1990, pp. 7-16.

                         ‘Families USA Foundation, in collaboration with James P. Firman and Susan Polniaszek of United
                         Seniors Health Cooperative, The Unaffordability of Nursing Home Insurance, Jan. 1990.

                         Page 12                    GAO/HRD-90-164    Long-Term   Care Insurance-Medicaid   Link Proposed
                              Appendix I
                              Long-Tern Care Insurance: Proposals
                              to Link Private Insurance and Medicaid
                              Need Close Scrutiny

                              costs of care. For example, single individuals are required to offset
                              Medicaid costs with all income, less a personal allowance that varies by
                              state with the minimum set at $30 per month. Some states allow an indi-
                              vidual to retain additional funds to maintain his or her home if a physi-
                              cian certifies that the individual is likely to return home within 6

Risk of Medicaid cost         Many factors can affect the likelihood that spend-down waivers will
                              increase Medicaid expenditures. But how the projects are structured-
Increases Varies by Project   that is, how much income and assets individuals can protect from spend-
                              down-is of greatest significance. This determines the likelihood that
                              people who would not otherwise qualify for Medicaid benefits could
                              establish their eligibility for the program. Essentially, the more money
                              that a person can protect from Medicaid’s spend-down requirements, the
                              more likely that the projects will appeal to wealthier persons and the
                              greater the risk of Medicaid cost increases.

                              New York’s proposed project poses relatively more risk of Medicaid cost
                              increases than the other projects we reviewed because it would not
                              (1) limit the amount of assets or income that persons can protect from
                              spend-down requirements nor (2) target lower income persons. Specifi-
                              cally, New York proposes to allow persons who purchase long-term care
                              coverage to become Medicaid-eligible after their policy pays at least
                              3 years of nursing home coverage or 6 years of community-based ser-
                              vices, such as home health care. Eligibility would occur without regard
                              to the person’s assets or income. That is, no income or assets would be
                              applied to the cost of care once an individual becomes eligible.9 This can
                              result in persons with relatively high income and assets becoming eli-
                              gible for Medicaid- a significant risk because the state estimates that 73
                              percent of its project participants will be higher income persons (i.e.,
                              incomes 600 percent or greater above the poverty level).

                              The state expects the project to reduce overall Medicaid costs because it
                              estimates that the savings resulting from the insurance coverage of
                              moderate-income persons will more than offset the Medicaid benefits for
                              higher income persons. New York’s data indicate that, without insur-
                              ance, moderate-income persons would have spent down to Medicaid eli-
                              gibility well in advance of the expiration of the proposed 3-year
                              insurance coverage. Thus, the insurer rather than Medicaid would pay

                              aProject officials told us they were considering requiring copayments that would be based on a sliding
                              scale depending on income.

                              Page 13                     GAO/HRJ%SO-164 Long-Term       Care Inmrance-Medicaid      Link Proposed
Appendix I
Long-Term Care Insurance: Proposals
to Link Private Insnrance and Medicaid
Need Close Scrntiny

for a considerable portion, if not all of those individuals’ long-term care
expenses. The state’s estimate of cost savings, however, is highly sensi-
tive to underlying assumptions about who will buy a policy, how many
purchasers would have spent down to Medicaid without insurance, how
long it would have taken them to spend down, and how much they
would have contributed toward the cost of their care once they became

Most of the other projects would minimize the risks of Medicaid cost
increases by limiting the amount of assets participants can protect and
requiring that they spend down their incomes to Medicaid eligibility
thresholds. For example, a project developed by Connecticut and being
considered by several other states, proposes to treat long-term care
insurance payments, “dollar-for-dollar,” as if they were made by the
policyholder by drawing down his or her assets.

To illustrate, a person with $126,000 in assets subject to spend-down
who received $60,000 in insurance payments would be allowed to pro-
tect that amount from spend-down. To become eligible for Medicaid, the
person would then have to spend down the balance of his or her assets,
or $76,000, in the same way as other persons applying for Medicaid.
Under current Medicaid requirements, the individual’s entire $126,000
in assets would be subject to spend-down requirements. To the extent
that the project works as intended, individuals would become eligible for
Medicaid at about the same time they would have had they not pur-
chased insurance and Medicaid would not incur additional costs.10The
only difference would be that the individual could retain $50,000 of
assets that otherwise he or she would have spent to meet Medicaid’s
eligibility thresholds.

Also, most projects are attempting to make long-term care insurance
more affordable to lower or moderate-income persons. To accomplish
this, the projects have proposed a number of strategies, which include:
offering policies that cover only 1 or 2 years of care; offering competi-
tively bid group policies to selected groups such as state employees; and

l”Actually, the individual would become eligible somewhat sooner if one assumes that the premiums
paid for the private insurance coverage otherwise would have been saved.

Page 14                    GAO/HRDBO-154     Long-Term   Care Insurance-Medicaid   Link Proposed
                           Appendix I
                           Long-Term Cam Insurance: Proposala
                           to Link Private Insurance and Medicaid
                           Need Close Scratlny

                           subsidizing premiums and copayments.ll For each project, however, par-
                           ticipation is voluntary and will depend on the market appeal of the ben-
                           efit packages offered and the purchaser’s insurability,12 as well as the
                           price of the policies. Consequently, the income and asset levels of pro-
                           spective participants remain uncertain. It would appear that other safe-
                           guards to avoid future increases in Medicaid costs, such as limiting the
                           amount of assets that individuals can protect, are warranted.

Cost Estimates Sometimes   Whether the projects meet their cost goals also will depend on whether
Exclude Relevant Factors   the states have considered all factors that could increase Medicaid costs
                           when making their cost estimates. Because the projects are in varying
                           stages of development, we did not attempt to analyze all of the states’
                           cost estimates. However, for two states whose projects were completed
                           or near completion we did look at their estimates to see if any factors
                           that could increase costs were not considered. Not all factors were con-
                           sidered. For example, at least one state did not take into account the
                           losses it would incur by not seeking recoveries of Medicaid costs from
                           project participants’ estates, as they would with other Medicaid recipi-
                           ents. Further, participants’ out-of-pocket expenses (such as copayments
                           and deductibles) may well decrease assets and influence the timing of
                           Medicaid eligibility. This potential effect was not evident in either of the
                           states’ cost estimates. Thus, if legislation permitting HHS to grant Medi-
                           caid waivers for the projects is enacted, a thorough analysis of the
                           projects’ cost estimates appears warranted.

                           Unanticipated costs to the Medicaid program and consumers can arise if
States Should Be           states operating these projects fail to adopt adequate regulations and
Required to Adopt          oversight of long-term care insurers. Long-term care insurance is a rela-
Existing Regulatory        tively new product that is evolving rapidly-often    more rapidly than
                           states’ regulatory and oversight mechanisms. For the RWJF projects to
Standards                  work as intended, there needs to be reasonable assurance that the long-
                           term care insurance products being sold and endorsed by the states
                           under their projects provide adequate coverage that will be available to
                           purchasers when needed. Further, states will need to collect and eval-
                           uate substantially more data than is now routinely collected through

                           ’ ‘These latter subsidy features are incorporated in several projects but will be funded entirely by the
                           lZLong-term care policies are medically underwritten-that   is, insurers require applicants to com-
                           plete a medical history and will insure only those who do not have conditions likely to result in a high
                           demand for long-term care services.

                           Page 15                     GAO/HRD-90-164      Long-Term    Care Insurance-Medicaid    Link Proposed
                           Appendix I
                           Long-Term Cam Inmrance: Proposala
                           to Link Private Inmrance and Medicaid
                           Need Close Scrutiny

                           their oversight programs to (1) adequately monitor insurers’ compliance
                           with regulatory standards and (2) assess whether these demonstration
                           projects are successful.

Compliance With Minimum    Over the past several years, concerns have arisen within the Congress
Regulatory Standards       and consumer advocacy groups about the quality of the long-term care
                           insurance products being sold. As little as 2 years ago, studies by us and
Should Be Required         others demonstrated that most policies being sold contained provisions
                           that were restrictive. For example, many policies excluded coverage for
                           persons with Alzheimer’s disease -a major cause of long-term nursing
                           home stays. Further, we reported in April 1989 that most states had not
                           adopted the minimum regulatory standards recommended by the NAIC
                           that aimed to limit such restrictions.13 Since our report, more states have
                           adopted NAIC'S standards, but many have not.

                           Because the RWJF projects will involve states in promoting private long-
                           term care insurance products, states that seek the necessary Medicaid
                           waivers will assume an even greater regulatory responsibility than
                           other states. For the projects we reviewed, the state will issue a seal of
                           approval to the policies of insurers electing to participat,e if the policies
                           meet the state’s requirements. States also will undertake advertising
                           campaigns to encourage the purchase of these products. Accordingly, we
                           believe a state should be required to demonstrate, prior to being granted
                           a waiver, that its laws and regulations meet at least NAIC'S minimum
                           standards and that it has the capability to enforce the requirements.
                           Further, because NAIC'S standards continue to evolve as the market
                           evolves, a state should be required to maintain its standards to at least
                           NAIC'S minimum levels.

                           Each of the RWJF projects recognizes the need for strong regulation of
                           long-term care insurance products offered under the projects. Addition-
                           ally, most of the participating states have enacted or are considering
                           legislation and/or regulations that meet or exceed NAIC'S models, RWJF
                           project officials told us.

Adequate Data Collection   To effectively regulate long-term care insurers requires that states col-
Should Be Required         lect and analyze sufficient data to monitor insurers’ performance and
                           practices. In conducting our 1989 review of the states’ regulation of

                            13Long-Term Care Insurance: State Regulatory Requirements Provide Inconsistent Consumer Protec-
                           -tion (GA-     _89 _67 , Apr. 24,1989).

                           Page 16                   GAO/HRD-99-164     Long-Term   Care Insurance-Medicaid   Link Proposed
                        Appendix I
                        Long-Term Cam Insurance: Proposala
                        to Link Private lneurance and Medicaid
                        Need Close Scrutiny

                        long-term care insurers, we found that much of the data collected by
                        state regulators was not compiled in a way that allowed them or others
                        to readily isolate long-term care policy data from insurers’ other policy
                        lines. This would include policyholder or other complaints and financial
                        data such as loss ratios and reserves.

                        Further, because these projects are demonstrations to test the feasibility
                        of a private/public partnership, it is important that data be available to
                        evaluate them. This will require states to collect and evaluate substan-
                        tially more data from insurers than they now do under their regulatory
                        programs. Much of the information needed to assess the adequacy and
                        role of private long-term care insurance in a public-private partnership
                        is unavailable, except to the insurers. Such information would include
                        demographics of policyholders, the numbers of persons denied coverage
                        or benefits, and the numbers of and reasons for policy cancellations.

                        In our opinion, these kinds of data are essential, for both the private
                        sector in developing the long-term care insurance market and the public
                        sector in instituting appropriate regulatory controls. The uncertainty
                        that insurers and regulators face in the absence of data is one reason
                        many state regulators allow long-term care insurers to write policies
                        that contain many restrictions and limitations. The projects are in a
                        unique position to help resolve this problem of insufficient data. Thus,
                        we believe that waiver approval should be made contingent on states
                        and insurers agreeing to collect sufficient data and to share all research
                        and tracking data on program participants with HHS. In this way, HHS too
                        can monitor the projects and the data can become a matter of public

                        By virtue of their involvement in the promotion of private long-term
States Should Provide   care insurance, states will have added responsibilities to ensure that
Adequate Consumer       consumers understand any risks associated with the policies offered
Education               under these projects. The policies can lessen, but may not eliminate, an
                        individual’s risk of impoverishment as a result of catastrophic long-term
                        care costs. Thus, we believe that states need to make available informa-
                        tion and counseling services to help consumers make informed decisions.

Consumers Need to Be    While effective state regulation will lessen consumer risks, it cannot
Made Aware of’ Risks    protect a consumer from making a poor decision in the purchase of long-
                        term care insurance. Studies have shown that consumers frequently are
                        unaware of the risks they face and therefore are poorly positioned to

                        Page 17                   GAO/HRD-90-154   Long-Tern   Care Insurance-Medicaid   Link Prom
                        Appendix I
                        Lang-Tern Cam Inmrance; Proposals
                        to Link Private Insu.rance and Medicnid
                        Need Close Scrutiny

                        make appropriate decisions regarding long-term care financing. They
                        may not understand or be aware of coverage limitations of Medicare and
                        privately purchased Medicare supplemental policies, the eligibility
                        requirements of Medicaid, and the proper role and limitations of private
                        long-term care insurance.

                        Being able to afford a policy is not necessarily a basis for purchasing
                        one. The wisdom of such a purchase depends on the consumer’s personal
                        circumstances and on the state’s Medicaid requirements, For example, a
                        person with no dependents may have little to gain by purchasing long-
                        term care insurance, as would a person without substantial assets that
                        are at risk of spend-down. Though states can save Medicaid costs by
                        encouraging persons to buy more asset protection coverage than they
                        have assets to protect, this is not a responsible policy option from the
                        consumer’s perspective.

                        Additionally, individuals electing to participate need to understand that
                        the added protection afforded by the projects will continue only as long
                        as they maintain their long-term care policies in force. If the insurer
                        elects to increase long-term care policy premiums in the future, it can do
                        so on a class basis. A policyholder who is unable to continue paying
                        these increased premiums may lose coverage, along with his or her
                        entire prior investment in premiums.

Risks of High Out-Of-   Consumers who choose to participate in these projects by buying
Pocket Expenses         approved long-term care insurance could continue to be at risk for high
                        out-of-pocket costs. Consumers need to understand this. Such costs
Lessened but Remain     could come from several sources, including payments for services not
                        covered under their insurance policy or the difference between the
                        indemnity payments and billed charges.

                        The proposed projects could significantly reduce the financial hardships
Conclusions             that some elderly endure as a result of catastrophic long-term care costs.
                        Additionally, the projects could provide a key source of information on
                        the use of long-term care services experienced by project participants.
                        Such information could help insurers in furthering the development of
                        long-term care products that best meet consumers’ needs and are afford-
                        able. It also could help state regulators develop (1) better standards and
                        oversight mechanisms to increase consumers’ protection and (2) educa-
                        tional campaigns to inform consumers of the appropriate role of long-
                        term care insurance options,

                        Page 18                    GAO/HRD-So-164   Long-Term   Care Insurance-Medicaid   Link Proposed
                    Appendix   I
                    to Link Private Insurance   and Medicaid
                    Need Close Scrutiny

                    On the other hand, risks are involved if the projects are given authority
                    to link private insurance coverage with Medicaid. The Medicaid program
                    could experience cost increases, while consumers risk not receiving the
                    benefits they expected. Any problems that arise can have significant
                    impacts, because the states that potentially will seek Medicaid waivers
                    account for nearly 44 percent of all Medicaid expenditures nationwide.
                    Further, while the RWJF projects are considered demonstrations, their
                    commitments to project participants may require that they operate for
                    20 or more years. Such a long operating time frame is more character-
                    istic of programs than of demonstrations. Consequently, authorizing the
                    demonstrations would represent a significant policy decision.

                    Accordingly, adequate safeguards to minimize these risks should be
                    carefully designed and incorporated at the outset. Specifically, we
                    believe the projects should be required to

                . limit the amount of assets that individuals can protect from Medicaid’s
                  spend-down requirements. This would lessen the risks of subsidizing
                  persons who have other resources and thereby increase Medicaid costs;
                . adopt and continue to maintain regulatory standards at least equivalent
                  to those in NAIC'S model act and regulations. This would lessen the risk
                  that consumers will buy policies that are unduly restrictive;
                l develop effective consumer education and counseling programs. This
                  would help assure that consumers are aware of the risks and buy cov-
                  erage commensurate with their needs; and
                . collect and make available to HHS sufficient data to monitor and evaluate
                  the projects on an ongoing basis.

                    If the Congress wishes to give HHS authority to approve demonstration
Matters for         projects such as those proposed by the RWJF grantee states, it should
Congressional       consider including in the legislation
Corkderation    . requirements to minimize the financial risks to the Medicaid program
                  and to consumers and
                . requirements that the Secretary of Health and Human Services prepare
                  interim reports to the authorizing committees on whether the statutory
                  requirements are meeting their intended purposes.

                    Page 19                     GAO/HRD-90-164   Long-Term   Care Insurance-Medicaid   Link Proposed
Appendix II                                                                                                        .
State Project Summties

                                The following program descriptions and demonstration designs were
                                taken from summaries prepared by project directors in each of the eight
                                states selected to receive a long-term care insurance planning grant from
                                the Robert Wood Johnson Foundation. As the summaries were dated
                                October 1989, they may not reflect the current status of program devel-
                                opment. This is particularly true for Oregon because its grant was the
                                last to be awarded.


Program Description             A public-private partnership will be created to finance and provide long-
                                term care services. Individual Californians will be offered the choice of
                                purchasing affordable insurance or enrolling in health maintenance
                                organizations that pay for or provide appropriate home, community,
                                and institutional long-term care services. The state will subsidize the
                                premiums and enrollment fees of low- and moderate-income older
                                Californians who choose to buy approved long-term care insurance or
                                enroll in HMOS, using a sliding scale according to ability to pay. Subsidies
                                up to 60 percent or more of the annual premiums are planned. Finan-
                                cially well-off individuals will not be eligible for subsidies.

Public Rolein Partnership       A state agency will be assigned to oversee the program. The state
                                agency will

                            l set standards for the review and approval of service plans of health
                              maintenance organizations and insurance companies who choose to par-
                              ticipate in the program and agree to offer an approved range of long-
                              term care services;
                            l specify the scope of in-home, community, and institutional services that
                              each long-term care service plan must cover in order to be approved to
                              participate in the program;
                            l set uniform standards to be used by each participating service plan to
                              determine when enrolled individuals qualify to receive covered services;
                            . establish appropriate loss-ratios;
                            l monitor the quality of long-term care service provided;
                            l offer a state long-term care service plan; and
                            . subsidize the costs of premiums and enrollment fees of individuals who
                              purchase private insurance or join HMOS that offer long-term care ser-
                              vices meeting state requirements.

                                Page 20             GAO/HRINO-164   Long-Term   Care Insurance-Medicaid   Link Proposed

                                 Appendix If
                                 State Project   Summaries

Private Rolein Partnership       To participate in the program and qualify to have their long-term care
                                 products eligible for subsidization, insurance companies and HMOS must

                             l   develop service plans that cover and pay for the range of home-, com-
                                 munity-, and institutional-based long-term care services required by the
                             .   arrange with not-for-profit and for-profit providers to coordinate and
                                 deliver appropriate long-term care services that allow the individual to
                                 remain independent and in the community as long as possible;
                             l   adopt quality assurance standards established by the program and mon-
                                 itor the quality of care delivered by case managers and providers;
                             .   use the uniform eligibility criteria set by the program when marketing
                                 their long-term care coverage and enrolling consumers;
                             l   use a uniform, disabled-based assessment measure set by the program to
                                 determine when policyholders and enrollees qualify to begin receiving
                                 long-term care services,
                             .   guarantee enrollees and policyholders that their long-term care coverage
                                 will be renewed for life, except for failure to pay premiums and enroll-
                                 ment fees; and
                             .   meet the state standards for the amount of benefits to be paid out for
                                 each dollar of premium paid in.

Demonstration Design             Details of the demonstration-size,            duration, and so on, still are being


Program Description              The Connecticut Partnership for Long-Term Care is a joint, private-
                                 public program that encourages individuals to plan for their long-term
                                 care needs by purchasing insurance protection in an amount commensu-
                                 rate with the amount of assets they wish to protect. Thus, an individual
                                 with $25,000 in assets might buy $25,000 in insurance protection; one
                                 with $150,000 in assets might buy $160,000. An individual who
                                 exhausts insurance benefits can apply for Medicaid, and each dollar that
                                 the insurance has paid out in accordance with state policy will be sub-
                                 tracted from the individual’s remaining assets. The assets will not be
                                 recognized or considered in determining eligibility for Medicaid. That is,
                                 the insurance payments for long-term care services will be considered as

                                 Page 21                     GAO/HRD-W-154   Long-Term   Care Insurance-Medicaid   Link Proposed
                           Appendix II
                           St&e Project   slummarlee

                           equivalent to the spending of assets for the purpose of establishing
                           Medicaid eligibility.

                           Once on Medicaid, individuals will receive life-long coverage of health
                           and long-term care needs and can keep control of assets up to the
                           amount that insurance paid. Income still must be applied toward long-
                           term care expenses. (In case an individual needs Medicaid assistance
                           prior to exhausting insurance benefits, he or she can disregard assets
                           equal to what the insurance has already paid out. One additional dollar
                           in income can be retained for each additional dollar the insurance policy
                           paid for approved expenses.) This resource protection could be available
                           to the elderly and nonelderly alike.

Demonstration Design       The Connecticut Partnership for Long-Term Care is a 6-year, statewide,
                           demonstration and evaluation project. It was launched in August 1989
                           with a 3-year RWJF grant of nearly $1.8 million. The state’s commitment
                           to the partnership involves

                       l developing precertification requirements so that qualifying insurance
                         policies incorporate comprehensive benefits (such as provision of case
                         management in all home care benefits and built-in inflation protection or
                         guaranteed offering of periodic inflation upgrades) and implement min-
                         imum standards (set minimum nursing home and home care per diems,
                         notify potential purchasers of the state’s toll-free assistance line, give
                         them information prepared by the state on long-term care and the Con-
                         necticut Partnership for Long-Term Care, and so on);
                       l providing the promised asset protection; and
                       . undertaking, via the state’s Department of Aging, a complete public edu-
                         cation and consumer counseling strategy.


Program Description        Indiana’s Long-Term Care Insurance Program is designed to

                       l assure fiscal neutrality and ease of administration for the state;
                       . foster insurance industry flexibility and innovation in long-term care
             Y           product design; and

                           Page 22                     GAO/HRDBO-164   Long-Term   Care Insurance-Medicaid   Link Proposed
                         Appendix II
                         state Project   snmmaries

                       9 maximize the opportunity for consumer choice among a wide array of
                         long-term care insurance products, including service indemnity benefits
                         and prepaid health as well as life insurance products.

                         At the same time, the program provides a basic level of consumer pro-
                         tection through a set of minimum standards that exceed those estab-
                         lished by NAIC and must be met before products can qualify for
                         participation in the Indiana program.

                         To serve the broadest possible range of income groups in the simplest
                         and most equitable manner, the Indiana program provides asset protec-
                         tion equal to the amount of insurance payments for Medicaid-eligible
                         long-term care services. Consumers can purchase a qualifying policy
                         with the amount of insurance coverage (and asset protection) they
                         believe they need and can afford.

                         After insurers over 66 have depleted their insurance benefits and
                         become eligible for Medicaid, they will contribute income toward the
                         cost of care in the same manner as other Medicaid- eligible individuals.
                         For services covered in insurance policies but not covered by the
                         Indiana Medicaid program (such as certain home care services), con-
                         sumers may apply to the state for participation in other public programs
                         that do provide these services.

                         To qualify for the Long-Term Care Insurance Program, insurance poli-
                         cies must provide coverage for at least 12 months. This 12-month min-
                         imum has merit in that (1) premiums are affordable to a larger number
                         of people for this level of coverage, (2) the length of stay in nursing
                         homes is less than 1 year for a majority of people (63-73 percent,
                         depending on the source), and (3) a majority of the spend-down group
                         (86 percent, according to Indiana statistics) spend down within 1 year.

Demonstration Design     Indiana plans to implement the Long-Term Care Insurance Program
                         statewide for the population aged 66 and over for the period authorized
                         by the terms of the federal Medicaid waiver. The state intends to make a
                         permanent commitment to program entrants but may cease to accept
                         new clients if circumstances warrant at the end of the waiver period.

                         With the program, Indiana expects to demonstrate that insurance is a
                         viable method of financing a greater portion of long-term care expenses
                         than has been the case to date. The state seeks to show it can simultane-
                         ously enhance the quality and affordability of long-term care insurance

                         Page 23                     GAO/HRD-90-154   Long-Term   Care Insurance-Medicaid   Link Proposed
                          Appendix II
                          State Project   Snmmarles

                          coverage available to its citizens, reduce financial hardships for the eld-
                          erly, and offset future public expenditures for long-term care.

                          Specifically, Indiana will attempt to

                      . compare the demographic characteristics and economic status of per-
                        sons purchasing and not purchasing insurance;
                      l evaluate the types, features, and amount of coverage purchased and
                      l evaluate the extent to which insurance coverage is used to finance
                        Medicaid-eligible and other publicly funded services;
                      l monitor the effects of underwriting, access to coverage, and access to
                        benefits; and
                      . evaluate the long-term care expenditure patterns for insured and unin-
                        sured persons (such as client asset and income spend-down patterns,
                        changes in the share of the costs born by insurers and public expendi-
                        ture patterns, and effects of induced demand).

                          Insurers have agreed in principle to provide the state with data needed
                          to administer the Long-Term Care Insurance Program and to evaluate its
                          effectiveness. For example, insurers will track the characteristics of per-
                          sons denied coverage due to underwriting. After the first 2 years of
                          operating the program, Indiana in conjunction with insurers will eval-
                          uate the need for additional public-private approaches to serving per-
                          sons with limited access to coverage due to economic or health status
                          factors. The results of this evaluation will be compared with the results
                          of the Governor’s Health Policy Commission study of the uninsured. If
                          additional approaches are recommended, they will be implemented
                          during the third year of the program.


Program Description       The commonwealth of Massachusetts has designed a public/private
                          partnership for financing long-term care. This partnership would estab-
                          lish an agreement between the state and private insurance carriers to
                          make long-term care insurance available to the citizens of the common-
                          wealth. Insurers will develop quality long-term care insurance policies
                          that offer lifetime benefits for nursing home and home health care.
                          High-income elders will be able to purchase these policies at full price;
                          low- and middle-income elders will pay a reduced premium for the same

                          Page 24                     GAO/HRDBO-154   Long-Term   Care Insurance-Medicaid   Link Proposed
                       Appendix JI
                       stnte Project snmmarles

                       -lifetime benefit package. The state will share the risk with the insurers
                        for low- and middle-income elders, not by paying premiums but by
                        paying for care for these individuals if their private benefits are

                       As a result, a large number of people currently uninsured will have
                       access to long-term care insurance and avoid the risk of catastrophic
                       nursing home and home health care costs.

Demonstration Design   To test the feasibility of this partnership, the state proposes a 5-year
                       demonstration in which the partnership would enroll 7,500 Massachu-
                       setts elders between the ages of 65 and 69 over a 3-year period. They
                       will include three target groups, composed of

                       elders from the general state population,
                       elders enrolled in a health maintenance organization (HMO), and
                       state retirees.

                       The state also is interested in working with one or more employer
                       groups to offer long-term care insurance to working age populations.
                       The intent is to assist one or more employers in Massachusetts to enroll
                       up to 2,600 workers in private insurance plans in the fourth and fifth
                       years of the demonstration period. No public subsidies are planned for
                       the working age group.

                       The commonwealth will request proposals from insurers who are inter-
                       ested in insuring both elders and working age employees in Massachu-
                       setts. The partnership to be established will guarantee policyholders
                       that the program will continue for their lifetimes. The demonstration
                       project is expected to serve as the first phase of statewide implementa-
                       tion of a long-term care insurance plan.

                       In years 1 and 2 of the state’s partnership with private insurance car-
                       riers, coverage will be offered to 5,000 Massachusetts elders, half from
                       the general population and half from among HMO enrollees. In year 3,
                       enrollment will be offered to a group of 2,500 state retirees.

                       In years 4 and 5, the state will work with one or more private employers
                       to offer long-term care insurance plans to workers. Year 5 also will be
                       used either to plan statewide implementation or to integrate the current
                       demonstration into ongoing state functions.

                       Page 25                   GAO/HRD-W-154   Long-Term   Care Insurance-Medicaid   Link Proposed
                            Appemih II
                            State Project   Summaries

New Jersey

Program Description         New Jersey Senior Care is designed to be a public/private partnership
                            based on a group insurance program, underwritten and offered by a car-
                            rier chosen through competitive bidding. The two chief goals of the pilot
                            are to

                        . create a working model that encourages the spread of long-term care
                          insurance programs offered to New Jersey residents by employers,
                          unions, and other membership groups in the state; and
                        l demonstrate an insurance program that is affordable to people at a
                          wider range of income levels than is currently available.

Participants’   Roles       As a public/private         partnership, the program involves three partici-
                            pants, as follows:

                            1. Carrier: In addition to risk-taking, the carrier will provide in-kind con-
                            tributions to a targeted education program, training of case managers,
                            on-going consumer service, claims management, and provision of data
                            and statistical analysis.

                            2. State/sponsor: The state is responsible for the design and manage-
                            ment of the overall program, funding of a subsidy program for those
                            who qualify, and coordination of the insurance program with existing
                            Medicaid programs for long-term care. The state also is responsible for
                            reaching agreement and coordinating with the sponsoring organization
                            whose members will be offered the pilot program. In this case, the state
                            is working with the New Jersey Education Association.

                            3. Insured: Individuals will be responsible for the costs of their own pre-
                            miums and some copayment and deductible costs.

Covered Services            The insurance program includes skilled and custodial care, both institu-
                            tional and community-based, with strong emphasis on home care, adult
                            day care, and respite care for families. This is a modified indemnity
                            plan, providing 70 percent of usual and prevailing rates, up to $lOO/day
                            for nursing homes, $50/day for home care, and $25/day for adult day or
                            respite care. (There are also monthly limits on each service, allowing for
                            services to be aggregated by the case manager.)

                            Page 26                     GAO/H.RD-90-164   Long-Tern   Care Insurance-Medicaid   Link Proposed

                           Appendix KI
                           State Project Snmmaries

ProposedModel Plans        Two models have been developed:

                           1. Basic plan: Individuals will be offered coverage in line with their level
                           of personal resources (income and assets). Participants will be assigned
                           to one of six resource groups, corresponding to years to spend-down.
                           The insurance will have deductibles and copayment (120 days; 70/30
                           coinsurance) to lower premiums for everyone. Resource groups l-3 will
                           have sliding scale subsidies for the deductibles and copays. Resource
                           groups 4-6 will be responsible for their own cost sharing.

                           2. Asset protection plan: This is an enhanced version of the basic plan,
                           which will be implemented if the state obtains a Medicaid waiver. In this
                           plan, the individuals in resource groups 1-4 will be entitled to waiver of
                           Medicaid asset spend-down rules and income limits. If these individuals
                           have purchased the required amount of insurance for their resource
                           group, they will be entitled to a credit of the number of years of cov-
                           erage they purchased. Individuals in resource groups 5 and 6 will not be
                           entitled to the waiver of spend-down rules but would be expected to
                           purchase concomitantly greater coverage.

Demonstration Design       A group insurance program will be offered to a defined population (New
                           Jersey teachers and retired teachers). A pilot group of 10,000 active and
                           retired individuals is expected, with an extensive education program
                           preceding the enrollment period.

                           The demonstration is planned to begin in 1990, with enrollment effec-
                           tive in 1991. The first year will be devoted to designing and managing
                           the request for proposal process for selecting the carrier, creating the
                           case management network, and creating and implementing the education
                           program. By collecting information and data through April 1996, the
                           demonstration will create a 5-year data base.

                           A management information system will be an integral part of the dem-
                           onstration, enabling the capture of data on the pilot population. Addi-
                           tional goals in the demonstration include

                       . creation of a certification process for case management agencies,
                       . establishment of a preferred provider organization arrangement for
                         insurers under long-term care insurance, and
                       l creation of an outreach program to employers to encourage further use
                         of the long-term care insurance model.

                           Page 27                   GAO/HRDI)O-154   Long-Term   Care Lnsurance-Medicaid   Link Proposed
                      Appendix II
                      State Project   SummarSes

New York

Program Description   New York State will reinsure purchasers of state-approved, private,
                      long-term care insurance policies who have exhausted all the benefits of
                      such policies. The reinsured individual will be eligible for all long-term
                      care services provided under New York’s Medicaid program for as long
                      as needed. Those who are reinsured by Medicaid will not be required to
                      meet the income/asset regulations otherwise applicable to Medicaid

                      The New York State model contains the following features:

Services              Institutional long-term care: The program provides for 3 years in a resi-
                      dential health care facility qualified as a provider in the Medicare pro-
                      gram pursuant to title XVIII of the Social Security Act.

                      Home and community-based services: Nursing, personal, and respite
                      care services are covered. They can be provided by a home care ser-
                      vices, long-term home health care services, or certified home health care
                      agency; a long-term home health care program; or a personal care pro-
                      vider licensed or regulated by any state or local agency. Qualification
                      for reinsurance through the use of home- and community-based services
                      will require usage and coverage of such services for periods longer than
                      3 years.

Eligibility           Eligibility for services will be determined by objective assessment. Eligi-
                      bility for indemnity benefits will be premised on receipt of covered

Administration        For institutional long-term care, the minimum payments will be set at
                      established average Medicaid rates. Inflation protection will be required,
                      and insurer benefits may be either service or indemnity.

                      For home- and community-based services, per diem rates will be based
                      on a fixed percentage of the institutional long-term care rate being paid
                      when the services are utilized.

                      Underwriting will be permitted, and policies must be guaranteed renew-
                      able. The insurable event criteria will be approximately equivalent
                      among insurers and consistent with New York State definitions. Assess-
                      ment criteria and instruments must be comparable among insurers and

                      Page 28                     GAO/HRINlHW   Lmg-Term   Care Inmwmce-Medicaid   Unk Proposed
                       Appendix II
                       State Project   Summaries

                       the state. The Superintendent of Insurance will establish minimum loss
                       ratios, and pooling of loss ratios across product lines will not be

                       Insurers will maintain separate premium and loss data for policies. Pri-
                       vate and public insurers will coordinate their data collection so tha.t
                       information on reinsurance eligibles will be known and tracked.

Demonstration Design   The demonstration is anticipated to continue for 6 to 10 years. Enroll-
                       ment of 12,000 consumers is New York State’s goal. There will be no age
                       limit for purchasers and no limit on the number of purchasers above
                       12,000. The demonstration evaluation will focus on 60-80-year-olds.

                       Through negotiation of mechanisms and structures with the private
                       sector, the state will make sure that data collection is coordinated and
                       service delivery monitored. This will be done in such a way that insured
                       individuals will clearly understand their transition to public reimburse-
                       ment for long-term care services when private benefits are exhausted.
                       Case management will be required.

                       The state will market the demonstration program through an identifying
                       logo associated with qualifying insurance products. Carriers may
                       market products by using the logo; carriers will be asked to contribute to
                       the marketing and education effort.


Program Description    Wisconsin’s long-term care protection program consists of a variety of
                       state incentives for long-term care insurance market participation. The
                       incentives are designed to encourage (1) insurers to develop comprehen-
                       sive policies and (2) consumers to consider purchasing these policies to
                       protect themselves against long-term-care-related impoverishment.

                       The state will offer the following incentives:

                       1, Consumer protection and education: A variety of means, such as cam-
                       paigns and public speaking, will be employed to inform the public about
                       the costs and risks of long-term care, the pros and cons of buying long-

                       Page 29                     GAO/HRD90-164   Long-Term   Care Insurance-Medicaid   Link Proposed
Appendix II
State Project   Snmmaries

term care insurance, and the special features of the long-term care pro-
tection program as they are implemented.

2. Availability to state employees and retirees: The Wisconsin Depart-
ment of Employe Trust Funds will make long-term care protection insur-
ance available to state employees and retirees, their spouses, and their

3. Increased monitoring and data coordination: The long-term care pro-
tection program will establish an individual-specific, long-term care data
base through centralization of various state data bases. The data will be
shared with insurance firms as a basis for their product pricing efforts
and ongoing monitoring.

4. Private case management enhancement: Social service agencies in
Wisconsin counties manage care for many public program clients. The
long-term care protection program will work with interested county
agencies to enhance their insurance/private pay case management

6. Reinsurance for sellers: The state proposes to establish a long-term
care reinsurance pool for firms selling long-term care policies. Insurers
offering such insurance would voluntarily participate, paying premiums
to the pool against the risk that their long-term care insurance fund
would experience unanticipated losses in the future. The reinsurance
contracts may require that insurers maintain higher loss ratios than
would be required by law.

6. Expanded medical assistance eligibility: The long-term care protection
program will offer expanded Medicaid eligibility limits to insurance pur-
chasers, under a federal waiver. Individuals will purchase qualifying
long-term care protection insurance policies or other financing vehicles,
and use the benefits as appropriate. If they exhaust their policy benefits
before their long-term care needs end, they can apply for Medicaid
under that program’s medically needy guidelines. In analyzing such
applicants’ financial eligibility, the state will not count certain
nonhousing assets toward Medicaid spend-down. The spend-down will
be offset by the amount of money the insurer had paid on behalf of the
beneficiary for services that otherwise would have been covered by
Medicaid. This offset will count services covered under regular

Page 30                     GAO/~90-154   Long-Term   Care Insurance~Medicaid   Link Proposed
                          Appendix II
                          State Project   Summaries

Target Groups             To accomplish these goals, the long-term protection program would
                          target two groups for state action:

                          1. Persons who could afford to buy long-term care insurance but could
                          not self-finance a significant long-term care need and risk becoming
                          Medicaid-eligible after a year or two of disability. An estimated 90,000
                          persons, aged 65 and older with annual incomes of $lO,OOO-30,000 and
                          per-person assets of $lO,OOO-90,000, are now in the first target group.

                          2. Persons not quite able to afford long-term insurance for whom state
                          subsidies of the premiums would be cost-effective because the insurance
                          would prevent or delay Medicaid eligibility and lead to Medicaid savings
                          commensurate with long-term protection subsidy dollars. The state’s ini-
                          tial analysis of Wisconsin and national income and asset data shows
                          approximately 15,000 residents of the state in this target group, those
                          over age 64 with annual incomes of $5,000-15,000 and nonhousing
                          assets of $15,000-25,000 per person.


Program Description       As Oregon’s project was one of the last to begin, this information should
                          be considered tentative. The following elements in a potential partner-
                          ship model for Oregon have been under consideration by state officials:

                      . Medicaid as stop-loss, with enhanced protection of assets at spend-
                      . Medicaid subsidy of policies, if that would be a cost-effective alternative
                        to early spend-down;
                      l A comprehensive home- and community-based and nursing facility ser-
                        vice package similar, if not identical, in scope to the state’s Medicaid
                        service package under its 1915(d) waiver;
                      . State screening and case management for the entire package utilizing
                        objective functional impairment criteria similar to those currently used
                        by the state to define the “insurable condition.” These criteria include,
                        for example, needing assistance in at least three of six activities of daily
                        living (behavior, continence, eating, mobility, bathing, and dressing);
                      . The state to take risk with respect to case management and home- and
                        community-based service costs.

                          Page 32                     GAO/HRD90-164   Long-Term   Care Insurance-Medicaid   Link Proposed
                       Appendix II
                       St8Ut Project   Snmmaries

Demonstration Design   Oregon officials contemplate a target population consisting of either
                       state employees, their parents and in-laws, and retirees; or public
                       employees generally, their parents and in-laws, and retirees. The dura-
                       tion of interest, should there be a demonstration project, is at least
                       6 years; the scope would be statewide. There is no clear indication as to
                       whether and under what conditions a single carrier would be best. Long-
                       term contractual arrangements binding the partners probably will be a
                       more politically feasible mechanism than the public trust fund originally

                       Information sought from such a demonstration would include: marketa-
                       bility of long-term care insurance to younger age groups; utilization of
                       both family and paid services in the insured environment compared
                       with the public pay environment; costs in the insured environment com-
                       pared with the public pay environment; and consumer acceptance of
                       restrictions imposed by a single, statewide, public sector, case manage-
                       ment system.

                       Page 33                     GAO/HFtD-90-154   Long-Term   Care Insurance-Medicaid   Link Proposed
Appendix III

Major Contributors to This Report

                   Jane L. Ross, Senior Assistant Director (202) 276-6196
Human Resources    James R. Linz, Assistant Director
Division,          Edwin P. Stropko, Assistant Director
Washington, D.C.   Robert E. Garbark, Evaluator-in-Charge
                   Eric Anderson, Evaluator
                   Virginia T, Douglas, Reports Analyst

(101177)           Page 34             GAO/HRDBO-154   Long-Tern   Care. Insurance-Medicaid   Link Proposed
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