TO THE EDITOR:
Linda Ruthardt, insurance commissioner of Massachusetts, states that "Long-term care insurance is a product that is in desperate need of something; when [consumers] are not buying a product they should be buying, then the product doesn't work" (see NU, July 31, 1995). And why doesn't it work? Because the industry is loaded with thinkers like Phyllis Shelton ("HIPAA Really Is Good For The LTC Market," Feb. 28). Their big beef is that LTCI should not pay for "short term claims" resulting in "payment of claims too quickly."
They totally disregard the dramatic change in our health care system. The Fall 1996 issue of Health Care Financing Review stated the problem consumers are facing in simple terms: "Because Medicare reimburses [hospitals] on a fixed fee basis, the shorter the patient's stay, the more money the hospital gets to keep." So hospital patients are being released "quicker and sicker." The average hospital stay for patients age 65 and older has been reduced from 10.1 days before 1990 to 6.6 days in 1996. So instead of staying in a hospital for recovery before going home, older people and those who cannot care for themselves have to go to a nursing home. According to the Health Care Financing Review 1997 Statistical Supplement, 94.2 percent of these patients stayed less than 90 days (69.1 percent stayed less than 30 days).
Who covers the shortfall? Consumers—the same people who are buying LTC policies in fewer and fewer numbers because they are not finding value in benefits designed to protect the insurer. The day is coming when people will demand the right to buy a policy to cover their nursing home short stay when they are discharged "sicker" and need to access benefits they can use in real life rather than in theory.
One year after Commissioner Ruthardt's statement, the situation facing those who need LTC services deteriorated even further when HIPAA 1996 was pushed through by insurance industry lobbyists. They pushed the idea that Tax-Qualified LTC plans are better than Non-Qualified Plans because "premiums are deductible as a medical expense," knowing full well that only 4.5 percent of taxpayers of all ages itemize to take a deduction for medical/dental expenses. It is estimated that only 2 percent of seniors will qualify for any type of tax deduction under current regulations.
Insurers and some LTC insurance "experts" push "Benefits are received tax-free" even though HIPAA has made benefit triggers very restrictive. Ms. Shelton and most insurers think this is good "for preserving LTC for the future." Tell that to the 83 percent of Medicare's home health care cases that last less than 90 days and 77 percent of all new nursing home admissions for recovery care following the patient's discharge from a hospital. The need for these services lasts an average of just 36 days (Health Care Financing Review 1997 Statistical Supplement). These individuals are receiving no benefits under a TQ plan, but probably feel great that "HIPAA has set the pace for preserving LTC insurance for the future." They are probably even happier that the claims dollars saved—by refusing to pay for care that they now have to pay for out of their own pockets—may (or may not) be available for their children or grandchildren. You bet!
How about the strict benefit requirements for TQ plans: chronically ill, severe cognitive impairment, substantial assistance of another person, certification by healthcare professionals annually? With all of these restrictions and barriers to accessing benefits, the insurance companies just may be able to save enough premiums so that they can continue to make the same restrictive LTC "coverage" available to the great-grandchildren. But will anyone be buying?
Every agent who reads Ms. Shelton's article and pushes TQ plans without fairly laying out the alternatives available through NTQ plans faces a real danger when claims are denied by insurance companies due to TQ restrictions. These agents and these LTC insurers will be caught in a public relations nightmare. Who will policyholders blame? Uncle Sam? Or companies and their agents?
Ms. Shelton says, "HIPAA has made LTC more beneficial to consumers" avoiding "high future rate increases." Amazing foresight! But if this is the case, how come at least 44 insurers increased LTC rates last year, including 4 of the 5 largest writers? Shelton says, "Consumers normally have coverage for short-term skilled care" and "neither conventional health insurance nor Medicare pays for chronic maintenance care with no progress." She can do a great service by enlightening seniors concerning the source of this coverage. Where is it available and how can they buy it?
Ms. Shelton says, "But is taxation of benefits the real issue? I think not"—and she is probably right. She quotes agents telling her "the Internal Revenue Service isn't taxing anyone who has received benefits from a NQ-LTC" policy and bemoans the fact that "this certainly complicates matters for producers who want to make responsible recommendations." The IRS has never taxed a NQ policy and the fact of the matter is, it probably never will.
How can telling people the truth about TQ vs. NQ policies complicate matters? It may make it harder for insurance companies to continue to sell benefits that aren't working for the consumer. But it will help people to access the benefits they paid for when they need them.
"Responsible" insurers and agents should be: 1) offering both TQ and NQ policies; 2) owning up to the truth about the non-taxation of both; and 3) building flexibility into NQ policies so that if the IRS ever does decide to tax LTC benefits, people with NQ policies can simply roll their benefits into a TQ policy.
It's not rocket science and it won't line the pockets of insurance companies, but it makes sense. Maybe that's the real problem. If LTC insurers continue to sell benefits that don't work when put to the test, they won't be around long enough to worry about insuring their policyholders' great-grandchildren.
SAMUEL X. KAPLAN
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