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The study found that states are still far from the goal of having half of the over-50 population covered by private long-term care insurance.  “Unless states enact substantially more generous subsidies and focus the subsidies on more price-conscious potential buyers of insurance," Nixon writes, "the programs are counter-productive. They draw resources away from state coffers that could be better spent preparing for the approaching long term care crisis.”

Life Care Planning, Estate Protection, Disability,
VA & Medicaid Assistance Lawyers

Efforts to Encourage LTC Insurance Purchases Falling Flat

 

State incentive programs to encourage the purchase of long-term care insurance have failed to generate the hoped-for increases in sales, a new study has found.

 

With baby boomers aging and Medicaid costs rising, many states are trying to persuade individuals to purchase long-term care insurance. The two main tools of persuasion are tax breaks and the Long-Term Care Partnership program.

 

In a new report, David C. Nixon of the University of Hawaii's Public Policy Center concludes that both strategies are failing. The tax incentive programs have not increased the sale of long-term care policies because the subsidies they provide are insufficient to prompt anyone to buy such insurance. The same people who bought the insurance with the subsidy would have bought it without it, Nixon found.

 

Similarly, Nixon determined that the partnership program, which offers special long-term care policies that allow buyers to protect assets and qualify for Medicaid when the policy runs out, have failed to induce additional sales of private insurance. This is significant because the partnership program, previously restricted to a handful of states, is now available for all states to use.

 

The study found that states are still far from the goal of having half of the over-50 population covered by private long-term care insurance.  "Unless states enact substantially more generous subsidies and focus the subsidies on more price-conscious potential buyers of insurance," Nixon writes, "the programs are counter-productive. They draw resources away from state coffers that could be better spent preparing for the approaching long term care crisis."

 

A second study looks at the issue of the approaching crisis from the perspective Congress took when it passed the Deficit Reduction Act  - that is, by making the Medicaid eligibility rules more stringent.  It concludes that tightening up current Medicaid rules will not significantly increase purchases of private insurance.

 

Currently, only about 10 percent of the elderly have private long-term care insurance. One reason for the low percentage, according to some, is the Medicaid "crowd out" effect - that is, the availability of Medicaid to cover long-term care costs is dampening interest in long-term care insurance.  The study researched the issue of how much would a change in Medicaid rules reduce this crowd-out effect.

 

In "Medicaid Crowd-Out of Private Long-Term Care Insurance Demand: Evidence From The Health And Retirement Survey" (National Bureau of Economic Research, Sept. 2006), three economists determine that a $10,000 decrease in the level of assets an individual can keep while qualifying for Medicaid would increase private long-term care insurance coverage by only 1.1 percentage points.

 

"These estimates imply," the researchers write, "that if every state in the country moved from their current Medicaid asset eligibility requirements to the most stringent Medicaid eligibility requirements allowed by federal law [in 2000] -- a change that would decrease average household assets protected by Medicaid by about $25,000 -- demand for private long-term care insurance would rise by only 2.7 percentage points." They note that given such changes in Medicaid rules, the vast majority of households would still find it unattractive to purchase long-term care insurance.

 

"[E]ven large scale reductions in Medicaid asset protection are unlikely to stimulate private insurance coverage among most of the elderly population," the study's authors conclude. They suggest that the Medicaid program would have to be redesigned to reduce the constraints it appears to place on private insurance demand.

 

Richard Habiger is an elder law attorney.  You may contact him at 618-549-4529 or Richard@HabigerElderLaw.com.