Payers Offer 10 Ways to Improve Cost, Quality of Long-Term Care

May 02, 2017 - The National Association of Insurance Commissioners (NAIC) issued ten long term care (LTC) federal policy recommendations to Congress.   The report was completed as part of the group’s Retirement Security Initiative. 

NAIC has long maintained a dialogue with stakeholders to discuss options and innovations for LTC financing.  These suggestions are based on those discussions, with an eye to the impending aging population and the mammoth future challenge of LTC funding and coverage.

“The goal of this work is to identify and develop actionable, realistic policy options for consideration by state regulators, state legislators, the NAIC as a body, federal agencies, and Congress, that could increase the number of affordable asset protection product options available for middle-income Americans, potentially paving the way for the private market to play a more meaningful role in financing the LTC needs of our society,” wrote NAIC in the statement. 

The main issues are broken down into the role of private payers assisting long-term care financing, participation by insurance companies or other innovators, the future design of LTC products, consumer needs and desires for LTC solutions, LTC products payers want to sell, and the role employers should play in offering LTC products and financial support.

NAIC submitted the recommendations primarily for the private LTC market, but acknowledges that public Medicare LTC is a continually growing challenge.  The suggestions were submitted to increase LTC funding options for consumers.

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Permit retirement plan participants to make a distribution from 401(k), 403(b) or Individual Retirement Account (IRA) to purchase LTC with no early withdrawal tax penalty.  

Related considerations include whether premium payments should be made directly from the retirement plan to the insurer; allowing purchase of combination or hybrid products as well as traditional LTC; whether premium payments would be counted for purposes of satisfying the minimum distribution requirements; and permitting tax-favored contributions and distributions to pay for long term care services and supports or LTC insurance including allowances of LTCI as a plan investment.

Allow creation of stand-alone LTC savings accounts, similar to health savings accounts (HSAs) and/or enhance use of HSAs for LTC expenses and premiums

HSAs are not subject to federal income tax at the time of deposit.  It is available to individuals with high-deductible tax plans.   Advantages of HSAs include pre-tax deposits, annual fund rollovers, access to the money for investments, and withdrawal of funds for approved expenses.  Approved expenses for HSA’s do currently include LTC premiums. 

Remove the HIPAA requirement to offer 5 percent compound inflation with LTC policies and remove the requirement that DRA Partnership policies include inflation protection and allow the states to determine the percentage of inflation protection

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For an LTC policy with inflation protection, the benefit increases yearly at a predetermined rate.  The goal of this is to ensure the LTC benefits keep up with inflation.  This inflation protection does increase premiums.  NAIC recommends removal of the five percent compound inflation rule to increase insurer flexibility with policy design and lower premium costs.

Allow flexible premium structures and/or cash value beyond return of premium (HIPAA and DRA)

LTC policies are currently prohibited by federal law to contain a cash surrender value.  A cash surrender value is common in life insurance policies and annuity contracts and allow the owner to ‘cash out’ the product, before actually using the policy.   LTC maintains a “use it or lose it” model.  If amended, NAIC states this could open insurers to offer different payment, or pre-funding plans for LTC policies. 

Allow products that combine LTC coverage with various insurance products

This suggestion comes at the request of stakeholders to NAIC who seek regulatory changes to allow for LTC innovation and market expansion.   This includes offering combinations with other insurance products that would address a beneficiary's present insurance requirements and then convert, or ‘morph’ at one point into an LTC policy. One consistent view of stakeholders is the need to expand products that can address a consumer’s needs over time. 

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Support innovation by improving alignment between federal law and NAIC models (HIPAA and DRA)

LTC policies are currently governed by outdated provisions of HIPAA and NAIC regulations.  The industry is calling for closer federal mirroring of state generated NAIC adapted provisions and guidelines.  The result could be increased flexibility in federal law to adapt to changes in the LTC market, and the concurrent state regulatory requirements.

Create a more appropriate regulatory environment for Group LTC and worksite coverage (HIPAA and DRA)

This would include incentives for employers to offer LTC policies by limiting employer liability, allowing employers to offer “catch-up” contributions, and permitting LTC to be purchased through cafeteria plans.

Establish more generous federal tax incentives

Ideas for consideration include allowing a full federal tax deduction for LTC premiums (rather than for expenses over 7.5-10 percent of adjusted gross income) This would include the possibility of additional tax incentives to lower and middle-income Americans who may not otherwise purchase a LTC policy.

Explore adding a home care benefit to Medicare or Medicare Supplement and/or Medicare Advantage plans

Since most LTC services are not covered by Medicare, it leaves a gap in post-acute care such as skilled care or assisted living.   NAIC suggests considering some type of expanded, or supplemental LTC coverage that when combined with Medicare or other Medigap plans, would hopefully lower overall costs.

Federal education campaign around retirement security and the importance of planning for potential LTC needs

This would involve a national campaign to raise awareness of retirement security and options.  The campaign would discuss long term care needs and offer education on the products and services available to address the potential financial costs.

NAIC noted that enacting any of their suggestions would require regulatory changes on federal and state levels, along with legal adoption from NAIC, among other financial, consumer rights and insurance producer agreements.