CBO: private LTC insurance being 'crowded out' by Medicaid

Nursing Homes, June, 2004 by Douglas J. Edwards

Medicaid is "crowding out" private insurance from funding more LTC expenditures, the Congressional Budget Office (CBO) reported recently, stating that giving the private LTC insurance industry room to breathe might help the government better prepare for the baby boomers' senior care needs.

The CBO estimates that LTC expenditures for the elderly in 2004 (excluding the value of donated care from family and friends) will total about $135 billion, but private LTC insurance will cover only 4% of that (with Medicare and Medicaid shouldering nearly 60%). The CBO cites several factors that might be hindering private insurance's role in LTC financing, including many related to Medicaid:

* Medicaid benefits are widely available and free for those eligible.

* Purchasers of LTC insurance pay more than just premiums; they give up the value of future Medicaid benefits for which they might have been eligible.

* Typical policies cannot guarantee that policy-holders' benefits will be sufficient to purchase desired future services, whereas Medicaid pays for a defined set of LTC services rather than providing a monetary benefit.

* Consumers might be wondering about the possibility that insurance carriers will not be in business in the future, yet they seem to have more faith in the solvency of government benefits.

The CBO says reducing Medicaid's impact on the sales of private LTC insurance might be possible if consumers were allowed to purchase policies that would supplement Medicaid coverage (which is discussed in detail in the April 2004 issue of Nursing Homes/Long Term Care Management, p. 18). Another solution highlighted in the report includes mandating the standardization of LTC insurance policies to make them more attractive to consumers, allowing them to more easily compare policies and spurring price competition. However, the CBO cautions that imposing standard policy designs could also hinder the growth of the private LTC insurance industry. And shifting the financial burden to private payers likely won't reduce the total resources, both public and private, needed for LTC services, notes the CBO, although cutting Medicaid benefits or limiting eligibility might force more consumers to look at private insurance options.

To read the complete report, Financing Long-Term Care for the Elderly, visit ftp://ftp.cbo.gov/54xx/doc5400/04-26-LongTermCare.pdf.

BY DOUGLAS J. EDWARDS, ASSISTANT EDITOR