Factors important in the purchase of partnership long-term care insurance

Health Services Research, June, 1998 by Nelda McCall, Steven Mangle, Ellen Bauer, James Knickman

Since the early 1980s, insurance products have been sold to help protect consumers from the risk of paying for nursing home services. It is estimated that fewer than 1 million of these policies were in force in 1986. By 1995, more than 3.5 million long-term care policies are estimated to have been in force nationwide (Coronel and Caplan 1996).

Although this increase in the market has been dramatic, it is not growing at a rapid enough rate to support the needs of an aging population in an era of decreased public funding. One possible way to expand financing is to create new types of financial instruments. One such approach is a combination of private insurance with Medicaid called the Partnership for Long-Term Care.

The Partnership for Long-Term Care is a Robert Wood Johnson Foundation initiative, implemented in four states (California, Connecticut, Indiana, and New York), that offers the option of financing long-term care by blending public and private insurance. The Partnership hopes to use Medicaid as a reinsurer to private health insurance in an effort to promote the sale of high-quality, affordable insurance products to middle-income consumers. The four state programs combine private insurance, for the initial costs of long-term care, with Medicaid financing services when the private insurance is exhausted or assets equal the insurance payouts. The private insurance policies must meet product quality guidelines.

Critics of approaches such as the Partnership that are dependent on private insurance are concerned about equity if there are real public sector subsidies for purchase and if only certain individuals (i.e., the healthy, wealthy, and knowledgeable) are likely to receive benefits. However, supporters argue that the Partnership is not a solution for everyone, but that, to the extent that private insurance rather than Medicaid pays for long-term care services, the public good is enhanced.

This article examines the factors that are important in the purchase of Partnership policies. Examining Partnership purchasers can throw light on the concerns raised and can provide information necessary to assess the program's place in the funding of long-term care. The sections that follow describe the Partnership for Long-Term Care, present the study's methodology and results, and discuss policy implications.

THE PARTNERSHIP FOR LONG-TERM CARE

Twenty-two insurers who cover the lives of almost three-quarters of the long-term care purchasers nationwide are participating in the Partnership (McCall, Bauer, Korb 1996).(1) Insurers sell the policies through their established marketing channels (i.e., through captive agents, non-captive agents, by mail, or through employer groups). Most insurers offer both Partnership and non-Partnership long-term care insurance products in each state.

Two Partnership models have developed: a Dollar-for-Dollar Disregard Model and a Total Asset Disregard Model. In the Dollar-for-Dollar Disregard Model adopted by California, Connecticut, and Indiana, consumers purchase private insurance equal to the amount of assets they wish to protect. When the private insurance benefits are exhausted, the amount of private insurance that was paid out for qualified long-term care services is disregarded from the individual's assets in determining the insured's eligibility for Medicaid. In the Total Asset Disregard Model adopted by New York, the insured must purchase a three-year nursing home policy (six years of home care coverage) and all of the insured's assets are protected. Once the private benefits have been exhausted, the income requirements of Medicaid are not affected in either of the Partnership models.

The first state to implement a Partnership program was Connecticut, which began selling approved policies in April 1992. New York and Indiana began selling Partnership policies in the spring and summer of 1993, and California began in July 1994. As of December 31, 1995, approximately 12,698 policies were in force: 2,067 in California (California Partnership for Long-Term Care 1996); 1,744 in Connecticut (Connecticut Partnership for Long-Term Care 1996); 1,197 in Indiana (Indiana Long-Term Care Program 1996); and 7,690 in New York (New York State Partnership for Long-Term Care 1996). During the time that Partnership policies were available, Partnership sales in 1993 and 1994 represented approximately 2 percent of the long-term care insurance policies sold in California, 4 percent in Connecticut, 2 percent in Indiana, and 9 percent in New York.(2) The small rates of purchase were likely due to the lack of awareness of the Partnership by potential purchasers.

In addition, among those who know of the Partnership, some potential purchasers want a policy with more comprehensive or less comprehensive coverage than is permitted under Partnership regulations, and some are not interested in a policy tied to Medicaid.(3)

METHODOLOGY

Previous Research

Only a small amount of empirical research has been conducted on the factors important in the purchase of long-term care insurance. The theoretical underpinnings of the theory are based on more comprehensive work concerning the demand for health insurance (Arrow 1963; Lees and Rice 1965; Pauly 1968; Feldman and Dowd 1989).