Would you buy a term life insurance policy that automatically converts to long-term care coverage once you reach retirement age? How about paying a modest additional premium to add some home care benefits to your Medicare Supplemental (Medigap) insurance or your Medicare Advantage plan?
Minnesota, a state that has been a leader in long-term care delivery reform, may soon experiment with one or both of these ideas. They still must be refined and win support from regulators, insurers, and consumers before they come come to market.
But Minnesota’s ideas serve two important roles. They will expand interest in state-based solutions to the challenges of paying for long-term care, an effort that is especially important as long as the federal government remains mired in gridlock. They also highlight the two tracks on which long-term care reform seems to be moving. The first is an effort to build a long-term care (LTC) insurance model that is affordable and attractive to middle-income households. The second is the idea of rolling some long-term care benefits (especially for home care) into Medicare.
Converting a term life policy
Minnesota’s first idea, called LifeStage Protection, starts with the sort of plain-vanilla term life insurance that most of us already own. But it adds a twist. At retirement age, say age 65, the policy automatically converts your death benefit to long-term care insurance.
While stand-alone long-term care insurance sales have been falling for a decade, there has been a growing market in so-called combo product that mash-up annuities or whole life insurance with long-term care coverage. Like regular annuities, however, these products mostly benefit high net worth consumers.
By contrast, the target audience for LifeStage would be people age 35-50 earning between $50,000 and $125,000-a-year, the vast middle-market that has been so elusive for designers of traditional long-term care insurance. Sponsors would like to see coverage sold through the workplace, just as term life is today. Because high cost is by far the biggest reason consumers have been reluctant to buy LTC insurance, LifeStage aims to be more affordable.
What would it cost?
It would work like this: When you first enroll at working age, you’d select lifetime coverage of, say $100,000, $200,000, or $300,000. If you die before you retire, the sum you choose would be your death benefit.
If you live to retirement age, the policy would convert to standard LTC insurance. You’d continue to pay premiums after it flips but the price would not increase.
How much would it cost? The state estimates a 45-year-old male would pay about $63-a-month for a $100,000 policy. That would be about $11 more than a basic term life policy but about $26—or one-third—less than the cost of separate life and LTC coverage.
Would that be enough to entice consumers to buy? Market research by the Society of Actuaries suggests it would boost enrollment by middle-income consumers. But plans will have to do more actuarial and marketing work before they offer such policies.
A Medicare home care benefit
Minnesota’s second idea is very different. It would roll a home care benefit directly into Medicare. Benefits might include home delivered meals, homemaking, some personal care services, and caregiver respite.
The idea is similar to recent federal initiatives to expand benefits available through Medicare Advantage plans. However, the Minnesota effort is more ambitious in three ways: It potentially adds more benefits, it is available through Medigap as well as MA, and it requires enrollees to pay additional premiums. The federal Medicare Advantage initiative does not increase participants’ premiums though its benefits are more modest.
Including Medigap plans would be a valuable test of whether these services can be offered in a fee-for-service environment in a cost-effective way. As the state notes, it also would reduce adverse selection problems, where only people who need the benefits enroll in a managed care plan, likely driving up costs for all participants.
Innovations to watch
Minnesota is considering two benefit packages. The basic proposal, which would include meals, limited personal care services, and the like, would be called enhanced home care. The state estimates it would add about $8.49 to a monthly Medigap premium.
But Minnesota also is reviewing a more ambitious benefit that would provide up to $100 a day for one year in personal care services to help with daily activities such as dressing or bathing. That would add about $21 to monthly Medigap premiums or $17 to MA premiums.
Minnesota has a way to go before either of these innovations is available to consumers. But they are creative and well worth watching, especially by other states looking for their own long-term care financing solutions.
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