Commissioners Urge Congress to Bolster LTC Insurance

The group representing the Insurance Commissioners from the 50 states and territories is urging Congress to act to encourage more people to plan for Long-Term Care with private insurance. The National Association of Insurance Commissioners (NAIC) issued a number of Long-Term Care (LTC) federal policy recommendations to Congress.   The report was completed as part of the NIAC’s Retirement Security Initiative.

The group is concerned with the nation’s aging population, and the impact extended care has on individual families and state and federal budgets. 

“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.”

National Association of Insurance Commissioners

The main issues include long-term care financing, the role of insurance companies and design of LTC insurance products, consumer’s needs and input for LTC solutions and the potential role of employers offering LTC insurance products and financial support for them. The NAIC acknowledges that public Medicare LTC is a continually growing challenge as well.  The group is looking for ways to increase long-term care funding options for the American family. Many people don’t consider how they will pay for long-term care until they are much older or they have a health event. This makes the availability of private insurance much more difficult or impossible.

Health insurance, Medicare (health insurance for those ages 65 and older) and Medicare Supplements pay for a small portion of skilled long-term care, generally for a short period of time and only if a person is improving. Medicaid requires an exhaustion of assets for a person to qualify for Medicaid long-term care benefits.

The NAIC suggestions include:

Provide more generous federal tax incentives.

This includes a full federal tax deduction for LTC premiums (rather than for expenses over 7.5-10 percent of adjusted gross income or itemized business deduction for self-employed for businesses). This would include the possibility of additional tax incentives to lower and middle-income Americans who may not otherwise purchase an LTC policy. The more people that have private LTC insurance policies, the less pressure will be placed on the Medicaid program thus protecting it for those who are truly poor. 

Permit distributions from 401(k), 403(b) or Individual Retirement Account (IRA) to purchase LTC Insurance with no early withdrawal tax penalty.

This includes allowing the purchase of combination or hybrid products as well as traditional LTC insurance. Many people have money in these tax-deferred retirement accounts. Since one of the main benefits of long-term care insurance is asset protection, especially in retirement, the ability to use a small portion of those qualified dollars to protect the remaining money seems to be in the public interest.

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

While some states have done awareness programs promoting their state’s Long-Term Care Insurance Partnership Program, this would involve a national campaign to raise awareness of the need to safeguard future retirement money from the financial costs and burdens of aging.  The campaign could discuss long-term care needs and offer education on the products and services available to address the potential financial costs of extended long-term care services.

Creation of stand-alone LTC savings accounts, like health savings accounts (HSAs) and/or enhance the use of HSAs for LTC expenses and premiums.

Funds from Health Savings Accounts can now be used to pay for qualified long-term care insurance using pre-tax money. However, consumers are limited to the amount of money they can contribute into these accounts. Also, HSA’s are only available to those who have high-deductible health insurance policies.

Remove the HIPAA requirement for insurance companies to offer 5% compound inflation with LTC policies and remove the requirement that (Deficit Reduction Act of 2005) DRA Partnership policies include inflation protection and allow the states to determine the percentage of inflation protection.

The NAIC is recommending removal of the 5% compound inflation rule to increase insurer flexibility with policy design and lower premium costs. Many states allow partnership certification for as low as 1% compound.

Allow flexible premiums and/or cash values beyond return of premium options.

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 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. The idea is, with more options, many more people would find an option with provides them with peace-of-mind and fits their financial situation.

The US Department of Health and Human Services says if a person reaches the age of 65 they will have a 70% chance of needing some type of long-term care service before they die. The cost of long-term care has a major impact on a person’s or family’s savings and creates burdens on adult children, especially daughters and daughters-in-law who, without advance planning, become default caregivers.

A recent AARP study reports 60% of these family caregivers are working at their primary job full-time. The study also stated most of these caregivers say they felt overwhelmed with the caregiving and 39% felt financially stained as well. Many family caregivers must turn down overtime or job promotions due to the caregiving and their normal family responsibilities.

Expansion of affordable Long-Term Care insurance policies will protect not only assets and federal and state Medicaid budgets but make it much easier on the American family.