Copyright 2010 SNL Financial LCAll Rights Reserved SNL Insurance Daily
August 6, 2010 Friday
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Katie Darden

The president of the National Conference of Insurance Legislators added his voice to a chorus of concern over retained-asset accounts for life insurance death benefits.

"NCOIL has grave concerns and awaits with extreme interest the outcome of current probes, including Veteran Administration and New York Attorney General investigations," Kentucky state Rep. Robert Damron said in an Aug. 4 press release.

Damron advocated a "Beneficiaries Bill of Rights" that would "guide" states that have not already adopted models for dealing with retained-asset accounts. The release noted that NCOIL is working on a model disclosure law for its annual meeting that would require insurers to notify policy owners of their rights and options with respect to life insurance policies. The meeting is scheduled for Nov. 17 through Nov. 21.

August 12, 2010
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Chris Orestis discusses Life Insurance Consumer Disclosure legislation before the NCOIL Life Insurance and Financial Services Committee 

(July 9, 2010)— Life Care Funding Group’s president, Chris Orestis testified in Boston on Friday, July 9^th about the important role that Consumer Disclosure Legislation in states such as Maine, Washington, Oregon and Kentucky can have as a model for other states to consider in the coming legislative year.  The legislation enacted in these four states has become an important precedent as it compels life insurance companies to disclose to policy owners at the time they would lapse or surrender a policy that they have other options to consider to receive higher market value for their policy.

Also appearing on the panel was Michael Friedman, Senior Vice President of Government Affairs for Coventry First and Michael Lovendusky, Associate General Counsel for the American Council of Life Insurers (ACLI).  Mr. Friedman spoke in support of the legislative precedent and the need to support state efforts as they consider legislative action to ensure policy owners are informed of all of their financial options.  Mr. Lovendusky speaking on behalf of the life insurance industry emphasized the industry’s staunch opposition to consumer disclosure, stating for the record that the idea is “abhorrent” to the industry.

Mr. Orestis discussed his company’s commitment since its inception in 2007 to working with seniors and their families to provide them with as much information and access to financial resources as possible.  He pointed to the law passed in Maine requiring insurance companies to disclose to policy owners that they have other options instead of lapsing or surrendering a life insurance policy they no longer can afford regardless of its death benefit amount as an example of what should be done around the country.

“We are living in a time when we must be doing all we can to get as much information as possible into the hands of seniors”, testified Chris Orestis.  “When a senior and their family is informed that an asset (life insurance policy) they are about to throw away has unrealized value for them, and it is a potential solution to a health care crisis they are confronting, the consumer wins when they are able to access the most appropriate form of long term care and the state wins when a citizen is able to extend their ability to cover the costs of long term care for as long as possible before accessing Medicaid”, concluded Orestis before the NCOIL committee.   

To obtain the complete transcript of Chris Orestis’ testimony before the Life Insurance and Financial Services Committee of NCOIL, Click Below:  

Remarks NCOIL.doc (30.00 kb)

UPDATE 7/12/10--

The National Conference of Insurance Legislators (NCOIL) plans to begin drafting a new model act requiring insurers to tell consumers of their options, including life settlements, if they plan to get rid of their policies.

Georgia state Sen. Ralph Hudgens said he reported to NCOIL's executive committee on Sunday that he was asking Kentucky Rep. Ron Crimm to craft a life insurance options model bill in the next few weeks by melding similar laws that already have passed in Maine, Washington and Kentucky.

Hudgens, who heads the Life Insurance & Financial Planning Committee of NCOIL, said this model legislation would be separate from the model act on life settlements that was adopted by NCOIL in 2007. Once the draft is complete, it will be sent to interested parties for comment, he said.

Hudgens said he expects the model act will be taken up at NCOIL's November meeting in Austin and adopted.

As part of the recently passed healthcare reform bill signed into law by President Obama, an act to address the long term care funding crisis in our country was included.  The Community Living Assistance Services and Support (CLASS) Act provides a voluntary long term care benefit for participants that elect to participate.

To participate, you must enroll through your company or a self-employed pension plan and pay a monthly premium for five years to qualify for the benefit in the future.  CLASS will not be active for two more years, so the soonest someone will begin collecting the benefit is at least seven years from now.  As with any new government program, there are still details to be worked out through regulation and comment periods which will happen over these next two years.

Some details about the program have emerged making it clear this is not going to be a magic bullet cure for the massive funding crisis impacting seniors and their families requiring long term care.  First of all, the benefit paid out will be in the range of $50-$75 per day which falls far short of the actual costs of daily care (and those costs will continue to rise annually over the next seven years).  Also, the benefit will be limited to the costs of at home care and will not cover assisted living or nursing home care.  Further issues around rolling over the benefit year to year, opt-in / opt-out penalties and the effects of adverse selection will all prove a challenge for participants.

Although CLASS Act alone is not enough for an individual or our nation to deal with the massive costs of long term care, it is a positive first step for the government in acknowledging the hardships faced by Americans trying to meet these obligations.  If nothing else, it will do much to educate people that they must prepare now for the financial challenges that lay ahead in their future.

To read an analysis on CLASS by UNUM, click below

CLASS Act Summary - UNUM 5 10.pdf (655.39 kb)

" The federal budget is on an unsustainable path, primarily because of the rising cost of health care and the aging of the U.S. population."-- Congressional Budget Office March, 2010

When you visit the CBO's website that is the very first message to greet you in a very PROMINENT headline on their homepage!  The chart below this dire warning is a graphical depiction of how sharply spending on Medicare and Medicaid escalates above spending on Social Security and on every other Federal expenditure combined will continue to rise for years to come.

The impact of the healthcare reform package signed into law by the President still has many unknowns.  Like anything else it has its positives and negatives, supporters and detractors, but one thing is certain-- we could not as a nation continue down this path to certain calamity. 

FACTS:

- Aging Baby Boomers (the "Silver Tsunami") will spark an explosion of demand on healthcare and long term care services/spending

- The U.S. and world economy continues to confront challenges and a changing dynamic that will limit the ability of the U.S. government at the state and federal level to give everyone everything they need/want 

- Pressure on the individual to be able to maintain a reasonable standard of living in retirement and senior care is going to increase as government dollars/programs become more difficult to access

The sweeping changes in the newly enacted health reform legislation came amidst much debate and political battle-- but when you consider the demographic and economic realities over the next 10-20 years, what we have just witnessed is just the warm up.  When serious reform efforts turn to Social Security, Medicare and Medicaid we will see a battle that will make us look back on the last two years of economic and political upheaval as the "good old days".

The very popular Medicare Advantage coverage that seniors elect as part of Medicare to cover medical and prescription drug coverage became significantly more expensive in 2010 than it was last year.  Reflecting cut backs in government funding, private insurers who offer elective Medicare Advantage coverage decided they would raise rates this year instead of reducing services. 

This is bad news especially for the 8.5 million seniors currently enrolled in these cost saving programs.  The premiums increased by more than double for some seniors that are enrolled, and many fear they can no longer afford to maintain their coverage.  These increases are another blow for President Obama’s goal for healthcare reform this year, because additional Medicare and Medicaid cuts are a major part of how the costs of reform would be paid for.

This is further evidence that pressure on the individual is increasing to shoulder more of the costs of their own healthcare and long term care. "These premium increases fit within a broader trend of increased financial pressure on the insured," said Lindsey Spindle, a vice president of Avalere Health, a data analysis firm that produced the statistical study. "We see very large premium increases and a continued upward creep in how much out-of-pocket expenses beneficiaries are expected to pay, such as copayments."The bottom line of this story is simple-- the need for private funding solutions for health care and long term care costs are going to pushed back on the individual more and more now and into the future. 

To read more about the increase in Medicare Advantage premiums, click here.

A report tracking Medicaid spending going back over the last seven years showed that Medicaid underfunded payments for services to all patients by $14.17 everyday in 2009.  Projections are that this alarming underfunding trend will get worse in 2010 and 2011.  The economic crisis has robbed state budgets of funds available to support Medicaid funded programs and as a result there was a national deficit of almost $5 billion.   

Medicaid funds at least 2/3 of all spending for nursing home care. Spending shortfalls of this magnitude threaten the ability of nursing homes to offer the highest levels of care for the most vulnerable populations.  Frustratingly for nursing homes and those in their care, state governments were given money in 2009 via the American Recovery and Reinvestment Act to make up this deficit.  But guess what—governments diverted the money away from providing the healthcare it was intended, and instead used the money to shore up their own budget deficits.   

As readers of the Life Care Funding BLOG know, we continue to bring awareness to the unavoidable trend of reducing the amounts of money that are available for Medicare and Medicaid.  And why is that?  Because we are now in the throes of an explosion of Baby Boomers reaching retirement age at the same time that our country’s economy is under siege and entering unfamiliar territory.  Washington, DC and 50 state capitols have no choice but to figure out how to make do with less. 

They have two tools to work with:

1.      Make it harder for people to qualify for Medicare and Medicaid, and--

2.      Reduce what is available for those that do qualify. 

What tools do seniors and their families have to work with? 

1.      Information

2.      Time 

People need to arm themselves with information about how the system works and what kind of funding options (and limitations) they have to work with.  And, people need to stop waiting until the last minute to plan for their inevitable time in long term care.  In one form or another, (home or facility based) as people age and/or become frail they will need someone to help care for them.  That care will cost money and that money has to come from somewhere.  As the government makes it harder and harder to access less funding, people need to prepare to bear much of the financial burden on their own.  To ensure quality of life and dignity when the time for long term care arrives; people must make the effort today to understand what kind of financial options are out there such as the VA Benefit, Life Insurance Settlements, Credit Programs, Reverse Mortgages, Long Term Care Insurance and other sources of private funding.

To read more about Medicaid budget deficits, click here. 

State of Maine Announces proposal to cut 10% out of nursing home Medicaid spending in 2010:

Governor Baldacci released his proposed FY 2010-2011 State budget Friday afternoon. As in previous years, the Departments of Health and Human Services and Education are being asked to bear the brunt of significant cuts including 10% rate cuts to some MaineCare providers including nursing homes and residential care facilities. Preliminary analysis shows that the cut to nursing homes is in the area of $26 million. It is harder to separate the hit to res care, but we estimate it to be in the area of $10 million or a little over $9.00 per resident day. The newest figures (Nov. 2009) from AHCA indicate that Maine currently underfunds its nursing homes by $25.5 million per year. This translates to an average loss of $16.20 per resident per day. So, it seems reasonable to estimate that the proposed cuts will double those shortfalls.

In a move that will bolster the Democratic coalition in the Senate and the need to hold on to 60 votes, the AARP announced their support today for the reform plan that includes massive reductions to Medicare. AARP says that the cuts will be paid for in reduced waste and fraud, improved efficiencies and elimination of duplicative benefits. 

The support of AARP is a huge boost for Democrats that have been struggling to keep the 60 votes needed to prevent a filibuster that would kill the legislation. The AARP is a trusted source for many seniors, and this endorsement may ease fears that proposed cuts would have a negative impact on seniors already struggling to pay for the costs of health care. 

The ultimate outcome of the reform legislation is still up in the air, but one thing has become certain—when the AARP supports cutting almost half a trillion dollars out of Medicare it becomes that much more certain it will happen. 

To read more about AARP’s support for the Senate bill, click here.

Senate Democrats prevent measure to take Medicare cuts out of healthcare reform bill, click here.

In a report released this past Saturday, the government agency that administers Medicare and Medicaid detailed the possible impact of cuts proposed in healthcare reform passed by the House of Representatives.  The study states that the proposed $500 billion in cuts would be so severe that hospitals and nursing homes would be forced to stop accepting Medicare as payment. 

The report says that seniors would suffer form additional reductions in benefits and services to pay for the $500 billion in reduced spending. The White House answered back against the report’s findings by saying the reductions would come in the form of reduced wasted spending on fraud and abuse in the system and from administrative savings through such efficiencies as expanded use of electronic medical records.  Democrats also contend that these cuts would extend the life of Medicare a number of years before becoming insolvent. 

As is often the case, both sides are focusing on the aspects of this study that bolster their position in the debate.  But regardless of who is right, one truth is clear—seniors need to be preparing themselves for less and less financial support coming from the government.  The burden to cover the costs of senior housing and long term care will continue to be pushed back on seniors and their families and people should do all they can to prepare for the inevitable. 

To read more about the various points of view on the CMS study, click here.

The U.S. Senate begins debating healthcare reform legislation today.  Critical to the proceedings will be Medicare cuts and its impact on seniors across the country.  Click here to read more about how the votes are lining up.

Senate Democrats were able to hold a filibuster proof 60 vote majority to introduce the Senate verison of heathcare reform legislation for debate and a final vote.  Action on this legislation will begin after the Thanksgiving recess.  Click here to read more about how today's proceedings unfolded.

Two recent reports add more evidence to the alarming trend of financial pressure being pushed back onto seniors and their families as they reach the age that the costs of long term care play a central role in their lives.  In addition to Medicaid cuts in the states and cuts to Medicare being proposed as part of healthcare reform, more money will continue coming out of seniors’ pockets. 

The annual MetLife Mature Markets Institute study tracking the costs of long term care in assisted living, nursing homes and home healthcare was recently released showing significant increases in costs over the last year: 

-         Nursing Home costs rose 3.3%

-         Assisted Living costs rose 3.3%

-         Home Healthcare costs rose 5%

-         Adult Day care costs rose 4.7% 

The increasing costs of long term care can be attributed to the most basic economic principal there is: supply and demand.  The economic crisis has slowed the construction and expansion of facility based care.  Also, more people requiring long term care are having a difficult time selling their homes.  As the population of seniors demanding long term care services of every type increases, the supply of options and dollars is decreasing—driving up the costs. 

In another alarming report, the costs of Medicare premiums will rise 15% next year. This will push the monthly Medicare premium above $100 for the first time in history.  The final outcome of this increase, or measures to offset the increase, is being debated in Congress as part of healthcare reform.  Regardless of the outcome, this will now become a yearly struggle as the population going onto Medicare is exploding-- and just when the country is least prepared financially to accommodate the demand. 

Supply and demand will become a recurring theme over the years as the growing population of seniors needing to pay for long term care confronts the harsh reality of both a shrinking supply of dollars and ability to deliver housing and care. 

To read more about the MetLife Mature Markets study, click here. 

To read more about the increase in Medicare premiums, click here.

Another sign of things to come for seniors in the 21^st Century: for the first time since the darkest days of the economic crisis of the 1970’s, seniors will not see a cost of living increase in their Social Security checks.  Combine this new development with proposed cuts to Medicare and Medicaid and the trend for seniors is becoming clearer every day. 

The realities of a global economic recession intersecting with explosive growth in the senior populations will create increasing pressures for the United States.  More people needing help (money), with less resources to go around (money), equals hard choices about how to help those who need it most (money).  Increasing emphasis on the individual to shoulder more of the costs of their senior years will grow quickly.  Moves to cut COLA’s, raise the minimum age for Medicare and cut Medicaid funding in the states will become more common occurrences. 

The Baby Boom generation is still in the early stages of moving into their retirement years and the amount of money required to support these programs is already overwhelming. As economic and demographic trends over the coming years continues to challenge the governments ability to keep pace, seniors and their families must do all they can to prepare themselves financially for the costs of retirement and the even greater costs of long term healthcare. 

To read more about the COLA freeze for Social Security, click here.