Confronting the legacy of Baby Boomer long-term care
Baby boomers have a lot to answer for. The vast number of births between 1945 and 1964 necessitated an expansion of the education system, a housing boom and infrastructure investment. They helped steer America out of the Great Depression and into a fast growing economy, and under their cultural leadership America entered a new era of social freedom.
Now these aging pioneers are leaving their children with an unwanted legacy. By 2020 a third of working Americans will be faced with ensuring some form of long-term care for their parents.
“When I was 22 I didn’t have a concept for what it would be like to get to 60, 70, 80,” said Jesse Slome, executive director for the California-based American Association for Long-Term Care Insurance. “But I guarantee if you talk to your parents or grandparents they know what it’s like and they know the consequences for living a long life.”
The statistics are sobering. Roughly 75 percent of Americans over 65 will eventually need long-term care, a reality that will cost, on average, a quarter of a million dollars per person in as little as three years.
The average American had $212,600 in savings in 2011, according to research by Fidelity Brokerage Services.
Medicaid, the government program that provides healthcare funding to low-income Americans with limited resources, covers around half of long-term care expenses. Unlike Social Security and Medicare, Medicaid is not funded through a dedicated trust fund. Federal and state contributions come from general revenue, specifically income taxes.
“It’s a costly issue. It impacts families, it impacts states who pay the lion’s share,” Slome said. And yet only 8 million Americans currently have long-term care insurance, roughly 2 percent.
In 1993 a pilot program was introduced in California, Connecticut, Indiana and New York to create a partnership between private insurance companies and the states. The plan aimed to reduce the burden of growing long-term care needs on state resources.
A key benefit of long-term care insurance partnership policies is the asset protection clause. Within a partnership plan, if policyholders’ needs are greater than their insurance coverage, they can access Medicaid without having to sell off their assets to qualify.
It proved so successful that the Deficit Reduction Act of 2005 made it possible for all states to offer a similar program.
Eight years later only seven states do not offer a partnership program, among them Illinois where the statute has not been finalized.
The process for Illinois has now spanned almost two decades. The state was one of two that attempted to create a partnership program under the more limited terms allowed in the 1993 Omnibus Budget Reconciliation Act.
The Department of Insurance is working on a regulation that will outline how insurance providers can file for partnership policies in Illinois, according to Kimberly Parker, communications manager for the Illinois Department of insurance.
The state is hoping to conclude the process this year.
It is a far cry from neighboring Indiana, one of the first four states to try the program. Since 1993, 53,000 partnership policies have been purchased in the state.
“A partnership policy benefits both consumers and the state,” said Rebecca Vaughan, director of the Indiana Long Term Care Partnership Program.
“The impact of the aging population will be tremendous on all aspects of the country’s social and economic future,” said Vaughan. A partnership serves the dual purpose of reducing Medicaid expense while helping citizens protect their personal assets, she added.
Specialist life and annuity insurance company Genworth Financial Inc., which is based in Virginia, has been involved in the Indiana partnership since it started in 1993. Genworth reports that approximately 80 percent of long-term care policies sold by the firm were in partnership with Indiana.
“The partnership program is a good example of a public/private solution to help Americans deal with long-term care risk,” said Beth Ludden, vice president of long-term care product development for Genworth. “It promotes planning for one of the largest unfunded exposures a resident may face as they age while reducing reliance on Medicaid.”
Slome agrees that a large part of the program’s appeal lies in encouraging residents to take up a policy. “The partnership was a wonderfully conceived program designed to create incentives for more people to consider and purchase long-term care insurance,” Slome said.
Nevertheless, Slome maintains that getting people to recognize the importance of long-term care planning is about connecting on a personal level.
Once family members have experienced the financial burden of long-term care, they will come to recognize the importance of preparing for the future. Ultimately, there will simply not be enough federal funding to go around.
“You aren’t going to want to spend the vast majority of your adult life paying taxes so your parent’s generation and your grandparent’s generation can get excellent care,” Slome said.
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