You expect chicanery from used-car salesmen – even though they may not deserve the stereotype. You expect it from the showmen hawking get-rich schemes on late night cable television. You distrust brokers touting 0%-interest home mortgages.
But you don’t expect your state government to rook you. Indeed, you naively expect states to protect you, to regulate, or at least try to regulate, the rooksters.
But states, eager to save money, have embraced private long-term care insurers as partners. (Jennifer Levitz and Kelly Greene, “States Draw Fire For Pitching Private Long-Term Care Insurance,” Wall Street Journal, Feb. 26, 2008) Across the country, people are receiving letters, often on governmental stationery, touting a list of “recommended” insurers.
States pick up the tab for a large number of people in nursing homes. Often an aging person will enter a nursing home as a “private-paying patient,” but when she or he has spent all his assets, the state will take over, under Medicaid. Or the person will pay out of pocket for home care, depleting assets, and eventually enter a nursing home, on Medicaid’s tab. Long-term care, whether at home or in an institution, will deplete most people’s nest eggs, and most states’ Medicaid budgets.
Long-term care insurance promises to pay for that care: the enrollee will save his/her nest egg – and the state will save on Medicaid.
For most individuals, though, the costs do not justify the benefits. The Kaiser Family Foundation in a 2003 report asked two questions: how many people can afford the policies? And how many people would find the insurance a wise purchase?
Although the premiums are cheapest for middle-aged people, most middle-aged people, of low and moderate incomes, have more pressing budgetary demands. An aggressive salesperson (since salespersons are paid generous commissions, they are aggressive) might convince a customer that s/he desperately needs long-term care insurance; but soon the hoodwinked buyer will recognize that she needs housing, food, and medications more desperately. Not surprisingly, many people drop their policies, particularly when premiums rise. For retirees, the premiums are costly—as much as $5,000 a year—hardly a prudent investment for retirees with moderate incomes. Although companies market long term care insurance to a wide range of people, purchase makes sense for only a few.
Just as crucially, the policies’ caveats and exclusions and 90-day waiting periods can render the policy useless. The Wall Street Journal highlighted a few enraged buyers who fought their insurers to win partial rebates, or fuller benefits. Most people who need long term care, though, are not energetic, lucid, or healthy enough to fight.
These for-profit insurers will make a profit only if they spend less than they take in—in short, if premiums exceed claims. Since a year in a nursing home can cost more than $65,000, a company that enrolls a slew of long-living, institutionalized clients will lose money. So the tactics of raising premiums annually, attaching exclusionary riders to policies, eliminating any adjustment in room-rates for inflation, or simply making it hard to collect make economic sense. Many enrollees still lose their nest eggs, even after years of paying premiums.
As for states saving on Medicaid, the federal General Accounting Office has predicted no such windfall.
So the primary beneficiary of states’ outreach is not the states’ residents. Many will discover that they were rooked. Nor will states ultimately benefit. They will have spent taxpayers’ money marketing these products, but analysts foresee no major savings in Medicaid. This is a partnership that benefits primarily one party, the companies. Their agents earn commissions as high as 50% of the first-year premiums. Their investors gain dividends. Their executives earn hefty salaries.
Zealous hucksters abound. Search the Internet for miracle cures for whatever ails you. Indeed, the soaring market for subprime mortgages enticed borrowers without assets into plunging into debt. But the role of government has never been to abet the hucksters. Until now.
Joan Retsinas is a sociologist who writes about health care in Providence, R.I. Email retsinas@verizon.net.
From The Progressive Populist, April 15, 2008
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