Members of Generation X believe they will need to save at least $1 million before they can retire. Who can help them save it?
By Cyril Tuohy
The combination annuity and long-term care policy that has been mentioned as part of the solution to pay for long-term care insurance, has piqued the interest of a moderate Republican senator who favors market-based solutions to solving the challenges of long-term care.
Sen. Susan Collins, R-Maine, said last week that efforts at long-term care reform should include annuity long-term care hybrid products as a way to help fund long-term care at a time when there’s little or no support in Congress for expanding public spending programs.
Speaking at hearing of the Senate Special Committee on Aging, Collins said she was “very intrigued” by annuity hybrids as a way for the private sector to fund long-term care insurance. Medicare doesn’t cover long-term care, and private long-term care insurance is generally too expensive.
“We need to do better job to make private long-term care more available to people,” said Collins.
The question is how. Hybrid annuity long-term care products, also known as “life care annuity” products, represent a new form of insurance. Long-term care insurance experts have suggested changes in tax law that would allow for investment and distribution through tax-advantaged retirement accounts to spur demand for the policies.
Life care annuities work by reducing the adverse selection in the immediate life annuity portion of the policy, resulting in lower premiums and allowing for broader underwriting standards for the long-term care portion of the policy.
Demand for long-term care services and support (LTSS) is expected to rise sharply as baby boomers age and rely more on Medicaid and their families for help. Congressional Budget Office analysts predict that expenditures for long-term care will double, from about 1.3 percent of gross domestic product to as much as 3.3 percent by 2050. More than 12 million Americans and their families require long-term care help, and that number is projected to grow to 26 million, according to the National Council on Aging.
The LTSS policy question before lawmakers isn’t whether the nation is going to pay for LTSS, but how best and how equitably to pay for it.
Experts who testified before the committee said that doing that will mean more expense later. Either LTSS continues through the patchwork of private insurance, Medicaid coverage and family help, as it is now, they said. Or the nation plans for LTSS now and pays for it through a public or private system, or a combination of the two, which is considered more likely. This option spreads the financial pain.
“Clearly, our current system of providing long-term care is unsustainable for both the government and for families,” said Sen. Bill Nelson, D-Fla., committee chairman.
Nelson, a former Florida insurance commissioner, said he’d spent enough time in and around insurance to know that if people don’t see a need for long-term care insurance, then they won’t buy it. “Out of sight, out of mind,” he said.
The Commission on Long-Term Care in September delivered to Congress a blueprint for discussion about ways to finance LTSS. The commission set forth 28 recommendations about how to proceed using a mix of private and public financing for LTSS.
Anne Tumlinson, senior vice president for post-acute and long-term care with the consulting company Avalere Health, and Judy Feder, a member of the Commission on Long-Term Care and professor at the Georgetown University McCourt School of Public Policy Health, said that only some form of public support, or a mandatory mechanism whereby everyone contributes to a risk pool, will be enough to prepare millions of Americans for long-term care.
“Building an effective LTSS insurance system with public protection at its core is the only way to enable Americans to prepare for the risks we all face,” Feder said.
But with little support in Congress for a taxpayer-funded program, Nelson acknowledged, “It’s not clear to me where we go (from here).”
Calls for reform of the nation’s LTSS program are getting louder, said Sen. Elizabeth Warren, D-Mass., as the nation discovers that baby boomers are not as well prepared for retirement as they should be. One-third of baby boomers have no savings at all, and the one public program with the power to help, Medicaid, is administered unevenly by the states, and “forces people to spend all their assets to qualify,” she said.
“If we don’t design a program, we’re still going to pay for it in a really terrible way,” she said.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at firstname.lastname@example.org.
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