People often ask me how they can help promote adoption of a Long-Term Care Partnership program in their state.  On February 20, Ralph Leisle, member of the Center for Long-Term Care Reform, Inc., took the proactive step of testifying in the Colorado state legislature in favor of a bill to implement the LTC Partnership. Here’s an slightly edited version of his testimony.

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To project future value of implementing LTC Partnership, let's analyze the impact of one age 55 Colorado resident purchasing LTC and needing care at age 81. If eventually eligible for Medicaid, without insurance, this individual will likely rely on Medicaid earlier and longer. For illustration purposes, let's assume a dollar for dollar benefit to Medicaid for each insurance claim paid. Likewise, we can project insurance value to the consumer versus self-funding a like care event.

In the fall of 2006, the Colorado statewide average Medicaid reimbursement for facility care was $166 per day. Rounding that to $170 per day for 2007 and assuming a 5% average annual cost increase, we can make important projections. The following projections look at future cost of care; the cost of insurance to cover that care; and the relative value of insurance versus self-funding, or relying on Medicaid.

CARE COST PROJECTIONS

At age 81, daily cost will be $576, or $210,000 the first year and $662,000 for a three-year care event. This amount times however many people bought LTC insurance, avoiding Medicaid, will be the cost savings to Medicaid.

INSURANCE DESIGN AND PREMIUM ASSUMPTIONS

Insurance covering the 3 years except for a 30-day deductible at the beginning of care for a single individual will be about $2100. In other words, the insurance design for this scenario was created to cover the expected 3 years of insurable care fully, except for the deductible. The premium will be higher or lower depending on health ratings and discounts. For example, discounts of 30 to 50% if two insured in the same household. The policy quoted covers eligible services for the full continuum of care from home through assisted living and nursing home.

IS LTC INSURANCE A GOOD DEAL?

Assuming a 4% discount rate (investment opportunity cost or after tax rate of return) of all cash flows, we can project insurance value versus self-funding a like care event. Claims paid are $645,000 of the $662,000 cost of care, the balance being the 30-day deductible. The Net Present Value (NPV) of the premium and claims payment cash flows is $190,000. Another way to understand NPV is that if the consumer prefers the investment route, if assuming a 4% after tax rate of return, a lump sum deposit of $190,000 and adding to it the premium amount at the beginning of each year, will accumulate the same amount paid by the insurance carrier in claim payments at time of care.

Internal Rate of Return (IRR) is 15.4%. If depositing only the premium amount to try and self fund a care event, a 15.4 % after tax rate of return will be needed all years through the care event.

Premium break-even point is 165 days of claim payments. This means once claims begin, the insured will have received in claim payments the entire premium amount paid plus investment opportunity cost to that point in time.

In this investment scenario, we are assuming care won't be needed for 26 years. In the event needed earlier, the investment strategy will be even more inadequate.

The data indicates to the extent LTC Partnership is a catalyst for more citizens to be self-reliant and avoid, or reduce, dependence on Medicaid, everyone wins. An important but separate topic is the unsustainable financial course Medicaid is on as the demographics of our state and nation changes to proportionately fewer working taxpayers, supporting an increasing number of high needs citizens.