Health-care reform remains a political flashpoint. Given the remaining Republican presidential candidates’ opposition to the law, it will be a prominent point of contention in the next election. Depending on the election’s outcome, the divergent views raise the possibility of modifications to the current legislation. The prospect of additional changes can be disconcerting for your senior clients, many of whom are still digesting the original reforms.
Paul Fronstin, Ph.D., director, Health Research & Education Program for the Employee Benefit Research Institute (EBRI) in Washington, D.C., says that it’s unlikely there will be any major legislative changes to the law this year. "There may be some tinkering that happens as part of some other legislation," he says. "Last year I think they changed some rules regarding who gets subsidies and some other things, but they were very minor changes that most people wouldn’t even realize. And you may see changes or delays happen as the law gets implemented. There’s a question as to whether or not all the states are going to be in a position to launch exchanges come 2014."
It’s still difficult to predict post-election changes even if the Republicans win control of the Senate and White House. "Are [the Republicans] going to repeal the law," Fronstin points out. "If they repeal it, do they replace it? And if they replace it, what do they replace it with? There are a number of things that have already taken effect that may be hard to undo, things like filling in the doughnut hole for seniors on Medicare Part D."
A summer decision
Court decisions could force changes in parts of the health-care reform package before any legislative actions. Fronstin notes that there is a split in the circuit courts on the constitutionality of the requirement that people must either have insurance or pay a penalty. The U.S. Supreme Court will hold hearings on the matter this month; both sides make a good case, Fronstin observes. "When you read the arguments for and against this issue of constitutionality, I think most reasonable people agree with both," he says, "which makes it very difficult to know where the court is going to come out on this."
If the court deems the individual mandate unconstitutional, the issue of whether the rest of the health-care reform holds up remains uncertain, however. That’s because the health-care law lacks a severability clause that would maintain the law’s overall validity if the individual mandate requirement gets overturned. "That’s something the Supreme Court can decide for itself or kick back to the lower courts," says Fronstin. "[Also] just because the hearing is scheduled for March doesn’t mean we’ll get a decision in March. It will likely be in either June or early July when the decisions come out. So, if that happens, then it just may delay the whole thing in terms of getting the answer that most Americans would like to know as to the future of the law."
CLASS is out
Now that the government is out of the LTCI business, what impact will that have on sales?
The CLASS Act’s demise last October was a setback for the Obama administration’s health-care plans, but it wasn’t completely unexpected within the long-term care (LTC) industry. Malcolm Cheung, vice-president, long-term care, for Prudential Insurance, was part of a group from the American Academy of Actuaries that reviewed an early version of the act. "We had recognized as actuaries that there were some program design issues that would make the program itself very difficult to manage over the long term," Cheung said. "And, so, ultimately when the plug was pulled it certainly was not a surprise to me."
"I think over time, more and more boomers will actually see the light and recognize the risk that long-term care poses and hopefully try to do something about it." ~Malcolm Cheung, Prudential
Jesse Slome, executive director of the American Association for Long-Term Care Insurance (AALTCI), asserts that most LTCI producers and distributors expected the CLASS Act to benefit the industry by creating awareness among prospective insureds. "And, so, since nothing had really happened it was like, oh, well, another nothing," said Slome.
Slome, however, says he assumed the government was likely to roll out a competitive LTC product as part of CLASS, so he was happy to see the program’s end. "I was one of the outspoken minority who really felt the CLASS Act could significantly impact private long-term care insurance sales, especially in the group marketplace," Slome said. "And, so, I personally and professionally was, from a competitive standpoint, glad to see that it wasn’t moving forward."
What to expect post-CLASS
So what’s on the post-CLASS LTCI horizon? Cheung suspects that some employers who were waiting to see what the act produced may now revisit private employer-sponsored coverage. Demographic trends are another factor, says Cheung. The oldest boomers started turning 65 last year and are increasingly likely to have experienced long-term care situations for their parents and that could spur more interest in LTCI. "I think over time, more and more boomers will actually see the light and recognize the risk that long-term care poses and hopefully try to do something about it to protect them from that risk," he says.
Because premiums are higher for these prospective older applicants, Cheung foresees a shift in plan design away from top-level benefit coverage. Five or six years ago policies often had unlimited lifetime maximum benefits with 5 percent compounded inflation protection. But those plan features are becoming less and less popular, he says: "In fact, at Prudential, we’re probably selling just as many policies with 3 percent compound annual inflation protection as opposed to 5 percent. We’re selling many more policies than we had in the past with three-year lifetime maximum benefits whereas before five-plus years was the most common lifetime maximum benefit."
More favorable demographics and plan designs will help the LTCI market but advisors still need to identify the right target markets. Slome contends that many insurance agents may fail to identify prospective buyers properly. "They are still looking at the world and thinking the vast majority of Americans do not have long-term care insurance, therefore, the vast majority of Americans are my prospects," he says. "Nothing could be further from the truth. It doesn’t matter what percentage own long-term care insurance. There’s a very specific market for this product just as there’s a specific market for BMWs and a specific market for Kias."
"There’s a very specific market for this product just as there’s a specific market for BMWs and a specific market for Kias." ~Jesse Slome, AALTCI
Senior Market Advisor recently asked John Greene, the National Association of Health Underwriters’ (NAHU) senior vice president of Congressional Affairs in Washington, D.C., about health-care reform and its impact on retirees.
Senior Market Advisor: Can you give us an overview of NAHU’s perspective on the Patient Protection and Affordable Care Act (PPACA)?
John Greene: We think that the PPACA did little to address cost. It was primarily a bill focused on access and it required a lot of financial accounting to make the numbers work. So, for example, they created the CLASS Act, which collected revenues for five years before any money was touched and that helped them get under their budget target. They also included a number of taxes, specifically a premium tax to the carriers, but which will end up being passed down to consumers in the form of higher premium. There’s a device tax for technology. Anything that you buy, wheelchairs and so forth, will have a tax and that will have a dampening effect on technology. And they cut $500 billion from the Medicare Program to also help fund the subsidies. They did add some new preventive benefits to Medicare, but in the future higher income people will pay a higher share toward their benefits.
SMA: Which features of PPACA will significantly influence coverage, benefits and cost specifically for the senior market?
Greene: One issue that directly affects seniors this year is their ability to switch to another Medicare Advantage (MA) plan. January to March had always been the traditional period to test drive the plan and to make or allot a one-time switch to another MA plan. That’s no longer an option—your only option currently is original Medicare. Now, if you are a person who’s on a low-income subsidy (the LIS Program), meaning that the government is paying your premium for MA, as was the case before the law and is still the case, you can switch Medicare Advantage plans every month. But if you pay with your own money your only option is original Medicare—that somehow doesn’t seem right.
SMA: Are there any implementation dates coming up from the health-care reform act that a senior-client advisor should be monitoring?
Greene: If you make over $200,000 (couples over $250,000), the Part A payroll tax will increase by 0.9 percent. There’s also an additional 3.8 percent tax on certain unearned investment income for individuals earning over $200,000 and couples over $250,000. That takes effect in January 2013.
SMA: Do you see any significant risk that large numbers of employers might start dropping early retirees’ coverage?
Greene: The MMA (Medicare Modernization Act) for (Medicare’s) Part D included a provision for a 28 percent subsidy to employers so that they would not drop their retiree coverage onto the government. The PPACA eliminated that 28 percent subsidy but most employers are still providing the coverage. That doesn’t mean that they won’t drop it at some point in the future. They’re basically watching to see what happens with health-care reform in general with respect to their offer of coverage to their current employees. So, if things were to go south for their employees they no doubt will go south for their retirees, too.