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The 17 percent solution

Governors tout long-term care insurance to reduce need for Medicaid.

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BE PREPARED: For nursing home care.
  • BE PREPARED: For nursing home care.
In the last couple of weeks, Arkansans between the ages of 50 and 70 got a letter from Gov. Mike Huckabee encouraging them to investigate long-term care insurance to help pay their future nursing home bills. The letter was similar to those sent out in four other states whose governors are working with the federal government to find a way to cut Medicaid costs. The National Governors Association is the partner in the “Own Your Future” project, which offers a free long-term care planning kit from the federal Department of Health and Human Services and is being tested in Nevada, New Jersey, Virginia and Idaho. Huckabee, now NGA vice chairman, will assume the chairmanship this summer. Virginia Gov. Mark Warner is the outgoing chairman and Idaho Gov. Dirk Kempthorne is on the NGA’s excutive committee. A caller to the Arkansas Times who’d received the letter was curious about why the government was promoting the insurance industry, particularly long-term care insurance, which is too expensive for most Arkansans to buy. The National Governors Association’s answer to that: For every person who holds long-term care insurance, Medicaid will save $5,000 in annual spending for nursing home care. Arkansas spends nearly a billion Medicaid dollars a year on long-term care, or 39 percent of its Medicaid budget. President Bush is asking Congress to cut what will amount to $40 billion to $45 billion in federal spending on Medicaid over the next decade, though average state spending on the program for the neediest Americans has risen 9 percent or more for each of the last four years. Herb Sanderson, the director of the division of aging and adult services in the Department of Human Services, estimated 300,000 Arkansans received the letter (mailed at the federal government’s expense). Sanderson said Arkansas may have been chosen for the “Our Own Future” project because of its successful implementation of the Independent Choices program that allows Medicaid recipients to hire and pay non-skilled caregivers — including friends and family members — directly. Arkansas was the first state to get the pilot off the ground; it was shown to lower hospital and nursing home usage. Sanderson sees the “Own Your Future” program’s value less in the publicity it gives long-term care than the other information included in the free HHS booklet, such as links to the American Association of Retired Persons and others. That’s because long-term care premiums can run into hundreds of dollars a month. “If you’re in the lower income [bracket] you probably don’t want to buy long term,” he said, and if you’re high income you probably won’t want to either. Of all Arkansans in the 55-64 age bracket, only 17.6 percent of Arkansans earn enough money to begin thinking about buying the policies — $50,000 and $74,999 a year. Another 17.5 percent earn between $75,000 and $99,999, and could be interested. But the 8.3 percent who earn over $100,000 a year may choose to rely on investments and savings to pay for their old age care. As an example of premium costs, say a 53-year-old woman in excellent health wanted to buy a policy that would pay a $100-a-day benefit for three years. Three quotes from insurers in the Arkansas market provided via a free on-line search were $790, $925 and $973 a year. Because they didn’t include inflation protection — which is highly recommended — those quotes are low. Today, the average cost of a stay in a nursing home is $55,000 a year, or $150 a day (and up to double that in some cities), according to the AARP. So if you’re paying for $100 but the cost is $150, you’ve either got to raise your premium cost or foot the extra 33.3 percent yourself. Premium prices jump significantly at ages 56, 61 and so on. So far, research has shown that people who can afford the insurance won’t ever go on Medicaid because their assets are too high, Sanderson said. It will pay for at-home care, and “it’s good for the segment that can afford it.” A bill being considered by the state legislature would award a tax credit of 2.5 percent of the cost of long-term care insurance premiums. In doing research for the legislature, the state Department of Finance and Administration determined that 20,500 Arkansans are paying an average of $7,707 per policyholder for long-term care insurance, for a total of $158 million. DFA used those figures to estimate the cost of the tax credit for the fiscal year ending June 30, 2006 at $6.3 million in June 2006. The credit would rise 2.5 percent each year after that, costing the state an estimated $13.5 million for the year ended June 30, 2007, $20.7 million the next year and $25.8 million the year after that. With 77 million baby boomers waiting in the nursing home wings, DHS’ Sanderson said, long-term care insurance is just “one of many things we need to do.” Arkansas had 709,361 people enrolled in Medicaid in 2004 at a cost of $2.7 billion, three-fourths of which was picked up by the federal government. With a $40 billion cut looming in the feds’ share, things are looking bad. AARP says that half of all women and a third of all men who live past the age of 65 will need nursing home care. The stay average is two and a half years, though 21 percent will stay for five years or more. The sad irony, Sanderson noted, is that that according to the Journal of American Medicine, most people would rather die than go to a nursing home.

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