Legislature(2009 - 2010)

03/23/2010 02:05 PM L&C


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                SB 296-LONG-TERM CARE INSURANCE                                                                             
                                                                                                                                
2:18:17 PM                                                                                                                    
CHAIR PASKVAN announced SB 296 to be up for consideration.                                                                      
                                                                                                                                
2:18:30 PM                                                                                                                    
SENATOR LESIL  MCGUIRE, sponsor  of SB  296, explained  that this                                                               
bill was borne out of a working  group made up of people in long-                                                               
term  care  delivery and  insurance.  They  looked at  how  other                                                               
states  were addressing  long-term  care  strategies. Alaska  has                                                               
higher  costs  for assisted  living  and  home health  care,  but                                                               
overall all of  the states are facing this  similar challenge for                                                               
long term  care. The national  average for nursing home  costs is                                                               
$198/day; in  Alaska it  is over  $618/day. The  national average                                                               
for assisted living  cost is $3,131/mo; in Alaska at  the low end                                                               
it's  over $4,314  -  more  than 37  percent  above the  national                                                               
average. For  home health costs  that have an hourly  amount, the                                                               
national average  is $21/hr; in  Alaska it's $25/hr -  19 percent                                                               
above the national average.                                                                                                     
                                                                                                                                
The group looked at the costs of  long term care and those in the                                                               
group, one  of whom  owns some assisted  living homes,  who would                                                               
speak later  said that around  90 percent  of her clients  are on                                                               
Medicaid. So,  the state is  paying in  her homes for  roughly 90                                                               
percent  of all  of the  people being  cared for.  People try  to                                                               
shift  assets and  look for  ways to  cover long  term care,  but                                                               
unfortunately by  the time you  have reached that point  in life,                                                               
your prospects  of going into  the workforce and changing  any of                                                               
the  decisions made  prior  to  that are  bleak.  So that  burden                                                               
shifts to the state.                                                                                                            
                                                                                                                                
SENATOR MCGUIRE said  in the case of folks who  live in the Lower                                                               
48, the  majority of  them have  a tax  base that  is made  up of                                                               
actual taxpayers  - they have  a personal income tax,  sales tax,                                                               
or  consumption tax.  Alaska  doesn't  have a  tax;  all its  tax                                                               
revenue comes from the Trans  Alaska Pipeline System (TAPS). That                                                               
being said, they  have an obligation to think  about Alaska's tax                                                               
base because it may someday be borne by individual citizens.                                                                    
                                                                                                                                
2:22:21 PM                                                                                                                    
The  idea behind  this bill  is  to create  a premium  assistance                                                               
program  within the  state  of Alaska.  Other  states have  asked                                                               
individual  citizens of  the state  to put  forward an  amount of                                                               
money from  their own wages  that would  be matched by  the state                                                               
and subsequently be  matched in an equal amount by  the long term                                                               
insurance provider, creating  a partnership. In the  end a policy                                                               
develops  which is  meant  to insure  that  person for  long-term                                                               
care.                                                                                                                           
                                                                                                                                
She added  that Medicare applies  to those  65 and older,  but in                                                               
the case  of long term care  the burden with very  few exceptions                                                               
falls back  to Medicaid.  Next year the  state projects  those 65                                                               
and  older to  increase by  5.1 percent.  In 2009,  8,300 elderly                                                               
were  enrolled  in  Medicaid  and  an  enrollment  of  22,300  is                                                               
projected for  2029 based on  that 5 percent average.  Looking at                                                               
the growth  Alaska would  experience in  the Medicaid  budget for                                                               
those  who  would  need  long  term  care,  she  thought  it  was                                                               
incumbent  on the  state to  start  looking for  ways to  address                                                               
that. SB 296 attempts to do that.                                                                                               
                                                                                                                                
SENATOR  MCGUIRE  said  Alaska  is  unique  because  it  has  the                                                               
Permanent Fund Dividend  (PFD). When the click  to donate program                                                               
was  finally adopted  last year,  it  caused the  group to  start                                                               
thinking about what kind of an  application there might be for an                                                               
individual to  think both  at the time  they were  receiving that                                                               
dividend of how  they might want to give to  charity and how they                                                               
might want  to look at  their own health  needs and at  their own                                                               
long term care options for the future.                                                                                          
                                                                                                                                
She said that  cynics like Senator Bunde might  say that Alaskans                                                               
should be  thinking about that already  and why do they  need the                                                               
government to remind them. He  is right; but unfortunately people                                                               
get busy and don't take that time  to think about it, and it is a                                                               
long ways away for most people.                                                                                                 
                                                                                                                                
If  this bill  passes, they  are  hoping Alaskans  would have  an                                                               
opportunity when  they apply  for their PFD  to think  about long                                                               
term  care. She  said  they  have tried  to  minimize the  fiscal                                                               
implications  to  the  division  and will  ask  them  to  forward                                                               
information about this program to  Alaskans and let them consider                                                               
it and  decide. If they  do, they would  be giving $500  of their                                                               
own money that will be matched by  the state and then by the long                                                               
term care provider.                                                                                                             
                                                                                                                                
2:27:30 PM                                                                                                                    
ERIN SHINE, staff to Senator  McGuire, said sections 1-14 conform                                                               
statutes to  allow for long  term care partnerships which  are in                                                               
place  in 23  other states.  It creates  a group  policy that  is                                                               
transferable  between  the  states  and it  adds  provisions  for                                                               
anyone who is  selling or administering long  term care insurance                                                               
as a partnership to do so under these guidelines.                                                                               
                                                                                                                                
SENATOR MCGUIRE said  essentially the first part  of the sections                                                               
establishes the  mechanism, which  is the certificate  that would                                                               
come into  place once  an Alaskan elected  to create  the policy.                                                               
Other sections were  put in to deal  with preexisting conditions,                                                               
for example.  She highlighted  that the  committee might  want to                                                               
consider what liability  the state would have  with entering into                                                               
these transferability agreements.                                                                                               
                                                                                                                                
2:31:21 PM                                                                                                                    
She said  a sectional  analysis goes  through the  mechanism. The                                                               
fiscal  note  is  fairly substantial,  which  is  important.  The                                                               
question comes down to whether  one believes that partnering in a                                                               
premium assistance program would offset  costs that come in later                                                               
on in  the form  of Medicaid  claims as people  age. By  2030 she                                                               
reminded  them that  23,000 Alaskans  will be  65 and  older, and                                                               
some of that burden will fall to the State of Alaska.                                                                           
                                                                                                                                
SENATOR  BUNDE  said  he shared  their  concerns  about  Medicaid                                                               
costs, and said he wanted to  hear from the Department of Revenue                                                               
what the net gain would be  between someone going on Medicaid and                                                               
actually following this program.                                                                                                
                                                                                                                                
SENATOR  MCGUIRE  agreed   and  said  there  is   a  federal  tax                                                               
incentive, but  to the extent  that the long term  care insurance                                                               
provider  got a  state  credit, they  would want  to  add up  the                                                               
dollars  on both  sides and  compare.  If the  committee ends  up                                                               
deciding there is  a benefit she thought it  would be interesting                                                               
to observe  it in  other areas  of the  Medicaid budget  as well,                                                               
because it is the one part  of the state's budget that is growing                                                               
at extraordinary levels.  She said 50 percent of  all live births                                                               
in Alaska are now paid for by the state, as one example.                                                                        
                                                                                                                                
CHAIR PASKVAN said  someone purchasing a long  term care contract                                                               
has a  number of years  to pay for it.  It's not just  a one-time                                                               
click and  he asked if she  was representing that it  be done for                                                               
five years  or ten.  Is it  a fixed amount?  His concern  is that                                                               
people might  just check in one  year, but then lose  100 percent                                                               
of that  money because  they don't  click it  the next  year. And                                                               
then they don't have the benefit.                                                                                               
                                                                                                                                
SENATOR  MCGUIRE responded  those were  excellent questions.  She                                                               
just asked  Hank Hodges, New  York Life, a similar  question. She                                                               
said that long term care insurance  is also for people who become                                                               
disabled. It was  May Owne's (assisted living  home owner) belief                                                               
that  by  the next  year  so  long  as  it wasn't  a  preexisting                                                               
condition, the person  would have a policy. How  many years would                                                               
you need  to pay into the  policy is another good  question. This                                                               
issue  was brought  to her  by  constituents who  deal with  this                                                               
every day.                                                                                                                      
                                                                                                                                
2:38:02 PM                                                                                                                    
SENATOR BUNDE wanted  to know how this is impacted  by the recent                                                               
health care  reform, which  he thinks is  an unfunded  mandate on                                                               
our  grandchildren.  Is  it  more essential  than  car  or  house                                                               
insurance? If  the state is going  to subsidize one, would  it do                                                               
this for all kinds of insurance?                                                                                                
                                                                                                                                
SENATOR MCGUIRE  said those were great  questions, especially how                                                               
it  relates to  Obama  care,  because the  definition  of a  pre-                                                               
existing condition  is now  changed. She also  wanted to  know if                                                               
there would be  federal incentives in the land  of stimulus money                                                               
that would  go toward a  program like  this. She would  find out.                                                               
The Litmus test would be at  what level the state has a financial                                                               
obligation in those other categories  for unfunded liability. The                                                               
issue with long  term care insurance is that the  state is paying                                                               
more  than  $4000-5000/mo.  out of  Medicaid  coffers  for  those                                                               
seniors who did not get long term care insurance.                                                                               
                                                                                                                                
2:40:05 PM                                                                                                                    
AMY  OWNE,  representing  herself,  said she  has  four  assisted                                                               
living homes  in Anchorage,  but she  is not  directly affiliated                                                               
with this bill. However, it has  brought to her attention an area                                                               
of conservative  interest in  getting long  term care  costs back                                                               
into the  private sector. She said  she had been in  the assisted                                                               
living business since  2002; she has 20 beds and  has never had a                                                               
long  term  care insurance  client  even  approach her.  So  even                                                               
though they  have products, she  hasn't seen them. She  said it's                                                               
painful to  see these people  who have worked their  entire lives                                                               
spend down their  entire savings and go on to  become indigent to                                                               
get  into the  Medicaid  program. Because  when  they were  going                                                               
through  the depression  era and  afterwards, even  fathoming the                                                               
fact that  her assisted living  home could cost them  $7000/mo is                                                               
staggering. What do we do to help these people?                                                                                 
                                                                                                                                
She  said that  Senator Bunde  actually  inspired a  lot of  this                                                               
conversation when a couple years  ago at an Anchorage caucus when                                                               
they were  struggling against the  rate freeze she  remembered he                                                               
said, "Well  if you don't  like it;  it's a business  decision to                                                               
stay  in the  environment."  Now  she is  back  to  say that  her                                                               
business model  for taking  care of  these residents  is actually                                                               
pretty sound;  so maybe it's  time to change the  environment and                                                               
find out what is wrong so  that Alaskan seniors can be taken care                                                               
of better.                                                                                                                      
                                                                                                                                
MS. OWNE  said this  is what  she has  come up  with. If  you can                                                               
encourage people  to purchase the  long term care  insurance, the                                                               
partnership program  is an excellent way  to do it. She  found 22                                                               
states  with another  10-18 in  the  process of  creating it.  It                                                               
provides a  mechanism to purchase  the long term  care insurance.                                                               
If you purchase $100,000 worth  of coverage you can keep $100,000                                                               
worth  of  assets at  the  end  before  going into  the  Medicaid                                                               
program. So,  you wouldn't  have to give  up everything  you have                                                               
worked your whole life for.  She suggested using outside funds to                                                               
pay  down the  initial coverage  of  long term  expenses. Of  the                                                               
people who go  into long term care, 43 percent  of them will need                                                               
a nursing  home at  some point.  Of that  43 percent,  55 percent                                                               
will stay at least one year  and 21 percent will stay five years.                                                               
At current  rates ($610) staying in  a nursing home for  365 days                                                               
will cost $222,650  per year and you would have  to spend of your                                                               
own personal money  to be in there. Most adults  65 and older put                                                               
away about $170,000  for their own retirement. So  before the end                                                               
of the first year without any  kind of insurance they would be on                                                               
Medicaid.                                                                                                                       
                                                                                                                                
2:45:00 PM                                                                                                                    
CHAIR PASKVAN asked how much it  would cost to purchase long term                                                               
care coverage annually.                                                                                                         
                                                                                                                                
MS. OWNE  answered that the goal  is probably set for  someone in                                                               
their 40s  to plan ahead.  A $300/day nursing home  benefit (half                                                               
of  what it  is in  Alaska but  more than  the standard  national                                                               
rate), with  $300/day for  staying at your  home, a  90-day wait,                                                               
and a  policy maximum of  $547,000, the premium would  be $897.87                                                               
annually.  This would  pay for  roughly  two years  in a  nursing                                                               
home.                                                                                                                           
                                                                                                                                
CHAIR  PASKVAN   calculated  that   $500  would  come   from  the                                                               
individual under her system and  the state's match would be $500.                                                               
Is there another match?                                                                                                         
                                                                                                                                
MS. OWNE said the next match  is a discount. They tried to create                                                               
a three-legged stool so that  everyone was giving something. They                                                               
talked to  a couple  of providers  to get this  going on  a large                                                               
scale and  they could give  a 10  percent discount. This  is what                                                               
they  are trying  to make  happen.  It is  not supposed  to be  a                                                               
double dip from the state.                                                                                                      
                                                                                                                                
SENATOR  BUNDE asked  why  a private  enterprise  would give  him                                                               
money for his long term care.                                                                                                   
                                                                                                                                
MS.  OWNE answered  they would  give  him a  discount. Why  would                                                               
anyone  not  give  a  bulk  rate  to  a  large  corporation,  for                                                               
instance?                                                                                                                       
                                                                                                                                
CHAIR PASKVAN  asked if the  state's involvement would  result in                                                               
gross cost savings to the consumer.                                                                                             
                                                                                                                                
MS.  OWNE said  that  is  absolutely the  goal.  The  idea is  to                                                               
decrease the Medicaid budget.                                                                                                   
                                                                                                                                
CHAIR PASKVAN  said he  is looking  at it  from the  premium cost                                                               
that  they would  be  putting  on the  market.  He  asked if  her                                                               
example   of   a   $900/annual  premium   assumed   the   state's                                                               
participation in the program or is that the current market.                                                                     
                                                                                                                                
MS. OWNE answered that is the current market.                                                                                   
                                                                                                                                
CHAIR PASKVAN asked  assuming the state gets  involved, does that                                                               
$900  become $750.  Does  the state  get  an 18-percent  discount                                                               
because it has a larger pool?                                                                                                   
                                                                                                                                
MS. OWNE said that is exactly  the point. The companies they have                                                               
already talked to have offered  a 10 percent discount. Whether or                                                               
not that is legal  has to be worked out through  Ms. Hall and the                                                               
Division  of Insurance.  Her point  is that  they are  willing to                                                               
step up  to be  on the  short list of  companies that  offer this                                                               
program.                                                                                                                        
                                                                                                                                
2:50:02 PM                                                                                                                    
SENATOR BUNDE said his understanding  is that you would never get                                                               
more from  the state than  you put  in yourself under  this plan.                                                               
The  tax credit  on the  premium is  still basically  state money                                                               
somewhere along the line in terms  of taxes that didn't go to the                                                               
state. He  asked Ms. Owne  if Jeff, Labor and  Commerce committee                                                               
aide,  bought  long term  care  insurance  today, could  he  keep                                                               
$100,000 of his assets and still go on Medicaid.                                                                                
                                                                                                                                
MS. OWNE explained that could  happen with the partnership. If he                                                               
bought a $100,000 policy under  this partnership plan, if he went                                                               
into a  nursing home,  the first  $100,000 would  be paid  by the                                                               
insurance  company. If  Jeff had  $1 million  in assets  he would                                                               
have to  spend down to $100,000  to go on Medicaid.  You couldn't                                                               
underinsure just to get on it.                                                                                                  
                                                                                                                                
2:53:03 PM                                                                                                                    
LINDA  HALL,  Director,  Division  of  Insurance,  Department  of                                                               
Commerce, Community  and Economic  Development (DCCED),  said she                                                               
was  available to  answer questions  on SB  296, but  as she  had                                                               
listened  she  developed  comments.  The  first  section  through                                                               
section 14 are  policies that are part of a  model bill developed                                                               
through  the  National  Association  of  Insurance  Commissioners                                                               
(NAIC).{ They would  allow the Division of  Insurance to actually                                                               
approve  a  policy  form  if   an  insurance  company  wanted  to                                                               
participate in  one of  these long  term care  partnerships. This                                                               
policy is different  than the ones that the  department has filed                                                               
today; so they would need the  model language in order to approve                                                               
one.                                                                                                                            
                                                                                                                                
She explained  that her  staff worked  with Legislative  Legal in                                                               
drafting  policy regulatory  approval using  the NAIC  model, but                                                               
not on the actual working of  the long term care partnership. The                                                               
companies that  offer those policies in  other states participate                                                               
in some way  in a partnership. The first tax  credit in this bill                                                               
is  exactly that  -  against  their premium  tax,  which in  turn                                                               
reduces funds going into the general fund.                                                                                      
                                                                                                                                
SENATOR  BUNDE  asked  if  the   current  state  benefit  package                                                               
provides  a  long term  care  option  and  what level  the  state                                                               
participates in  that. Would this  then provide an option  to the                                                               
rest of the citizens for something  that is only available now to                                                               
state employees?  He didn't think  there was any state  match for                                                               
the  current program.  If there  is,  will the  state program  be                                                               
undermined with the program?                                                                                                    
                                                                                                                                
MS. HALL answered  that she understands there is  a state retiree                                                               
long term care  program. The daily limits are  relatively low and                                                               
she didn't  think there was  a state match, and  it is done  as a                                                               
group  program. Frequently  you will  have some  type of  reduced                                                               
premium  for group  participation,  although when  she does  rate                                                               
approvals she makes sure it's not unfairly discriminatory.                                                                      
                                                                                                                                
2:56:48 PM                                                                                                                    
JOHN SHERWOOD,  Medicaid Special  Projects, Department  of Health                                                               
and Social  Services (DHSS), Juneau,  Alaska, said this  is "kind                                                               
of a novel program" for  the department in terms of administering                                                               
it. They made  the best assumptions they could in  costing it out                                                               
with limited  experience and information. He  said the department                                                               
is always  looking for ways of  fostering personal responsibility                                                               
and planning for the future to  avoid assuming more of the burden                                                               
for long  term care  in the  Medicaid program.  He said  there is                                                               
uncertainty  about  how much  this  program  would actually  save                                                               
Medicaid.                                                                                                                       
                                                                                                                                
A  lot of  the discussion  he  read comes  down to  how many  new                                                               
people this would encourage to  get insurance versus just provide                                                               
an  additional benefit  in  the Medicaid  program  to people  who                                                               
would  already buy  long  term care  insurance  to protect  their                                                               
assets. But  this kind of  program does have potential  of saving                                                               
Medicaid some  money long term.  They aren't able to  quantify it                                                               
and they wouldn't expect to see  the savings in the lifespan of a                                                               
fiscal note that only goes about five years out.                                                                                
                                                                                                                                
CHAIR PASKVAN asked  if in general the assumption  is there would                                                               
be a fiscal  savings to the state because premiums  would be paid                                                               
that  defer  the state's  obligation.  Can  that be  measured  if                                                               
people buy in and stay bought in?                                                                                               
                                                                                                                                
MR.  SHERWOOD replied  that  he wasn't  aware  of something  that                                                               
would  let them  quantify it  specific to  Alaska. Because  these                                                               
long term  care partnerships  do provide  an exemption  when they                                                               
look at  people's assets to  the extent the insurance  company is                                                               
paid  long  term  care  benefits, some  people  can  qualify  for                                                               
Medicaid quicker  because they  don't have to  spend down  all of                                                               
their  own  assets.  On  the  other  hand,  to  the  extent  this                                                               
encourages  more people  to buy  insurance so  that even  if they                                                               
qualify for  Medicaid, long term  care insurance is  still paying                                                               
for some benefit  or if the insurance substantially  puts off the                                                               
point  at which  they might  qualify for  Medicaid it  could save                                                               
money.  There is  a high  degree of  uncertainty in  knowing what                                                               
demographic  would be  attracted to  this program.  To date,  his                                                               
observation is that people tend  to seek long term care insurance                                                               
if they  have significant  assets that they  want to  protect. To                                                               
get the most  savings they would want something  that would reach                                                               
"a broader range of people."                                                                                                    
                                                                                                                                
3:01:17 PM                                                                                                                    
CHAIR  PASKVAN said  he wonders  what happens  to the  failure to                                                               
renew  rate  people  have  if  they are  buying  long  term  care                                                               
insurance.  There have  to  be some  industry  standards on  that                                                               
where people start  out with the best of  intentions, spend $1000                                                               
a year, do it for three years  and then they can't do it anymore.                                                               
If the state  is involved in taking the money  that would have to                                                               
be addressed.                                                                                                                   
                                                                                                                                
MS.  HALL   said  those  are   called  "lapse  rates"   and  that                                                               
information could be  found in the 5,000 long  term care policies                                                               
that are in  effect in the state today. She  said they could also                                                               
continue to pursue finding statistics from other states.                                                                        
                                                                                                                                
3:02:33 PM                                                                                                                    
SENATOR BUNDE  noticed a representative  from the  Permanent Fund                                                               
Division, and in the past  those folks have been rather resistant                                                               
to getting  these check off  things because they  "Christmas tree                                                               
up." It would be good to hear their position.                                                                                   
                                                                                                                                
CHAIR  PASKVAN said  they need  to receive  a lot  of information                                                               
before advancing this bill. He said  it would be held for further                                                               
information.                                                                                                                    
                                                                                                                                
3:03:49 PM                                                                                                                    
CHAIR PASKVAN announced an at ease from 3:03 - 3:05 p.m.                                                                        
                                                                                                                                

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