u .s . Long-term
URBAN INSTITUTE RESEARCHERS Richard Johnson, Desmond Toohey, and Joshua Wiener have projected disability rates for the population of the United States to the
year 2040, using various scenarios and different
definitions of disability.
With respect to the population 65 and older,
those experiencing a severe disability (defined
as the presence of three or more limitations in
activities of daily living) amounted to 9. 1 percent of
the population in 2000. Johnson and his colleagues
projected that in 2040 that number would range
from 6. 1 percent to 9. 9 percent, with 8. 5 percent
being the intermediate projection.
In 2000, there were 3 million Americans 65 and
older with severe disability. The researchers projected
this to range from 4. 5 million to 7. 4 million in 2040,
with 6. 3 million being an intermediate projection.
While this has been a relatively theoretical discussion so far, all of
these considerations have important practical applications. Consider the Community Living Assistance Services and Supports
(CLASS) Act, which was included in U.S. health care reform as
part of the Affordable Care Act of 2010 (see story, Page 20). The
CLASS Act creates a voluntary federal long-term care insurance
program subject to opt-out and guaranteed-issue provisions, with
a specified daily cash benefit and monthly premiums. It is required
to charge an actuarially sound premium over a 75-year horizon.
Before passage of the CLASS Act, analysis by a joint work
group of the Academy’s Federal Long-Term Care Task Force and
the Society of Actuaries’ (SOA) Long-Term Care Insurance Section Council raised questions about the actuarial soundness of
the proposed legislation. In a July 22, 2009, letter to the Senate
Committee on Health, Education, Labor and Pensions, the work
group warned that the proposed voluntary insurance program
would experience significant adverse selection, potentially leading to increased premiums and/or reduced benefits that in turn
would reduce participation.
In its letter, the work group suggested including the following provisions in the proposed legislation as a way of increasing
the likelihood that it would be sustainable:
■ ■ An actively-at-work definition with a requirement of a minimum of 20 to 30 hours of scheduled work or a comparable
■ ■ The use of underwriting for the coverage of spouses not actively at work.
■ ■ Restrictions on the ability to opt out and subsequently opt in to
the program by creating either a second waiting period for benefits or a reinstatement application that asks health questions.
■ ■ The use of a benefit elimination period, a benefit period
duration less than lifetime, and/or benefits paid based on a
reimbursement provision rather than on a cash basis.
■ ■ An initial premium structure that provides for scheduled
premium increases for active enrollees at either the rate of increase in the consumer price index or an alternative lower rate.
■ ■ A consistent definition of eligibility for all benefits and benefit levels using the definitions of ADL triggers and cognitive
impairment definitions in accordance with the Health Insurance Portability and Accountability Act of 1996.
Before considering whether a voluntary program that included
the types of provisions specified in the work group’s letter could
succeed in its objective, it is important to note that private long-term care insurance has had limited success in the marketplace.
In a 2007 study published by Boston College’s Center for
Retirement Research, researcher Howard Gleckman reports
that only 6 million to 7 million Americans were covered by
long-term care insurance in 2005. Gleckman cites insurance
industry surveys that have found price to be the major factor in
not purchasing long-term care insurance. But there may be other factors in play. Different surveys suggest the reasons include:
■ ■ The belief that long-term care coverage won’t be needed and
is an unnecessary purchase;
■ ■ Confusion as to what long-term care benefits will be provided by government, with those surveyed thinking more
benefits will be provided than is the case;
■ ■ A belief or hope that the state will increase coverage by the
time it is necessary to make a claim for long-term care.
Even if more people were encouraged (through a public
information campaign or other means) to purchase long-term
care insurance on a voluntary basis, it is still not clear that such
a program would be successful.
The provisions that the Academy-SOA joint work group
suggested in its letter to the Senate committee could reduce or
eliminate adverse selection. But when you limit or deny coverage
to those with a greater likelihood of incurring long-term care expenses, you also limit or deny coverage to those who are most in
need of it. This is the problem of trying to provide long-term care
insurance on a voluntary basis. How can coverage be extended
to those who need the insurance and still provide insurance on a
financially sustainable basis? Do you simply not cover those who
are most needy but who also are the worst insurance risks? Or do
you provide them with insurance, but with coverage limitations
or at higher premiums to cover the costs associated with insuring
substandard risks? If the intention is to increase long-term care
coverage in the general population, neither option will suffice.
On the other hand, if a common rate structure is used for both
standard and substandard individuals, a premium spiral and a participation spiral typically arise, with premiums spiraling up and
participation spiraling down. As rates rise above the actuarially