Health Insurance Options forLong-Term Care

Julie Sonier

Assistant Director, Health Economics Program

Minnesota Department of Health

September 10, 2004

Sources of Supplemental Insurance Coverage for Medicare Beneficiaries, MN and US

44%

11% 9%

22%

14%

22%18%

15%

33%

12%

Medigap MedicareHMO

Gov't Prgms Employer MedicareOnly

Minnesota United States

Source: Minnesota Department of Health, Health Economics Program, 2001 Minnesota Health Access Survey; Centers for Medicare and Medicaid Services, 2000 Medicare Current Beneficiary Survey.

Sources of Supplemental Insurance Coverage for Minnesota Medicare Beneficiaries, Metropolitan

Areas and Rural Areas

37%

14%10%

25%

15%

55%

6% 8%

18%14%

Medigap MedicareHMO

Gov't Prgms Employer MedicareOnly

Metropolitan Rural

Source: Minnesota Department of Health, Health Economics Program, 2001 Minnesota Health Access Survey

Who Buys Long-Term Care Insurance and HSAs?

Currently, LTC insurance is mostly purchased by higher-income people for asset protection

Although HSAs are still in their infancy, it appears that they are also most attractive to higher-income (and healthier) people

So, as a potential future means of saving Medical Assistance dollars the impact of LTC insurance and HSAs is likely limited – unless the population that buys these products changes

Adding LTC coverage to Medicare supplement insurance

Would likely hurt the MedSupp market without increasing LTC coverage– January 2000 MDH report estimated premiums

for LTC insurance purchased at age 65 were 4 times the premium for the most popular Medigap policy

Questions about cost-effectiveness of subsidizing premiums for low-income people

Potential interaction with HSA policy options: HSAs cannot be used to pay for Medigap premiums (but can be used to pay for LTC insurance premiums)

Additional issues related to HSAs as a vehicle for saving for LTC expenses

According to a July 2004 analysis by the Employee Benefits Research Institute, the amount of money a person can potentially accumulate in an HSA is generally far less than he/she will need for health care expenses in retirement

Some examples follow…

Source: Paul Fronstin and Dallas Salisbury, “Health Care Expenses in Retirement and the Use of Health Savings Accounts,” Employee Benefit Research Institute Issue Brief No. 271, July 2004

How Much Money Can Be Accumulated in an HSA for Health Care Needs in Retirement?

50% of end-of-year account balance

rolled over

90% of end-of-year account balance

rolled over

10 years $2,000 $8,000

20 years $2,000 $13,000

Account balance assuming $1,000 annual contribution and 5% rate of return

Source: Paul Fronstin and Dallas Salisbury, “Health Care Expenses in Retirement and the Use of Health Savings Accounts,” Employee Benefit Research Institute Issue Brief No. 271, July 2004

50% of end-of-year account balance

rolled over

90% of end-of-year account balance

rolled over

10 years $6,000 $21,000

20 years $6,000 $33,000

Account balance assuming $2,600 annual contribution and 5% rate of return

How Much Money Can Be Accumulated in an HSA for Health Care Needs in Retirement?

Source: Paul Fronstin and Dallas Salisbury, “Health Care Expenses in Retirement and the Use of Health Savings Accounts,” Employee Benefit Research Institute Issue Brief No. 271, July 2004

How Much Is Realistic to Expect Can Be Rolled Over in an HSA from Year to Year?

Individual Family

Deductible $1,000 $2,000

% of households with expenses less than deductible

58.0% 32.6%

Source: Linda Blumberg and Leonard E. Burman, “Most Households’ Medical ExpensesExceed HSA Deductibles,” Urban Institute and Brookings Institution Tax Policy Center,August 16, 2004.

Percent of households with medical spending less than the minimum HSA deductible: