Health Insurance Options for Long-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 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 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, 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, 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? IndividualFamily 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 Expenses Exceed HSA Deductibles,” Urban Institute and Brookings Institution Tax Policy Center, August 16, Percent of households with medical spending less than the minimum HSA deductible: