The impact of moving into a long term care facility on length of life
Life Expectancy has been on an upward trajectory for over 100 years. According to the most recent report released by the AARP, the age group 65 and above will increase 89% over the next twenty years, and the 85 and older population will grow 74% during the same period. This rise in life expectancy, and the impact on quality of life was explored by James F. Fries in his 1982 study for the National Academy of Sciences entitled “The Compression of Morbidity”. In the paper, Fries contends that the aging population will live longer and in much better condition for a longer period of time due to improved lifestyles, nutrition, exercise, abstinence, and education. The flip side of this dynamic is that once people experience a disease or injury that requires long term care, the result is most often a dramatic decrease of life expectancy. For example, an age appropriately healthy 78 year old that lives an independent and active lifestyle might have a life expectancy of 15 years or greater. If that same individual suffered physical trauma or a disorder that required a move into a long term care facility, their life expectancy could be reduced 50%-75%.
The Assisted Living and Skilled Nursing Home (Senior Living) industry currently houses approximately 2,000,000 people across 60,000 facilities in the United States. This represents one of the biggest components of our country’s health care system and as an industry, theses facilities experience the impact of “Life Expectancy Compression” on a daily basis. Average “length of stay” is a carefully tracked industry benchmark for determining turnover and occupancy metrics. In the annual State of the Senior Housing Industry report released by the American Senior Housing Association (ASHA) the Senior Living industry reported average length of stay in 2008: Assisted Living (21 months), Independent Living (38 months), CCRC (77 months) and Alzheimer’s Care (17 months).
According to the National Center for Assisted Living (NCAL), of those currently residing in an assisted living community 34% will move to a skilled nursing facility due to deteriorating health and 30% will die. The mortality rate of individuals moving into a skilled nursing facility is death within the first 12 months by as much as 50%-60%. The mortality rate is even higher in the first 6 months.
In addition to length of stay experience, there are a number of studies that have been conducted measuring life expectancy across significant population cohorts in various forms of long term care settings:
In the study Mortality-related factors and 1-year survival in nursing home residents it was concluded from a population of over 100,000 residents during a three year period: “Major factors associated with 1-year mortality were identified in both the newly admitted and long-stay cohorts. MDS data can identify major factors associated with 1-year mortality in newly admitted and long-stay nursing home residents.” The first year of residence in a nursing home is the highest risk of death for the resident.
The research paper Death Rates Following Nursing Home & Care Facility Placement concludes: “There is evidence that people with dementia admitted to nursing homes and care facilities die comparatively quickly. It is known that mortality rates are high, initially, when people move from their own homes. Mortality rates are especially high in nursing homes.” The mortality rate for an individual moving into an Alzheimer’s care unit within the first year is greater than 50%.
In recent years the insurance industry has begun taking a closer look at the unique factors of underwriting seniors. As more insurance products are sold to higher risk populations, it has become critical to better understand factors impacting morbidity and mortality. Senior Vice President and Chief Medical Officer of RGA Reinsurance Company, J. Carl Holowaty, MD, DBIM, stated in a 2009 paper published in the Journal of the Academy of Life Underwriting that loss of ADL’s (activities of daily living: bathing, dressing, toileting, transferring, and continence) increases the risk of death. He also cites “will to live” in the elderly “must be taken very seriously” and that there is a relationship between mortality and degree of social engagement and changes in social patterns over time. Moving into an institutional care facility is possibly the single most disruptive event to patterns of social engagement that a person could experience (ranking maybe even higher than the death of a spouse).
What has been observed by daily experience throughout the entire long term care industry, and supported by numerous studies, is that individuals living in institutional care (regardless of age) will have significantly shorter life expectancies than their contemporaries living independently. Mortality is not only driven by their condition, but also by the impact of the significant change in environment. There are intangible factors such as “will to live” and tangible factors such as exposure to communicable diseases in the group environment that all come together to “compress” their life expectancy. Until very recently, actuarial tables and life expectancy calculations have ignored this well known and well documented fact. But now, the reality of this dynamic is becoming more important as the population of people reaching the compression point is increasing. Accurate underwriting in today’s “Silver Tsunami” driven world must take into account that people may be living longer and healthier lives, but when they cross the morbidity threshold, their life expectancies drop dramatically.
Exhibits
1) Length of Stay Data, Group 1 (Skilled Nursing Provider)
2008:
Medicaid admissions= 149 residents @ 379 days
Private Pay admissions= 77 residents @ 335 days
2) Length of Stay Data, Group 2 (Assisted Living Provider)
2007-2009(Q2):
44 deceased residents with a combined average length of stay of 2.9 years
- 75% female
- 25% male
Sources
American Seniors Housing Association, The State of Senior Housing, 2008
Death Rates Following Nursing Homes & Care Facility Placement: http://alzheimers.about.com/od/caregivers/a/surv_nurs_homes.htm
Mortality-related factors and 1-year survival in nursing home residents: http://www.ncbi.nlm.nih.gov/pubmed/12558718
Mortality, Disability, and Nursing Home Use for Persons with and without Hip Fracture: A Population-Based Study: http://pt.wkhealth.com/pt/re/jags/abstract.00004495-20021000000005.htm;jsessionid=KQNQ9hz1WyBL5gzxJTCyh2y2PWYj6FQs2mKGrcYjjpVndtf9g7jP!331639832!181195628!8091!-1
2008 MetLife Market Survey of Nursing Homes and Assisted Living Costs: http://www.metlife.com/assets/cao/mmi/publications/studies/mmi-studies-2008-nhal-costs.pdf
Demographic Profile of 65+ Population : http://www.metlife.com/assets/cao/mmi/publications/studies/mmi-studies-65-profile-20041010.pdf
Demographic Profile of American Baby Boomers: http://www.metlife.com/assets/cao/mmi/publications/studies/mmi-studies-boomer-profile-2007.pdf
Nursing Homes Fact Sheet , AARP Public Policy Institute: http://www.aarp.org/research/longtermcare/nursinghomes/aresearch-import-669-FS10R.html
The Silver Tsunami: http://www.lifecarefunding.com/whitepapers/LifeCareFundingGroupWhitePaper8-08SilverTsunami.pdf
Brown Atlas of Dying: http://www.chcr.brown.edu/dying/BROWNATLAS.HTM
CDC, National Center for Health Statistics: http://www.cdc.gov/nchs/default.htm
The Compression of Morbidity: http://www.milbank.org/quarterly/830427fries.pdf
Wednesday, September 2, 2009
Life Settlements: The Legal Rights of Insurance Policy Owners
The right of a policy owner to engage in a Life Settlement was guaranteed when U.S. Supreme Court Justice Oliver Wendell Holmes ruled in 1911 that life insurance is personal property and the owner is protected by all the same inalienable rights that any owner of real estate, stocks or any other assets enjoy. By the end of the 20th Century, Viaticals emerged as an opportunity for AIDS patients to cash out of a life insurance policy while still alive to cover the high costs of care not covered by health insurance. The Life Settlement market became an offshoot of Viaticals and has been growing rapidly ever since, with $13 billion in transactions completed in 2008.
In a 2003 study conducted by Conning & Co, they estimated that 90 million senior citizens owned approximately $500 billion worth of life insurance in 2003, of which over $100 billion was owned by seniors eligible for Life Settlements. The Wharton Business School issued a study where they observed, “Life insurance policies are typically assignable, which means that a policyholder is free to transfer their ownership of the policy to another person. A policyholder’s right to assign their policy to someone other than the insurance carrier has existed for some time.” The study also went on to observe that a life settlement, “gives the policyholder the economic freedom to choose between a number of buyers and, in so doing, to receive the fair market price for their policy.”
The right of a policy owner to engage in a life settlement is guaranteed by the landmark Supreme Court decision, Grigbsy v. Russell. In Justice Holmes’ final opinion it was codified that life insurance possessed all the ordinary characteristics of property, and therefore represented an asset that a policy owner could transfer without limitation. This decision established a life insurance policy as transferable property that contains specific legal rights, including the right to:
· Name the policy beneficiary
· Change the beneficiary designation
· Assign the policy as collateral for a loan
· Borrow against the policy
· Sell the policy to another party
A number of insurance industry organizations such as the National Association of Insurance Commissioners (NAIC), National Council of Insurance Legislators (NCOIL), American Council of Life Insurers (ACLI), National Association of Insurance and Financial Advisors (NAIFA), American Association of Life Underwriters (AALU) and the Life Insurance Settlement Association (LISA) have also recognized the legal rights of a policy owner to liquidate a life insurance policy through a life settlement.
During a panel session at ReFocus 2008, jointly presented by the ACLI and the Society of Actuaries, industry CEO’s agreed on the need for Life Settlements. Stuart Reese, chairman, president and CEO of MassMutual Life Insurance Company said that if a policy is first purchased with protection in mind and is no longer needed after a period of time, then a contract holder does have property rights and “there is a legitimate Life Settlement business which is consistent with the purpose of insurance.”
“The Life Settlement industry provides an important and efficient function to the insurance marketplace-- and it is a practice established by the Supreme Court”, said Chris Orestis, President of Life Care Funding Group (www.lifecarefunding.com), “In light of the long standing Supreme Court ruling on the transferability of insurance as property; those holding a policy that they no longer need will always be able to maximize the value of that property through a life settlement transaction.”
In a 2003 study conducted by Conning & Co, they estimated that 90 million senior citizens owned approximately $500 billion worth of life insurance in 2003, of which over $100 billion was owned by seniors eligible for Life Settlements. The Wharton Business School issued a study where they observed, “Life insurance policies are typically assignable, which means that a policyholder is free to transfer their ownership of the policy to another person. A policyholder’s right to assign their policy to someone other than the insurance carrier has existed for some time.” The study also went on to observe that a life settlement, “gives the policyholder the economic freedom to choose between a number of buyers and, in so doing, to receive the fair market price for their policy.”
The right of a policy owner to engage in a life settlement is guaranteed by the landmark Supreme Court decision, Grigbsy v. Russell. In Justice Holmes’ final opinion it was codified that life insurance possessed all the ordinary characteristics of property, and therefore represented an asset that a policy owner could transfer without limitation. This decision established a life insurance policy as transferable property that contains specific legal rights, including the right to:
· Name the policy beneficiary
· Change the beneficiary designation
· Assign the policy as collateral for a loan
· Borrow against the policy
· Sell the policy to another party
A number of insurance industry organizations such as the National Association of Insurance Commissioners (NAIC), National Council of Insurance Legislators (NCOIL), American Council of Life Insurers (ACLI), National Association of Insurance and Financial Advisors (NAIFA), American Association of Life Underwriters (AALU) and the Life Insurance Settlement Association (LISA) have also recognized the legal rights of a policy owner to liquidate a life insurance policy through a life settlement.
During a panel session at ReFocus 2008, jointly presented by the ACLI and the Society of Actuaries, industry CEO’s agreed on the need for Life Settlements. Stuart Reese, chairman, president and CEO of MassMutual Life Insurance Company said that if a policy is first purchased with protection in mind and is no longer needed after a period of time, then a contract holder does have property rights and “there is a legitimate Life Settlement business which is consistent with the purpose of insurance.”
“The Life Settlement industry provides an important and efficient function to the insurance marketplace-- and it is a practice established by the Supreme Court”, said Chris Orestis, President of Life Care Funding Group (www.lifecarefunding.com), “In light of the long standing Supreme Court ruling on the transferability of insurance as property; those holding a policy that they no longer need will always be able to maximize the value of that property through a life settlement transaction.”
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