Instability in the Long Term Care Insurance Market puts pressure on the Consumer
An unexpected announcement by Met Life that they will exit the long term care insurance market in less than two months stunned an industry that has been forced to endure an escalating series of negative announcements over the last three years. The industry has worked for years to arrive at the point when the Baby Boomers would begin crossing over into retirement age and long term care insurance policy sales should be booming. But instead the industry has been set back by decreasing sales, rate increases, blocks of business being taken over by state risk pools, and now the sudden departure of one of the leading carriers and brand names for retirement and long term care security.
This storm, brewing for some time, became particularly evident in the last three years through a series of disruptive events emanating from leading long term care insurers. In 2007, John Hancock and Genworth began raising rates by 20 percent on new policies sold. In 2008, Conseco, the Indiana-based insurer and one of the nation's largest sellers of long term care insurance, transferred its long term care policies to a state trust fund in Pennsylvania. It was estimated at the time that the transfer of polices to the Senior Health Insurance Co. of Pennsylvania, a state trust fund, would impact 140,000 policyholders. In September 2010, John Hancock made a stunning announcement that it would increase rates on in-force policies by 40 percent and would suspend group product sales, and in October, Genworth announced that it, too, would again raise rates on at least 26 percent of its in-force business.
The common factor driving this escalation of events is incorrectly pricing the costs for this product by underestimating longevity of policy holders and the level of policy persistence. Simply put, long term care insurers under priced their product and it has become increasingly expensive for them to keep the policies on the books for longer periods of time at the original price they were sold. Solutions to this situation have come in the form of rate increases on new and existing business, abandoning blocks of business and leaving it to the states to take over, or now most recently, exiting the market all together.
Genworth attributes their rate increases to, “persistency, or the number of people who will retain, rather than lapse, their policies over time – leading to higher claims than pricing assumed for these older policies.” Similarly, when John Hancock examined their claims experience between 1990 and 2010 they discovered “unfavorable claims patterns” as it was described by Marianne Harrison, president of John Hancock Long Term Care. They discovered that claims had doubled since they last examined their experience in 2006 and that the age group 80 and older had increased by a factor of 4. Length and severity of claims had risen in the same time period while termination of policies had decreased. The bottom line is that more people were living longer and using their policies for longer periods of time than had been expected. “Put simply, more people used the insurance than anticipated, reinforcing the value of the product to policyholders, but creating a pricing issue,” Hancock says.
In the case of Met Life’s announcement to leave the market, these same factors are also true. In their statement, they indicated a major reason for leaving the market is that they have more customers cashing in on their long-term-care policies and, at the same time, the cost of providing care is rising. "While this is a difficult decision, the financial challenges facing the [long-term-care insurance] industry in the current environment are well known," said Jodi Anatole, vice president of long-term-care products for MetLife.
Of course the irony of this situation is that Met Life is leaving the market at exactly the time that consumers need private market options to help pay for long term care more than ever. Starting in 2011 as many as 10,000 Baby Boomers a day will start going onto Social Security and Medicare. Those social safety net programs are already under tremendous stress to keep up with the current population’s demands. Combined with a weak economy undermining the availability of tax dollars to sustain them, these programs are going to start pushing the responsibility to pay for long term care back on the individual and their family. State Medicaid programs are under enormous stress to keep up as well. They are also cutting budgets, increasing barriers to entry and emphasizing funding long term care more and more with out-of-pocket money. As the economy continues to search for its footing and demand for access to these programs rise, this will be an escalating area of concern for all stake-holders across the country.
Wednesday, November 24, 2010
Saturday, November 20, 2010
Final Testimony – Life Care Funding Group
National Conference of Insurance Legislators (NCOIL)
Life Insurance & Financial Planning Committee
November 19, 2010
Thank you to the members of the Committee for allowing me to participate in this very open, inclusive and thoughtful process.
I am Chris Orestis, President of Life Care Funding Group. We work with seniors and their families throughout the Untied States to help them raise funds they need to cover the costs of long term care. We specialize in converting a life insurance policy into a long term care benefit plan.
The Consumer Disclosure law currently being considered is important from three perspectives:
1) This is not about life settlements; it is about consumer rights to have access to information and options to get the best possible use and value for a life insurance policy based on their specific circumstances.
2) The consumer most helped by this law is the middle class policy owner about to discard one of their most valuable assets without the benefit of advisors or the knowledge that they have a number of alternative options to consider.
3) The intersection of a growing senior and Baby Boomer population and economic bust is creating a crisis for how seniors will fund their retirements and eventually long term care expenses. This disclosure law will help consumers understand they have a number of options to consider before discarding a policy, including converting their policy into a long term care benefit plan that holds the potential to address their financial shortfalls.
Our case workers hear from seniors and their families every day who have been paying premiums for years and are getting ready to abandon their policy. These are middle class Americans without insurance expertise and the typical size of their policy is well under $500,000. They are being told by their insurance company that their only option is to pay or walk away.
Just two weeks ago we heard from a family with a $95,000 life insurance policy entering its grace period. Their mother is in the process of making the move into long term care and they could not afford the monthly expenses. They called their insurance company to ask what they could do with their policy and they were told their only option was to pay the premiums or let it lapse. Then they contacted us. And now instead of allowing the policy to lapse, we are converting it into a long term care benefit plan that will help cover her costs of care and keep her off of Medicaid for at least the next two years.
With this Consumer Disclosure law, policy owners will not make decisions based on a lack of information and instead will be informed that they have a number of options to consider first that could make a significant difference in their lives, and at a time when they need it most.
Life Insurance & Financial Planning Committee
November 19, 2010
Thank you to the members of the Committee for allowing me to participate in this very open, inclusive and thoughtful process.
I am Chris Orestis, President of Life Care Funding Group. We work with seniors and their families throughout the Untied States to help them raise funds they need to cover the costs of long term care. We specialize in converting a life insurance policy into a long term care benefit plan.
The Consumer Disclosure law currently being considered is important from three perspectives:
1) This is not about life settlements; it is about consumer rights to have access to information and options to get the best possible use and value for a life insurance policy based on their specific circumstances.
2) The consumer most helped by this law is the middle class policy owner about to discard one of their most valuable assets without the benefit of advisors or the knowledge that they have a number of alternative options to consider.
3) The intersection of a growing senior and Baby Boomer population and economic bust is creating a crisis for how seniors will fund their retirements and eventually long term care expenses. This disclosure law will help consumers understand they have a number of options to consider before discarding a policy, including converting their policy into a long term care benefit plan that holds the potential to address their financial shortfalls.
Our case workers hear from seniors and their families every day who have been paying premiums for years and are getting ready to abandon their policy. These are middle class Americans without insurance expertise and the typical size of their policy is well under $500,000. They are being told by their insurance company that their only option is to pay or walk away.
Just two weeks ago we heard from a family with a $95,000 life insurance policy entering its grace period. Their mother is in the process of making the move into long term care and they could not afford the monthly expenses. They called their insurance company to ask what they could do with their policy and they were told their only option was to pay the premiums or let it lapse. Then they contacted us. And now instead of allowing the policy to lapse, we are converting it into a long term care benefit plan that will help cover her costs of care and keep her off of Medicaid for at least the next two years.
With this Consumer Disclosure law, policy owners will not make decisions based on a lack of information and instead will be informed that they have a number of options to consider first that could make a significant difference in their lives, and at a time when they need it most.
Monday, November 8, 2010
NCOIL Comment Letter II: Consumer Disclosure Law
The Honorable Ronald Crimm
Vice-Chairman
Life Insurance and Financial Planning Committee
National Conference of Insurance Legislators
385 Jordan Road
Troy, NY 12180
September 22, 2010
On behalf of Life Care Funding Group, I thank you for the opportunity to offer these additional written comments in support of the Life Insurance Consumer Disclosure Legislative Model currently under development by NCOIL. I previously submitted written comments on September 7, 2010.
We wanted to take a moment to reiterate our support for the Consumer Disclosure Legislative Model currently being considered by NCOIL. Our company specializes in helping people in need of long term care pay for expenses by converting a life insurance policy into a long term care benefit plan.
The families we work with are middle class and typically have owned a small face value life insurance policy for many years that was originally taken out to protect their families. As they are now aged with adult children, the reason for owning the policy is no longer relevant to them and for the most part they can no longer afford their premium payments. They are faced with financial decisions about how they are going to pay for long term care needs and look at the cost of keeping their policy as unaffordable and unnecessary.
They are preparing to allow their policy to lapse, or possibly surrender it for minimal cash value, and when they consult with their life insurance company they are given no other options. For those that learn there are actually a number of alternative options available to them, the policy can potentially become part of the financial solution they and their family are looking for while they are still alive.
Life Care Funding Group converts the life insurance policy into a long term care benefit that helps defray the expensive costs of long term care—and keeps them off of Medicaid as their spend down period as a private pay patient can be extended for many months. When faced with the choice of allowing a policy for which they have paid premiums for years to lapse or be surrendered, or converting it into a significant long term care benefit, the choice for those families we have helped is obvious.
We urge NCOIL and every state in the Union to adopt the model consumer disclosure legislation so people have the benefit of as much information as possible about their policy options. The opportunity to help families in need and States facing Medicaid budget problems is too big to ignore.
Attached with our comments is a testimonial letter from one of the families we recently helped through our program attesting to the fact that a policy they did not plan to keep ended up making all the difference in their lives when they converted it to a long term care benefit.
I thank you again for this opportunity to provide comments, and look forward to being a resource to NCOIL’s efforts to ensure the consumer has access to more, and not less, information and options.
Sincerely,
Chris Orestis
President
Life Care Funding Group
Vice-Chairman
Life Insurance and Financial Planning Committee
National Conference of Insurance Legislators
385 Jordan Road
Troy, NY 12180
September 22, 2010
On behalf of Life Care Funding Group, I thank you for the opportunity to offer these additional written comments in support of the Life Insurance Consumer Disclosure Legislative Model currently under development by NCOIL. I previously submitted written comments on September 7, 2010.
We wanted to take a moment to reiterate our support for the Consumer Disclosure Legislative Model currently being considered by NCOIL. Our company specializes in helping people in need of long term care pay for expenses by converting a life insurance policy into a long term care benefit plan.
The families we work with are middle class and typically have owned a small face value life insurance policy for many years that was originally taken out to protect their families. As they are now aged with adult children, the reason for owning the policy is no longer relevant to them and for the most part they can no longer afford their premium payments. They are faced with financial decisions about how they are going to pay for long term care needs and look at the cost of keeping their policy as unaffordable and unnecessary.
They are preparing to allow their policy to lapse, or possibly surrender it for minimal cash value, and when they consult with their life insurance company they are given no other options. For those that learn there are actually a number of alternative options available to them, the policy can potentially become part of the financial solution they and their family are looking for while they are still alive.
Life Care Funding Group converts the life insurance policy into a long term care benefit that helps defray the expensive costs of long term care—and keeps them off of Medicaid as their spend down period as a private pay patient can be extended for many months. When faced with the choice of allowing a policy for which they have paid premiums for years to lapse or be surrendered, or converting it into a significant long term care benefit, the choice for those families we have helped is obvious.
We urge NCOIL and every state in the Union to adopt the model consumer disclosure legislation so people have the benefit of as much information as possible about their policy options. The opportunity to help families in need and States facing Medicaid budget problems is too big to ignore.
Attached with our comments is a testimonial letter from one of the families we recently helped through our program attesting to the fact that a policy they did not plan to keep ended up making all the difference in their lives when they converted it to a long term care benefit.
I thank you again for this opportunity to provide comments, and look forward to being a resource to NCOIL’s efforts to ensure the consumer has access to more, and not less, information and options.
Sincerely,
Chris Orestis
President
Life Care Funding Group
NCOIL Comment Letter I: Consumer Disclosure Law
The Honorable Ronald Crimm
Vice-Chairman
Life Insurance and Financial Planning Committee
National Conference of Insurance Legislators
385 Jordan Road
Troy, NY 12180
September 7, 2010
On behalf of Life Care Funding Group, I thank you for the opportunity to offer these written comments in support of the Life Insurance Consumer Disclosure Legislative Model currently under development by NCOIL.
Founded in 2007, LCFG is the leading provider of Funding Solutions for Senior Living to the senior housing and long term care industry. Our company specializes in converting the death benefit of an in-force life insurance policy into a long term care benefit to cover the costs of skilled nursing home care, assisted living, home health care, and hospice. We are members of the Assisted Living Federation of America (ALFA) and the American Health Care Association (AHCA).
LCFG focuses on providing seniors information and access to private market financial resources. One resource we have been able to use for their benefit is an in-force life insurance policy. There are millions more seniors in this country today with an in-force life insurance policy than a LTC policy.
The U.S. is experiencing a massive influx of seniors and Baby Boomers hitting the long term care system at the worst possible time from an economic perspective. This economic crisis now entering its third year is translating into less tax dollars for Medicare and Medicaid to pick up the costs of long term care which is forcing more emphasis back on the consumer to cover costs out of their own pocket. Seniors and their families are uninformed and unprepared to handle the costs and navigate the LTC industrial complex. Studies show the majority of people don’t save or plan for LTC until they are hit with a health crisis and the time is now.
We often times encounter seniors with a life insurance policy that they have been carrying for years. They are now in a crisis mode and will most likely lapse the policy because there is little to no cash value and they can no longer afford the premiums. When they reach out to the insurance company for options they are told they have two: pay up or lapse/surrender.
LCFG’s solution is to convert a life insurance policy’s death benefit into a long term care benefit that will help pay the costs of care and/or housing. Our program, called the Assurance Benefit, has helped people pay for the costs of nursing home, assisted living and home based health care. Each family we have helped were owners of a life insurance policy they no longer could afford to keep in force. They were planning to either lapse the policy or surrender it for minimal cash value. After they learned that there were alternative options to realize value for an asset they were prepared to abandon, they quickly acted on our program and were able to move forward securing the best possible long term care for their needs.
It is in the better interest of the senior and their family to monetize the policy through a variety of options, such as in our case converting a death benefit to a long term care benefit, and then applying the maximum private market value of the policy towards their needs. It is a private sector solution that addresses the financial needs of the senior and can also help stressed state budgets by extending the spend down period for a senior before they would go onto Medicaid.
We are living in a time when we must be doing all we can to get as much information as possible into the hands of seniors. I understand insurance companies would rather see someone in their 80’s and in the process of moving towards long term care lapse a policy they have been paying premiums on for 20 years. But, if the policy can be converted into the means to cover the costs of long term care for an extended period, and keep them off of Medicaid that much longer, it is in the best interest of the insured and their home state. People need to be informed of their options even if that means entities such as insurance companies are compelled to give the consumer information that is not in the best interest of their profit margins.
Our belief is that the consumer is best served by making informed decisions based on access to all available information. When a senior and their family is informed that an asset they are about to throw away has unrealized value for them, and by converting the policy into a long term care benefit they have found a solution to a health care crisis they are confronting, the consumer wins when they are able to access the most appropriate form of long term care and the state wins when a citizen is able to extend their ability to cover the costs of long term care for as long as possible before accessing Medicaid.
I thank you again for this opportunity to provide comments, and look forward to being a resource to this NCOIL’s efforts to ensure the consumer has access to more, and not less, information and options.
Sincerely,
Chris Orestis
President
Life Care Funding Group
Vice-Chairman
Life Insurance and Financial Planning Committee
National Conference of Insurance Legislators
385 Jordan Road
Troy, NY 12180
September 7, 2010
On behalf of Life Care Funding Group, I thank you for the opportunity to offer these written comments in support of the Life Insurance Consumer Disclosure Legislative Model currently under development by NCOIL.
Founded in 2007, LCFG is the leading provider of Funding Solutions for Senior Living to the senior housing and long term care industry. Our company specializes in converting the death benefit of an in-force life insurance policy into a long term care benefit to cover the costs of skilled nursing home care, assisted living, home health care, and hospice. We are members of the Assisted Living Federation of America (ALFA) and the American Health Care Association (AHCA).
LCFG focuses on providing seniors information and access to private market financial resources. One resource we have been able to use for their benefit is an in-force life insurance policy. There are millions more seniors in this country today with an in-force life insurance policy than a LTC policy.
The U.S. is experiencing a massive influx of seniors and Baby Boomers hitting the long term care system at the worst possible time from an economic perspective. This economic crisis now entering its third year is translating into less tax dollars for Medicare and Medicaid to pick up the costs of long term care which is forcing more emphasis back on the consumer to cover costs out of their own pocket. Seniors and their families are uninformed and unprepared to handle the costs and navigate the LTC industrial complex. Studies show the majority of people don’t save or plan for LTC until they are hit with a health crisis and the time is now.
We often times encounter seniors with a life insurance policy that they have been carrying for years. They are now in a crisis mode and will most likely lapse the policy because there is little to no cash value and they can no longer afford the premiums. When they reach out to the insurance company for options they are told they have two: pay up or lapse/surrender.
LCFG’s solution is to convert a life insurance policy’s death benefit into a long term care benefit that will help pay the costs of care and/or housing. Our program, called the Assurance Benefit, has helped people pay for the costs of nursing home, assisted living and home based health care. Each family we have helped were owners of a life insurance policy they no longer could afford to keep in force. They were planning to either lapse the policy or surrender it for minimal cash value. After they learned that there were alternative options to realize value for an asset they were prepared to abandon, they quickly acted on our program and were able to move forward securing the best possible long term care for their needs.
It is in the better interest of the senior and their family to monetize the policy through a variety of options, such as in our case converting a death benefit to a long term care benefit, and then applying the maximum private market value of the policy towards their needs. It is a private sector solution that addresses the financial needs of the senior and can also help stressed state budgets by extending the spend down period for a senior before they would go onto Medicaid.
We are living in a time when we must be doing all we can to get as much information as possible into the hands of seniors. I understand insurance companies would rather see someone in their 80’s and in the process of moving towards long term care lapse a policy they have been paying premiums on for 20 years. But, if the policy can be converted into the means to cover the costs of long term care for an extended period, and keep them off of Medicaid that much longer, it is in the best interest of the insured and their home state. People need to be informed of their options even if that means entities such as insurance companies are compelled to give the consumer information that is not in the best interest of their profit margins.
Our belief is that the consumer is best served by making informed decisions based on access to all available information. When a senior and their family is informed that an asset they are about to throw away has unrealized value for them, and by converting the policy into a long term care benefit they have found a solution to a health care crisis they are confronting, the consumer wins when they are able to access the most appropriate form of long term care and the state wins when a citizen is able to extend their ability to cover the costs of long term care for as long as possible before accessing Medicaid.
I thank you again for this opportunity to provide comments, and look forward to being a resource to this NCOIL’s efforts to ensure the consumer has access to more, and not less, information and options.
Sincerely,
Chris Orestis
President
Life Care Funding Group
Alternative Funding Solution for Long Term Care: Convert a Life Insurance Policy
Now that we have arrived at the long awaited generational stage in our society that “Baby Boomers” are reaching the age of Medicare eligibility, the need to address the question of who is going to pay for a massive increase in long term care spending has become paramount. Exacerbating the growing crisis is the impact of the economy on the availability of private pay dollars and government spending. For the last two years we have watched as one of the primary sources of private funds, equity in the homes of seniors has evaporated.
State and federal budgets feeling the pinch of an eroding tax base and out of control spending on health care have started cutting back on Medicare and Medicaid spending. The cost of long term care continues to rise every year, and seniors (and their families) confronting the realities of what it costs to provide home based care, assisted living, or long term nursing home care are looking for solutions.
Annual Costs of Long Term Care
- Skilled Nursing Facility (SNF): $79,935
- Assisted Living Facility (ALF): $37,572
- Alzheimer’s Unit: $85,045
- Home Healthcare: $43,065
** 8 hours per day @ $21/hr, 5 days per week for a year
Met Life Mature Markets Institute 2009
For those families with a long term care insurance policy, a portion of these costs may be covered if they meet the necessary eligibility requirements. And for those families with the last name Gates or Winfrey, they can just cut a check. But what about the vast and often overlooked middle market? Where do they find the resources to cover all or a portion of these costs?
One asset to look at for liquidity is an in-force life insurance policy. A policy owner could look at taking the cash surrender value or a loan against the policy. But for many policy owners there is little to no cash value and the liquidity available through these routes would be insufficient. In that case, another option would be to convert their life insurance policy into a long term care benefit plan.
More and more senior care companies around the United States are using this approach to help families overcome a gap in their ability to fund the most appropriate form of senior housing and/or care. Life Care Funding Group works with over 3,000 assisted living properties, nursing homes and home health agencies around the U.S. to help families convert a life insurance policy they no longer plan to keep in-force.
Case Study
A family wanted to keep their father at home who is suffering from cancer. He wanted to remain in the comfort of his own surroundings and with his loved ones for the remainder of his life. They did not have enough money to afford the costs of care at home, but he owned a $250,000 universal life policy and they all agreed they would rather liquidate the policy and use the proceeds to keep him in place. There was no cash value in the policy but they converted the policy into a long term care benefit of 60% of the total face value. That level of benefit would be more than enough to cover the costs of care for their father and was a much better alternative then allowing the policy to lapse.
The family was about to let their policy lapse and had no idea that they held a legally recognized asset that they had the right to convert into the most advantageous manner possible. If they had not been informed of their options they would have discarded the policy and been forced to suffer through with insufficient liquidity. There has been much debate about how to pay for long term care, but in these and many other cases converting a life insurance policy to address the immediacy of a healthcare funding crisis made all the sense in the world.
In the case of converting a life insurance policy to cover a financial shortfall preventing someone from securing the best possible housing and/or long term care, there could be no more obvious choice.
State and federal budgets feeling the pinch of an eroding tax base and out of control spending on health care have started cutting back on Medicare and Medicaid spending. The cost of long term care continues to rise every year, and seniors (and their families) confronting the realities of what it costs to provide home based care, assisted living, or long term nursing home care are looking for solutions.
Annual Costs of Long Term Care
- Skilled Nursing Facility (SNF): $79,935
- Assisted Living Facility (ALF): $37,572
- Alzheimer’s Unit: $85,045
- Home Healthcare: $43,065
** 8 hours per day @ $21/hr, 5 days per week for a year
Met Life Mature Markets Institute 2009
For those families with a long term care insurance policy, a portion of these costs may be covered if they meet the necessary eligibility requirements. And for those families with the last name Gates or Winfrey, they can just cut a check. But what about the vast and often overlooked middle market? Where do they find the resources to cover all or a portion of these costs?
One asset to look at for liquidity is an in-force life insurance policy. A policy owner could look at taking the cash surrender value or a loan against the policy. But for many policy owners there is little to no cash value and the liquidity available through these routes would be insufficient. In that case, another option would be to convert their life insurance policy into a long term care benefit plan.
More and more senior care companies around the United States are using this approach to help families overcome a gap in their ability to fund the most appropriate form of senior housing and/or care. Life Care Funding Group works with over 3,000 assisted living properties, nursing homes and home health agencies around the U.S. to help families convert a life insurance policy they no longer plan to keep in-force.
Case Study
A family wanted to keep their father at home who is suffering from cancer. He wanted to remain in the comfort of his own surroundings and with his loved ones for the remainder of his life. They did not have enough money to afford the costs of care at home, but he owned a $250,000 universal life policy and they all agreed they would rather liquidate the policy and use the proceeds to keep him in place. There was no cash value in the policy but they converted the policy into a long term care benefit of 60% of the total face value. That level of benefit would be more than enough to cover the costs of care for their father and was a much better alternative then allowing the policy to lapse.
The family was about to let their policy lapse and had no idea that they held a legally recognized asset that they had the right to convert into the most advantageous manner possible. If they had not been informed of their options they would have discarded the policy and been forced to suffer through with insufficient liquidity. There has been much debate about how to pay for long term care, but in these and many other cases converting a life insurance policy to address the immediacy of a healthcare funding crisis made all the sense in the world.
In the case of converting a life insurance policy to cover a financial shortfall preventing someone from securing the best possible housing and/or long term care, there could be no more obvious choice.
Convergence of Life Settlements and Long Term Care: A Funding Solution Emerges
An interview with Chris Orestis, President of Life Care Funding Group
Chris Orestis, president of Life Care Funding Group, is a 15 year veteran of the insurance and long term care industries. Over the course of ten years in Washington, D.C. he worked in senior positions for the Health Insurance Association of America (HIAA--now reconstituted as AHIP), and for the American Council of Life Insurers (ACLI). His first professional exposure to the life settlement market came in 2005. Since 2007, Life Care Funding Group has been working exclusively with some of the largest national chains of nursing homes and assisted living properties across the United States. These companies have been informing families about a life settlement as a funding option if their loved one owns a life insurance policy that they are planning to surrender or lapse. Life Care Funding Group then works directly with the family to educate them about the process and represent them if they decide to pursue a life settlement for their policy.
Q: How did you first decide to work with the “Senior Living” industry?
A: I have been involved in the “Senior Living” industry for most of my adult life. The need for private sector solutions to combat the growing long term care funding crisis has been building for years now. The Baby Boomers are now hitting the system and they are unprepared financially to handle the costs. It was very obvious to us and the “Senior Living” industry that the proceeds from a life settlement could be put to very good use helping seniors secure the best possible housing and/or long term care.
Q: How many Senior Living companies are you working with?
A: Life Care Funding Group works with close to 100 companies of various sizes using our “Funding Solutions for Senior Living” program. Together these companies have over 2,500 facilities with an average occupancy of 100 or more beds.
Q: What is the typical profile of the policy holder you would encounter?
A: The vast majority of policy holders we encounter would not be considered high net worth. These are people with policy sizes under $500,000 and who have owned their policies for 10-20 years. They have reached a point in their lives where they have a pressing health care issue and are discovering that the costs associated with long term care are beyond their means. Typically they are about to either surrender or lapse their policy and had no idea that a life settlement is a much better alternative.
Q: How has the life settlement market responded to “middle market” policy holders?
A: We actually have been surprised to discover that the majority of Providers are not interested in middle market policy holders. These “funders” would rather deal with much larger policies and are not that interested in smaller face policies even though the market size is enormous. We have found it takes private funders that want to specifically focus on this market and the unique aspects of underwriting seniors in “Senior Living” environments to make it work.
Q: What are some of the challenges you encounter working in this environment?
A: Other than the general lack of interest in small face policies by traditional Providers, we have found that it takes a great deal of work and systems to support such a large cross section of facilities. We have also found that the current lack of electronic medical records (EMR) across the health care system causes big delays in underwriting, but we are encouraged to see adoption picking up in the health care industry in concert with stimulus dollars made available through TARP.
Q: Are there other ways to help seniors in this circumstance with their finances?
A: Yes, life settlements are not the only approach. We emphasize that families understand all of their funding options and also educate them on things such as policy loan programs, the VA Aid and Attendance health care benefit, senior credit programs, reverse mortgages, and long term care insurance. We also make sure they understand how Medicaid and Medicare work in the total picture.
Q: The life settlement industry tends to get a bad rap, what has been the reaction to your approach?
A: We have been very pleased to see the favorable coverage we have received in the press and also in state capitols. There have been numerous stories written about our approach and we were also gratified to see states such as Maine, Washington and Oregon enact legislation forbidding the insurance industry from suppressing information about the life settlement option for seniors.
Q: What does this “convergence” potentially mean for the future of the life settlement industry?
A: We believe this growing convergence is positive for the industry from a couple of perspectives. First, life settlements are being used for a positive purpose by helping seniors cover the costs of long term care. The industry is well served to show that life settlements can be done for reasons beyond just profit. Also, it is an opportunity for state Medicaid programs to reduce expenditures by prolonging spend down periods for seniors before qualifying for coverage. Lastly, it is an opportunity to tap into a massive market that so far has been ignored by the industry.
Q: How do you see today’s market conditions for the life settlement industry?
A: There is no doubt that the impact of the economic crisis made the second half of 2008 and 2009 tough for the industry. Although we don’t necessarily participate in the traditional life settlement marketplace, it appears to us that funding is coming back into the secondary market and a real recovery could be in swing by summer. The industry is going to need to find new sources of policies now that the world of STOLI has just about been brought to an end.
Q: What are your opinions about the regulatory environment for the life settlement industry?
A: We are in total agreement with LISA and ACLI that there is no place for STOLI based transactions and we applaud their efforts to bring it to an end. As legislation has been enacted across the country we have seen a consistent recognition that life settlements of policies established for reasons of true insurable interest are not being impeded. For people with a pressing reason for liquidity, such as the population we serve, it would not be fair and in fact a violation of constitutional law to put up artificial barriers impeding peoples’ ability to access the value of their personal property.
Q: There has been a lot of talk about securitization and the possibility that it could lead to another economic crisis like the sub-prime mortgage debacle. Do you see that as likely?
A: We see that more as an interesting story to sell newspapers or as fodder for groups that want to use misinformation to impede people’s access to the secondary market than as a likely outcome. At some point the successful securitization and trading of life settlement pools is quite possible. But the idea that this niche market could undermine one of the world’s largest industries and the U.S. economy is at the vey least disingenuous hyperbole being used to serve other purposes.
Q: What are your predictions for where the market could be in five or ten years?
A: The market should continue to grow if for no other reason than the aging Baby Boom population is in bad financial shape and looking for every possible outlet to find liquidity. Securitizations could help fuel that growth, but not to cataclysmic levels. We believe that a bigger growth driver could come from state governments that realize life settlements could save their budgets millions if not billions of dollars by extending spend down periods for seniors with policies. Another area of activity that has started gaining traction in the last few months is the use of life settlement portfolios as a collateral instrument for commercial loans. We also believe the public perception of the industry will improve due to regulatory actions, the ongoing exit of questionable characters looking for the next gold rush, and the growth of life settlements being used for positive purposes such as funding the costs of lo
Chris Orestis, president of Life Care Funding Group, is a 15 year veteran of the insurance and long term care industries. Over the course of ten years in Washington, D.C. he worked in senior positions for the Health Insurance Association of America (HIAA--now reconstituted as AHIP), and for the American Council of Life Insurers (ACLI). His first professional exposure to the life settlement market came in 2005. Since 2007, Life Care Funding Group has been working exclusively with some of the largest national chains of nursing homes and assisted living properties across the United States. These companies have been informing families about a life settlement as a funding option if their loved one owns a life insurance policy that they are planning to surrender or lapse. Life Care Funding Group then works directly with the family to educate them about the process and represent them if they decide to pursue a life settlement for their policy.
Q: How did you first decide to work with the “Senior Living” industry?
A: I have been involved in the “Senior Living” industry for most of my adult life. The need for private sector solutions to combat the growing long term care funding crisis has been building for years now. The Baby Boomers are now hitting the system and they are unprepared financially to handle the costs. It was very obvious to us and the “Senior Living” industry that the proceeds from a life settlement could be put to very good use helping seniors secure the best possible housing and/or long term care.
Q: How many Senior Living companies are you working with?
A: Life Care Funding Group works with close to 100 companies of various sizes using our “Funding Solutions for Senior Living” program. Together these companies have over 2,500 facilities with an average occupancy of 100 or more beds.
Q: What is the typical profile of the policy holder you would encounter?
A: The vast majority of policy holders we encounter would not be considered high net worth. These are people with policy sizes under $500,000 and who have owned their policies for 10-20 years. They have reached a point in their lives where they have a pressing health care issue and are discovering that the costs associated with long term care are beyond their means. Typically they are about to either surrender or lapse their policy and had no idea that a life settlement is a much better alternative.
Q: How has the life settlement market responded to “middle market” policy holders?
A: We actually have been surprised to discover that the majority of Providers are not interested in middle market policy holders. These “funders” would rather deal with much larger policies and are not that interested in smaller face policies even though the market size is enormous. We have found it takes private funders that want to specifically focus on this market and the unique aspects of underwriting seniors in “Senior Living” environments to make it work.
Q: What are some of the challenges you encounter working in this environment?
A: Other than the general lack of interest in small face policies by traditional Providers, we have found that it takes a great deal of work and systems to support such a large cross section of facilities. We have also found that the current lack of electronic medical records (EMR) across the health care system causes big delays in underwriting, but we are encouraged to see adoption picking up in the health care industry in concert with stimulus dollars made available through TARP.
Q: Are there other ways to help seniors in this circumstance with their finances?
A: Yes, life settlements are not the only approach. We emphasize that families understand all of their funding options and also educate them on things such as policy loan programs, the VA Aid and Attendance health care benefit, senior credit programs, reverse mortgages, and long term care insurance. We also make sure they understand how Medicaid and Medicare work in the total picture.
Q: The life settlement industry tends to get a bad rap, what has been the reaction to your approach?
A: We have been very pleased to see the favorable coverage we have received in the press and also in state capitols. There have been numerous stories written about our approach and we were also gratified to see states such as Maine, Washington and Oregon enact legislation forbidding the insurance industry from suppressing information about the life settlement option for seniors.
Q: What does this “convergence” potentially mean for the future of the life settlement industry?
A: We believe this growing convergence is positive for the industry from a couple of perspectives. First, life settlements are being used for a positive purpose by helping seniors cover the costs of long term care. The industry is well served to show that life settlements can be done for reasons beyond just profit. Also, it is an opportunity for state Medicaid programs to reduce expenditures by prolonging spend down periods for seniors before qualifying for coverage. Lastly, it is an opportunity to tap into a massive market that so far has been ignored by the industry.
Q: How do you see today’s market conditions for the life settlement industry?
A: There is no doubt that the impact of the economic crisis made the second half of 2008 and 2009 tough for the industry. Although we don’t necessarily participate in the traditional life settlement marketplace, it appears to us that funding is coming back into the secondary market and a real recovery could be in swing by summer. The industry is going to need to find new sources of policies now that the world of STOLI has just about been brought to an end.
Q: What are your opinions about the regulatory environment for the life settlement industry?
A: We are in total agreement with LISA and ACLI that there is no place for STOLI based transactions and we applaud their efforts to bring it to an end. As legislation has been enacted across the country we have seen a consistent recognition that life settlements of policies established for reasons of true insurable interest are not being impeded. For people with a pressing reason for liquidity, such as the population we serve, it would not be fair and in fact a violation of constitutional law to put up artificial barriers impeding peoples’ ability to access the value of their personal property.
Q: There has been a lot of talk about securitization and the possibility that it could lead to another economic crisis like the sub-prime mortgage debacle. Do you see that as likely?
A: We see that more as an interesting story to sell newspapers or as fodder for groups that want to use misinformation to impede people’s access to the secondary market than as a likely outcome. At some point the successful securitization and trading of life settlement pools is quite possible. But the idea that this niche market could undermine one of the world’s largest industries and the U.S. economy is at the vey least disingenuous hyperbole being used to serve other purposes.
Q: What are your predictions for where the market could be in five or ten years?
A: The market should continue to grow if for no other reason than the aging Baby Boom population is in bad financial shape and looking for every possible outlet to find liquidity. Securitizations could help fuel that growth, but not to cataclysmic levels. We believe that a bigger growth driver could come from state governments that realize life settlements could save their budgets millions if not billions of dollars by extending spend down periods for seniors with policies. Another area of activity that has started gaining traction in the last few months is the use of life settlement portfolios as a collateral instrument for commercial loans. We also believe the public perception of the industry will improve due to regulatory actions, the ongoing exit of questionable characters looking for the next gold rush, and the growth of life settlements being used for positive purposes such as funding the costs of lo
Demand for Long Term Care Services Increasing
There are over 60,000 assisted living and nursing home properties throughout the Untied States. More than 2,000,000 people reside in these properties, but over the last ten years the differences between assisted living and skilled nursing have become less distinct. There are a number of contributing factors to consider: pressure on Medicare and Medicaid budgets, private pay services such as Alzheimer’s care, personal tastes of the aging Baby Boomers, and the economics of the facilities themselves.
Assisted Living facilities have increased the level of service and care provided to be more competitive, and Nursing Homes have added private pay services and higher end living arrangements to be more competitive as well. The Baby Boomers are driving much of this evolution because they are a more affluent cohort than generations past, and their lifestyle expectations are very high.
The annual MetLife Mature Markets study released in 2009 highlighted the continuing increase in the costs of senior housing and care. The national average cost of staying in a semi-private room in a nursing home grew from $189 per day / $68,985 annually in 2007 to $191 per day / $69,715 annually in 2008. The national average cost of living in an assisted living facility grew from $2,969 per month / $35,628 annually in 2007 to $3,031 per month / $36,372 annually in 2008.
As the growing population of Baby Boomers and seniors hits in concert with a shrinking economy, the pressure on the federal budget to support entitlement programs such as Social Security and Medicare and on state budgets to fund Medicaid programs is creating push back on citizens to carry more of the load.
Medicaid pays the vast majority of costs associated with the almost 1.5 million people receiving housing and long term care in skilled nursing facilities. Medicaid is now moving in the direction of operating more like health insurance and by charging premiums will deflect a portion of the costs back on the individual. And by charging higher co-pays, they hope to motivate people to be more cost conscious when spending Medicaid dollars. Each state runs its own Medicaid program and will have discretion to set premium and co-pay amounts as they wish.
A report tracking Medicaid spending going back over the last seven years showed that Medicaid underfunded payments for services to all patients by $14.17 everyday in 2009. Projections are that this alarming underfunding trend will get worse in 2010 and 2011. The economic crisis has robbed state budgets of funds available to support Medicaid funded programs and as a result there was a national deficit of almost $5 billion.
Medicaid funds at least 2/3 of all spending for nursing home care. Spending shortfalls of this magnitude threaten the ability of nursing homes to offer the highest levels of care for the most vulnerable populations. Frustratingly for nursing homes and those in their care, state governments were given money in 2009 via the American Recovery and Reinvestment Act to make up this deficit. But guess what—governments diverted the money away from providing the healthcare it was intended, and instead used the money to shore up their own budget deficits.
As readers of the Life Care Funding BLOG know, we continue to bring awareness to the unavoidable trend of reducing the amounts of money that are available for Medicare and Medicaid. And why is that? Because we are now in the throes of an explosion of Baby Boomers reaching retirement age at the same time that our country’s economy is under siege and entering unfamiliar territory. Washington, DC and 50 state capitols have no choice but to figure out how to make do with less.
They have two tools to work with:
1. Make it harder for people to qualify for Medicare and Medicaid, and--
2. Reduce what is available for those that do qualify.
What tools do seniors and their families have to work with?
1. Information
2. Time
People need to arm themselves with information about how the system works and what kind of funding options (and limitations) they have to work with. And, people need to stop waiting until the last minute to plan for their inevitable time in long term care. In one form or another, (home or facility based) as people age and/or become frail they will need someone to help care for them. That care will cost money and that money has to come from somewhere. As the government makes it harder and harder to access funding, people need to prepare to bear much of the financial burden on their own. To ensure quality of life and dignity when the time for long term care arrives; people must make the effort today to understand what kind of financial options are out there such as the VA Benefit, Life Insurance Settlements, Credit Programs, Reverse Mortgages, Long Term Care Insurance and other sources of private funding.
It is important that people understand these early warning signs of what is to come. Federal and state budgets can only accommodate so much, and when dollars are shrinking while populations are growing it becomes pretty simple math to see that something has to give. If history is our guide, then it will be the individual who ends up giving the most. For people to come even close to meeting their expectations for a high level of senior housing and care it will require a firm grasp of the various options available—and how to pay for it. Now is the time to prepare by understanding the funding options that are available to help cover these costs as they become more and more the responsibility of the individual.
Assisted Living facilities have increased the level of service and care provided to be more competitive, and Nursing Homes have added private pay services and higher end living arrangements to be more competitive as well. The Baby Boomers are driving much of this evolution because they are a more affluent cohort than generations past, and their lifestyle expectations are very high.
The annual MetLife Mature Markets study released in 2009 highlighted the continuing increase in the costs of senior housing and care. The national average cost of staying in a semi-private room in a nursing home grew from $189 per day / $68,985 annually in 2007 to $191 per day / $69,715 annually in 2008. The national average cost of living in an assisted living facility grew from $2,969 per month / $35,628 annually in 2007 to $3,031 per month / $36,372 annually in 2008.
As the growing population of Baby Boomers and seniors hits in concert with a shrinking economy, the pressure on the federal budget to support entitlement programs such as Social Security and Medicare and on state budgets to fund Medicaid programs is creating push back on citizens to carry more of the load.
Medicaid pays the vast majority of costs associated with the almost 1.5 million people receiving housing and long term care in skilled nursing facilities. Medicaid is now moving in the direction of operating more like health insurance and by charging premiums will deflect a portion of the costs back on the individual. And by charging higher co-pays, they hope to motivate people to be more cost conscious when spending Medicaid dollars. Each state runs its own Medicaid program and will have discretion to set premium and co-pay amounts as they wish.
A report tracking Medicaid spending going back over the last seven years showed that Medicaid underfunded payments for services to all patients by $14.17 everyday in 2009. Projections are that this alarming underfunding trend will get worse in 2010 and 2011. The economic crisis has robbed state budgets of funds available to support Medicaid funded programs and as a result there was a national deficit of almost $5 billion.
Medicaid funds at least 2/3 of all spending for nursing home care. Spending shortfalls of this magnitude threaten the ability of nursing homes to offer the highest levels of care for the most vulnerable populations. Frustratingly for nursing homes and those in their care, state governments were given money in 2009 via the American Recovery and Reinvestment Act to make up this deficit. But guess what—governments diverted the money away from providing the healthcare it was intended, and instead used the money to shore up their own budget deficits.
As readers of the Life Care Funding BLOG know, we continue to bring awareness to the unavoidable trend of reducing the amounts of money that are available for Medicare and Medicaid. And why is that? Because we are now in the throes of an explosion of Baby Boomers reaching retirement age at the same time that our country’s economy is under siege and entering unfamiliar territory. Washington, DC and 50 state capitols have no choice but to figure out how to make do with less.
They have two tools to work with:
1. Make it harder for people to qualify for Medicare and Medicaid, and--
2. Reduce what is available for those that do qualify.
What tools do seniors and their families have to work with?
1. Information
2. Time
People need to arm themselves with information about how the system works and what kind of funding options (and limitations) they have to work with. And, people need to stop waiting until the last minute to plan for their inevitable time in long term care. In one form or another, (home or facility based) as people age and/or become frail they will need someone to help care for them. That care will cost money and that money has to come from somewhere. As the government makes it harder and harder to access funding, people need to prepare to bear much of the financial burden on their own. To ensure quality of life and dignity when the time for long term care arrives; people must make the effort today to understand what kind of financial options are out there such as the VA Benefit, Life Insurance Settlements, Credit Programs, Reverse Mortgages, Long Term Care Insurance and other sources of private funding.
It is important that people understand these early warning signs of what is to come. Federal and state budgets can only accommodate so much, and when dollars are shrinking while populations are growing it becomes pretty simple math to see that something has to give. If history is our guide, then it will be the individual who ends up giving the most. For people to come even close to meeting their expectations for a high level of senior housing and care it will require a firm grasp of the various options available—and how to pay for it. Now is the time to prepare by understanding the funding options that are available to help cover these costs as they become more and more the responsibility of the individual.
Sunday, January 3, 2010
Electronic Medical Records: Resistance is Futile
Medical records are the life blood of any life or health underwriter. The collection and review of medical records is the most costly, time consuming, and frustratingly inconsistent necessity of underwriting. As the United States medical system begins making truly meaningful progress away from a paper based system to one based on the electronic storage and dissemination of medical records, the impact on underwriters will be transformational. As those familiar with Star Trek know, when the Borg assimilates another individual entity into their collective they proclaim, “Resistance is futile”!
Introduction
Efforts to move the medical system away from a paper based system to one predominantly operating on an electronic platform have been underway for years. The improvements such a system would have for costs, operations and outcomes are obvious but the transformation by hospitals and physicians has been slow. Over the last two decades, factors such as cost, legacy systems, generational reluctance, worries about technological obsolescence, and fear that systems will be underutilized have all contributed to the glacial pace of adoption. But, in the last 3-5 years the pace has begun to hasten. A number of factors are contribution to the increasing adoption of Electronic Medical Records (EMR) on a national level. The cost of technology has dropped dramatically and the internet has been a big factor as well. The generational divide has shrunk with a greater percentage of medical professionals use technology and the internet on a daily basis. Last but not least, the government has come to realize the benefits of adoption and has been instituting programs and incentives to open up the “mainstreaming” of EMR.
From Bits to Bytes
The logic behind EMR is undeniable. Moving from an analog to a digital world holds a host of benefits for every stakeholder in healthcare. The conversation has been going on since at least the 1960’s, and there are some very interesting (and even humorous) visions for the future in older papers that reminds me of a trip to Disneyland’s “World of Tomorrow” attraction when I was a kid. One of the biggest factors to the delay in making the transition is that until relatively recently the technology has not really been there. Most early attempts at adopting EMR were thwarted by the inability of systems from different vendors to communicate with each other. In an attempt to develop the dominant platform, technological silos were built trapping data within a system and would not allow for “interoperability” or transfer of data across different institutions and systems. Interoperability is a key factor to getting any value from EMR. In fact, the discussion now has moved beyond records and has really shifted to connectivity and communication between various participants in a healthcare value chain..
Another key driver of today’s advances for EMR is the internet. The true utility of the internet only emerged in the last five years. Ten and fifteen years ago the internet was still very much in its infancy. Most companies looked at the internet as a curious novelty where they might put up a website that was little more than an electronic brochure. But, sometime around 1999-2000, IBM coined the phrase “E-Commerce” and a shift in attitudes and utilization began. More marketing than reality at the onset, concepts such as “E-Health”, Tele-Medicine, Smart Cards, and Electronic Medical Records all began to take root. Companies such as Amazon, E-Bay, Apple, Google, YouTube and now the social networking phenomenon driven by Twitter and Facebook proved that the E-Commerce hype of ten years ago was actually quite prescient. Not only could business be conducted using the internet, but the internet had proven itself to be the platform to provide the three key elements that any successful EMR initiative must have: Functionality, Interoperability, and Security.
Meaningful Use
Technological capabilities and capacity have increased, costs have decreased and the internet has created the avenue through which meaningful utilization can occur, yet adoption continues to be the exception and not the rule. In a 2008 New England Journal of Medicine survey of 2,800 physicians only 4% reported having a fully functional EMR platform. What will it take for national adoption of EMR? As is the case with most things that we know are good for us, it will take both the stick and the carrot. In the American Recovery and Reinvestment Act of 2009, President Obama specifically included incentives and possible penalties to move adoption of EMR forward at a much faster pace. Individual physicians are eligible for $64,000 in subsidies and hospitals could receive up to $11 million for implementing an EMR program. Medicare and Medicaid certified providers could also face reimbursement penalties if they do not have a system in place. Specific deadlines are yet to be established, but compliance to receive subsidies or avoid penalties will hinge on systems that would meet the definition of “meaningful use”.
Although the final definition of meaningful use is yet to be agreed upon by the Health IT Standards Committee (a federally mandated body), they have published a quasi-mission statement for the concept: “Better healthcare does not come solely from adoption of technology itself but through the exchange and use of health information to best inform clinical decisions at the point of care.” What is enlightening about this statement is that it emphasizes the use and exchange of data as the key and not the technology itself. It is not the “what” that is important, but rather the “how and why”. This is why functionality, interoperability and security become the three critical elements to a successful EMR platform.
Exchange of data
In recent years Health Information Exchanges (HIE) and Regional Health Information Organizations (RHIO) have been developing around the country to empower secure transfer of medical information between participants across a chain of care. This would include hospitals (and their various departments), physicians and practice groups, specialists, and providers of long term care. It could also include labs, pharmacy, and supplies. HIE’s function day-to-day transferring medical records throughout a connected group of stakeholders. The RHIO is the governing body that sets the standards for the HIE to follow in a given region so that all stakeholders can benefit from participation. Following the mandate set by the Office of the National Coordinator for Health Information Technology to create a National Health Information Network (NIHN); RHIO’s establish the local level of interoperable connectivity that must be in place to create a nation wide network. There are almost 200 RHIO’ around the country at various stages of development and functionality with as many as 57 currently reporting that they are actively exchanging health records across a variety of approved participants.
“In the past, technology was too slow, too expensive, unconnected, and technology was too quickly outdated for any meaningful level of adoption and information exchange to happen”, says Dr. Faiz Fatteh, CEO of Soren Technology, “but now the costs are very low if not non-existent, speed and security of connectivity is finally here, and the emphasis now has moved way beyond simply transferring records from paper to digital files, and it is really now all about sharing data through use of an HIE platform connected via a geographically situated RHIO.”
One stakeholder in the process slow to be involved in the development of the NIHN is the insurance industry. When looking at the various RHIO’s in place around the country, the proverbial elephant in the room is the lack of insurance companies involved. Save for a few exceptions and its own failed attempt at creating a national exchange, the insurance industry has not been as actively involved as it should be. Will that change? It appears that with the efforts towards national healthcare reform being driven by incentives and mandates to finally get a national network in place, the insurance industry will be well served to be getting on board as well.
What’s in it for me?
Financial incentives have been targeted at the providers, but the insurance industry stands to benefit from at least three perspectives:
1) Improved underwriting -- Obviously medical records are the key tool used in underwriting life and health insurance. Easier access to the most up to date and comprehensive records on an applicant can only improve the underwriting process, pricing, and outcomes. Anything that can be done to reduce the time and costs involved in collecting medical records and ensure the records collected are complete, would very much be to the advantage of the insurance company and the applicant.
2) Reduced claims -- Underwriting is always the best defense from unnecessary claims. Better coordination of care and records will provide information to avoid duplicative and unneeded treatments, poor outcomes, missed conditions, and opportunities for fraud.
3) Competitive necessity -- As time progresses there will be more pressure from providers with an EMR capacity to submit claims through them and manage the process on their platform. Insurers not participating will find themselves at a disadvantage in the marketplace.
“As one the largest APS retrieval companies in the United States, we touch thousands of medical records every day”, explained Parameds.com CEO, Eli Rowe, “and we know from experience how difficult the task of obtaining records is. The vast majority of records we collect are sent to us as paper and then need to be sorted and scanned before we can deliver them to our clients. We have looked for a long time at what it will take for payers to be successful participants in the growth of EMR, and our work with life, health, DI and LTC insurers have shown us that payers are well situated to play a lead role.”
Because of the central role that underwriting and claims plays in the world of health care, all carriers are in a position to lead and benefit from the rapid adoption of EMR and growth of a national exchange capability. The benefits to health insurers on the claims side and life insurers on the underwriting side are obvious, but DI and LTC insurers will see great benefits on both of those fronts as well. At the end of the day, it is good public policy and good business to be actively involved and help shape the outcome of what is inevitable.
Conclusion
“Progress has, of course, been made in the development of electronic medical record systems (EMRS). Very little of the data that are routinely generated by computer-such as laboratory test results-are now lost to electronic accessibility, as they typically were twenty years ago, when the typical lab instrument would print its results on paper and discard the electronic version. Nevertheless, much of the information on which clinical care is based continues, in most institutions, not to be captured in electronically usable form. This includes the results of patient and family histories, physical examinations, doctors' and nurses' notes, etc.”
That observation on the state of EMR was not written within the last couple of years, it was written 15 years ago by Peter Szolovits from MIT’s Laboratory for Computer Science. How much progress has been made since 1995 when this was written depends on your point of view. Current studies still show actual adoption and use of an EMR system that would meet the definition of “meaningful use” to be very small (various estimates are 1%-4% of providers). Yet, technology and costs are now conducive to rapid adoption, government incentives are in place, standards and regional networks to foster HIE are emerging across the country, and a majority of consumers support the idea of collecting and exchanging electronic medical records with proper privacy and security measures in place.
Ten and fifteen years ago, it was a matter of if EMR could happen. Now it is just a matter of when. We will see more progress in this direction over the next 2-5 years than we have during the last 30. The insurance industry stands to benefit greatly from what is emerging and it is happening faster than you think. “Prepare to be assimilated--resistance is futile…”
Introduction
Efforts to move the medical system away from a paper based system to one predominantly operating on an electronic platform have been underway for years. The improvements such a system would have for costs, operations and outcomes are obvious but the transformation by hospitals and physicians has been slow. Over the last two decades, factors such as cost, legacy systems, generational reluctance, worries about technological obsolescence, and fear that systems will be underutilized have all contributed to the glacial pace of adoption. But, in the last 3-5 years the pace has begun to hasten. A number of factors are contribution to the increasing adoption of Electronic Medical Records (EMR) on a national level. The cost of technology has dropped dramatically and the internet has been a big factor as well. The generational divide has shrunk with a greater percentage of medical professionals use technology and the internet on a daily basis. Last but not least, the government has come to realize the benefits of adoption and has been instituting programs and incentives to open up the “mainstreaming” of EMR.
From Bits to Bytes
The logic behind EMR is undeniable. Moving from an analog to a digital world holds a host of benefits for every stakeholder in healthcare. The conversation has been going on since at least the 1960’s, and there are some very interesting (and even humorous) visions for the future in older papers that reminds me of a trip to Disneyland’s “World of Tomorrow” attraction when I was a kid. One of the biggest factors to the delay in making the transition is that until relatively recently the technology has not really been there. Most early attempts at adopting EMR were thwarted by the inability of systems from different vendors to communicate with each other. In an attempt to develop the dominant platform, technological silos were built trapping data within a system and would not allow for “interoperability” or transfer of data across different institutions and systems. Interoperability is a key factor to getting any value from EMR. In fact, the discussion now has moved beyond records and has really shifted to connectivity and communication between various participants in a healthcare value chain..
Another key driver of today’s advances for EMR is the internet. The true utility of the internet only emerged in the last five years. Ten and fifteen years ago the internet was still very much in its infancy. Most companies looked at the internet as a curious novelty where they might put up a website that was little more than an electronic brochure. But, sometime around 1999-2000, IBM coined the phrase “E-Commerce” and a shift in attitudes and utilization began. More marketing than reality at the onset, concepts such as “E-Health”, Tele-Medicine, Smart Cards, and Electronic Medical Records all began to take root. Companies such as Amazon, E-Bay, Apple, Google, YouTube and now the social networking phenomenon driven by Twitter and Facebook proved that the E-Commerce hype of ten years ago was actually quite prescient. Not only could business be conducted using the internet, but the internet had proven itself to be the platform to provide the three key elements that any successful EMR initiative must have: Functionality, Interoperability, and Security.
Meaningful Use
Technological capabilities and capacity have increased, costs have decreased and the internet has created the avenue through which meaningful utilization can occur, yet adoption continues to be the exception and not the rule. In a 2008 New England Journal of Medicine survey of 2,800 physicians only 4% reported having a fully functional EMR platform. What will it take for national adoption of EMR? As is the case with most things that we know are good for us, it will take both the stick and the carrot. In the American Recovery and Reinvestment Act of 2009, President Obama specifically included incentives and possible penalties to move adoption of EMR forward at a much faster pace. Individual physicians are eligible for $64,000 in subsidies and hospitals could receive up to $11 million for implementing an EMR program. Medicare and Medicaid certified providers could also face reimbursement penalties if they do not have a system in place. Specific deadlines are yet to be established, but compliance to receive subsidies or avoid penalties will hinge on systems that would meet the definition of “meaningful use”.
Although the final definition of meaningful use is yet to be agreed upon by the Health IT Standards Committee (a federally mandated body), they have published a quasi-mission statement for the concept: “Better healthcare does not come solely from adoption of technology itself but through the exchange and use of health information to best inform clinical decisions at the point of care.” What is enlightening about this statement is that it emphasizes the use and exchange of data as the key and not the technology itself. It is not the “what” that is important, but rather the “how and why”. This is why functionality, interoperability and security become the three critical elements to a successful EMR platform.
Exchange of data
In recent years Health Information Exchanges (HIE) and Regional Health Information Organizations (RHIO) have been developing around the country to empower secure transfer of medical information between participants across a chain of care. This would include hospitals (and their various departments), physicians and practice groups, specialists, and providers of long term care. It could also include labs, pharmacy, and supplies. HIE’s function day-to-day transferring medical records throughout a connected group of stakeholders. The RHIO is the governing body that sets the standards for the HIE to follow in a given region so that all stakeholders can benefit from participation. Following the mandate set by the Office of the National Coordinator for Health Information Technology to create a National Health Information Network (NIHN); RHIO’s establish the local level of interoperable connectivity that must be in place to create a nation wide network. There are almost 200 RHIO’ around the country at various stages of development and functionality with as many as 57 currently reporting that they are actively exchanging health records across a variety of approved participants.
“In the past, technology was too slow, too expensive, unconnected, and technology was too quickly outdated for any meaningful level of adoption and information exchange to happen”, says Dr. Faiz Fatteh, CEO of Soren Technology, “but now the costs are very low if not non-existent, speed and security of connectivity is finally here, and the emphasis now has moved way beyond simply transferring records from paper to digital files, and it is really now all about sharing data through use of an HIE platform connected via a geographically situated RHIO.”
One stakeholder in the process slow to be involved in the development of the NIHN is the insurance industry. When looking at the various RHIO’s in place around the country, the proverbial elephant in the room is the lack of insurance companies involved. Save for a few exceptions and its own failed attempt at creating a national exchange, the insurance industry has not been as actively involved as it should be. Will that change? It appears that with the efforts towards national healthcare reform being driven by incentives and mandates to finally get a national network in place, the insurance industry will be well served to be getting on board as well.
What’s in it for me?
Financial incentives have been targeted at the providers, but the insurance industry stands to benefit from at least three perspectives:
1) Improved underwriting -- Obviously medical records are the key tool used in underwriting life and health insurance. Easier access to the most up to date and comprehensive records on an applicant can only improve the underwriting process, pricing, and outcomes. Anything that can be done to reduce the time and costs involved in collecting medical records and ensure the records collected are complete, would very much be to the advantage of the insurance company and the applicant.
2) Reduced claims -- Underwriting is always the best defense from unnecessary claims. Better coordination of care and records will provide information to avoid duplicative and unneeded treatments, poor outcomes, missed conditions, and opportunities for fraud.
3) Competitive necessity -- As time progresses there will be more pressure from providers with an EMR capacity to submit claims through them and manage the process on their platform. Insurers not participating will find themselves at a disadvantage in the marketplace.
“As one the largest APS retrieval companies in the United States, we touch thousands of medical records every day”, explained Parameds.com CEO, Eli Rowe, “and we know from experience how difficult the task of obtaining records is. The vast majority of records we collect are sent to us as paper and then need to be sorted and scanned before we can deliver them to our clients. We have looked for a long time at what it will take for payers to be successful participants in the growth of EMR, and our work with life, health, DI and LTC insurers have shown us that payers are well situated to play a lead role.”
Because of the central role that underwriting and claims plays in the world of health care, all carriers are in a position to lead and benefit from the rapid adoption of EMR and growth of a national exchange capability. The benefits to health insurers on the claims side and life insurers on the underwriting side are obvious, but DI and LTC insurers will see great benefits on both of those fronts as well. At the end of the day, it is good public policy and good business to be actively involved and help shape the outcome of what is inevitable.
Conclusion
“Progress has, of course, been made in the development of electronic medical record systems (EMRS). Very little of the data that are routinely generated by computer-such as laboratory test results-are now lost to electronic accessibility, as they typically were twenty years ago, when the typical lab instrument would print its results on paper and discard the electronic version. Nevertheless, much of the information on which clinical care is based continues, in most institutions, not to be captured in electronically usable form. This includes the results of patient and family histories, physical examinations, doctors' and nurses' notes, etc.”
That observation on the state of EMR was not written within the last couple of years, it was written 15 years ago by Peter Szolovits from MIT’s Laboratory for Computer Science. How much progress has been made since 1995 when this was written depends on your point of view. Current studies still show actual adoption and use of an EMR system that would meet the definition of “meaningful use” to be very small (various estimates are 1%-4% of providers). Yet, technology and costs are now conducive to rapid adoption, government incentives are in place, standards and regional networks to foster HIE are emerging across the country, and a majority of consumers support the idea of collecting and exchanging electronic medical records with proper privacy and security measures in place.
Ten and fifteen years ago, it was a matter of if EMR could happen. Now it is just a matter of when. We will see more progress in this direction over the next 2-5 years than we have during the last 30. The insurance industry stands to benefit greatly from what is emerging and it is happening faster than you think. “Prepare to be assimilated--resistance is futile…”
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