In
this section, Laura provides background on the dilemma that faces
most people with chronic illnesses or disabilities due to the prevalence
of employer-sponsored health insurance.
Background:
The Economics of Disability
in America
The irrational discrimination against people with disabilities
that has historically pervaded American society has also precluded most
Americans with disabilities from being able to participate in the private
marketplace in a meaningful way. This marketplace failure has provided ample justification for government
intervention to either correct the irrationality in the marketplace or to
provide outright alternative means of support for the excluded
individuals.
Nevertheless, no reasonable compensatory government programs have been
developed that are designed to ensure that people with disabilities have
opportunities to obtain a reasonable means of self-support. Instead,
people with disabilities are relegated to living within the limits of
poverty and subsistence entitlement programs to receive help of any kind. Most long-term care
has historically been provided only in institutionalized settings, and the
penalty for any individual who obtains additional unauthorized resources from any source
is a
complete loss of government support -- including medical coverage.
The
socio-governmental paradigm shift from treating people with disabilities under a
charity model to one of independent living and civil rights has fundamentally
changed the self-perception of people with disabilities about their own
lives and futures. Nevertheless, this paradigm shift has failed to insist that
market economic independence become an essential element of its new,
fresh, and vital thinking. As a consequence, people with chronic illnesses
in the United States seem to be presented with inconsistent and impossible
demands that disjoints and undermines both their political messages and
their ability to promulgate a compelling, consistent, and workable theory
of mission that does not balkanize them across diagnostic lines,
economic classes, and entitlement groups; the lack of any stated
responsibility for economic independence also robs people with
disabilities of their pure ability to claim overall responsibility as well as true capable
independence for the whole of their lives.
As long
as the disability community fails to assert the need for economic
independence without government entitlements, it cannot ever say that it
has achieved its ultimate mission of recapturing the ideal of freedom and true independence for its constituents.
Unfortunately, too many professional advisors and disability movement
advocates presume that the only rational source for support for people
with disabilities is through government entitlement programs. This
narrow view is simply inadequate, and dooms people with work-altering
conditions to life-long poverty. A more rational and thorough plan for a person with a
disability must take explicit account of the benefits and
pitfalls of government policies about and toward people with
disabilities as well as opportunities in the private marketplace.
The Health Insurance Problem for
People With Disabilities or Chronic Illnesses
The reality
of protection planning for people with chronic illnesses or disabilities
in the United States is daunting. While American society is making
great strides to make employment more available to people with
disabilities, it has done little to make reasonable provisions for
people with chronic diseases or disabilities in the mainstream
insurance market. For that reason, issues surrounding health
coverage present the single largest barrier to employment for a
substantial number of people with chronic illnesses or disabilities.
Many Western
European countries have established broad social programs to provide for
citizens who can no longer care for themselves.
These
European programs are government-operated, and depend upon taxes for their
funding. Like
Western Europe, America has also established a social paradigm that makes
available a broad
safety net to assist individuals when adversity strikes.
However,
unlike Western Europe, the American safety net is market based and
voluntary. By their nature, those private provisions are generally
not available for individuals who fail to take advantage of their
existence after diagnosis of a significant health condition. Within this
voluntary system, a truly comprehensive safety net can only be created
with a tightly planned package of private insurance and investment
instruments before sickness or disability strikes -- and that package is
typically not available to people with disabilities.
A safety net that is sufficient
to preserve a pre-disability lifestyle – by design – cannot easily be
adequately constructed after an adverse health event occurs. If it could,
there would be no incentive for young, healthy individuals to pay any
premiums, and the risk pools for insurance products would consist mostly of
the already-old or already-sick.
In
addition to building in mechanisms to ensure that insurance planning is
done before a health disaster strikes, insurers in the United States have
also done a stunningly efficient job of excluding people legitimately on
their rolls after they become sick. They have been assisted in this
effort through Acts of Congress.
In
the Employment Retirement Security Act of 1974 and subsequent pernicious
amendments thereto, Congress has furthered this "filtering" process by
encouraging the spread of employer-sponsored health insurance programs
through preferential tax treatment for employer insurance costs.
Simultaneously, Congress also created legal limits for the time period
that equivalent health insurance
benefits must be made available for individuals who cease employment due to
illness or disability. So, while Congress encouraged the spread of
insurance based on employment, it also provided employers with a mechanism
whereby they could eventually "screen out" people who became too sick to
work while covered by their policies.
By its nature, the employer-based market
already excludes people who for one reason or another cannot work.
Unfortunately, Congress has encouraged employers to add health-related expenses to the cost of doing business;
this practice also
increases the already-strong resistance of employers to hire or retain
people with real or perceived increased health care costs.
So
prevalent is the practice of employer-sponsored health coverage that most
people labor under the false impression that it is their employers' sole
right and duty to select insurance. It simply does not occur to many
people that they may purchase insurance completely independent of what
their employers may provide.
The
only reasonable way to finance the enormous costs of catastrophic health
conditions is to do so in large insurance pools that include a large
number of healthy people. Congress has encouraged the creation of
large insurance groups through employer insurance; however, instead of
bringing more of the higher risk people into those pools of mostly healthy
people, Congress
has instead created specific rules designed to force the sickest people
out of employer insurance groups. Once an individual becomes so
sick that they must leave the workplace, federal law limits continuation
coverage to a maximum of 29 months (and only under certain circumstances
is the period longer than 18 months). Consequently, employer-based
coverage is noncontinuous as a matter of law!
Through
this
provision
(known as "COBRA"), Congress has enabled the private insurance
marketplace and all employer groups to discontinue coverage for some of
the sickest individuals at precisely the time their private insurance
coverage is needed the most – when employment ceases because disability or
illness has intervened. The practical effect of this continuity
limitation is that the sick and elderly are involuntarily forced out
of the private insurance market, and therefore commonly become
beneficiaries of second-rate government programs when their health needs
are the greatest; unfortunately, these needs occur within programs wherein
health services are rationed based on political expediency rather than
need.
The “portable”
conversion policies Congress required in HIPAA provide only an illusory
alternative: HIPAA does not mandate any reasonable set of minimum benefits nor any maximum
premium levels. There is no requirement that the conversion plan
bear any reasonable resemblance to the former group plan. Consequently,
while some individual HIPAA plans may be good as a consequence of an
individual employer's decision, as a matter of law the coverage offered by insurers under
these plans need not provide any better risk coverage for the sick
individual than the overall individual marketplace would otherwise
provide on its own. Additionally, because only people who have difficulty
finding other coverage tend to accept these policies, the coverage tends
to degrade quickly, and premiums can rise dramatically in short order.
The legal protections of HIPAA are therefore illusory, and there is no
guarantee that any particular HIPAA plan will provide reasonable coverage
at a reasonable cost..
Nor has Congress
seen fit to mandate any reasonable private or government solutions when
this interruption of continuity occurs: only the poorest of the poor
qualify for Medicaid, and individuals who apply for Social Security
Disability Insurance benefits must wait 29 months from the date of
application before Medicare coverage becomes available (assuming the
eventually qualify for SSDI benefits). Even when
Medicare does become available, in some states no federally-regulated Medigap
insurance plans are available to non-elderly Medicare beneficiaries with
disabilities or chronic illnesses.
Additionally, neither the private
marketplace nor government regulations have created a mechanism whereby
many people with disabilities ever have a reasonable opportunity to
construct their safety net in the first place.
People with significant illnesses or disabilities as children at no time
in their lives have any reasonable opportunity to obtain health-status
underwritten insurance on the private commercial market in the United
States. This includes health, disability, and long term care insurance,
as well as life, mortgage, office overhead, and all insurance derivatives
thereof.
Many disabled children are further insulted by
the threat of losing their eligibility
for Medicaid at any point in their adult lives at which they choose to
become productive in order to escape the confines of abject poverty.
It is
not an exaggeration, therefore, to state that it is our national policy
to limit the broad availability of comprehensive private group health
coverage only to individual who are well enough to work. A natural
fallout of this policy is that our health insurance packages become loaded
down by benefits that are likely to attract well patients -- such as
routine vaccination coverage for children and well baby care.
Instead of performing its catastrophic risk-spreading function well,
insurance has instead become simply a budgetary tool of the well-family
-- a way of "paying the bills" (but only as long as the employment
persists); its primary risk-spreading function is now merely a sideline.
Insurance is marketed to appeal to able-bodied employees; "good" insurance
is something that leaves an employee with little out-of-pocket expenses.
How many employees stop to ask whether their HMO or employer plan will pay
for a transplant? Or a transplant donor's expenses? Or a power
wheelchair? Or home health care? As a consequence, treatment
of well patients is also consuming more of our health-care resources.
The
true test of "good" insurance is what kind of care is available over the
long-term for the sickest people who have it. Employer-based
insurance fails this test on every count.
Our American system of
employer-sponsored health insurance additionally creates employment
barriers for people who become seriously disabled or ill as employed
adults. Our national system of private health insurance largely and
irrationally ties insurance availability to employment. This connection
creates a financial disincentive for employers to acquire employees who
might raise insurance or workers compensation costs; it also leaves the
entire system of insurance in the precarious position of denying to ALL
employees the critical element of continuity.
The
inability of persons with disabilities or chronic illnesses to obtain
adequate primary health coverage in the private marketplace also provides
an economic prohibition for self-employment by these individuals in many
states.
Congress prefers employer-sponsored insurance for one simple reason:
employer sponsorship provides a legal sleight-of-hand mechanism for
Congress to regulate the national health insurance market. Americans
who labor under the illusion of security from employer-sponsored health
coverage often think they have created an adequate safety net – and
therefore acted responsibly. Employees who receive
employer-sponsored benefits who wish to develop long-term economic plans
are really presented with two impossible alternatives if disability or
illness disrupts their continued employment,
or if the employer unilaterally changes the plan after retirement or
disability strikes: the individual must alternatively plan to assume all eventual risks involving health
issues with cash and no reliable risk-spreading insurance products; or,
plan to accrue no assets and produce no income stream at any time that
could disqualify them for government entitlement programs.
Worse yet, most
certified financial planners focus on the tax benefits of employer
insurance as a rationale for encouraging individuals to rely on employer
benefits to construct their risk plans. As a consequence, the advice
of most certified financial planners on the subject of risk-planning is
woefully inadequate.
Some
Interesting Facts
The
difficulties that people with chronic illnesses or disabilities have in
financing their care throughout their lives should foreshadow a larger
social dilemma facing aging baby boomers (of which they are likely
unaware).
Nursing Home
Costs --
The average stay in a nursing home lasts
2.6 years.
Source: Conning & Company, Long Term Care
Insurance, Baby Boom or Bust, 1999, p. 15.
The average annual cost of a semi-private
room in a nursing home was $52,000.00 in 2000.
Source:
MetLife Market Survey of Nursing Homes and Home Care Costs, April
2002.
By 2030, it is estimated that the annual
average cost for a semi-private room will be $190,600.00.
Source: Can Aging Baby Boomers Avoid The
Nursing Home?, Sucki, B. and Mulvey, J.,
ACLI, March 2000, p.15.
Assisted Living Facility Costs --
Costs for assisted living facilities
vary, depending on the location and duration of care, and may also vary
based on the level of assistance that is needed. These facilities do
not provide advanced medical care; people needing more extensive care than
the facility is prepared to provide will usually be transferred to a
nursing home. In 2000, the average annual cost for this stepped-down
care was $25,300.00. By the year 2030, the average annual cost for
this limited care is projected to be $109,300.00 per year.
Source: Can Aging Baby Boomers Avoid The
Nursing Home?, Sucki, B. and Mulvey, J.,
ACLI, March 2000, p.15.
Home
Health Care Costs--
Costs for home health care vary based on
the number of hours care is received; the average annual cost for people
receiving home care is well over $20,000.00 a year (based on a home health
aide at $18/hour, for five hours, five days per week). By 2030, the
average annual cost is projected to be $68,000.00.
Source: Can Aging Baby Boomers Avoid The
Nursing Home?, Sucki, B. and Mulvey, J.,
ACLI, March 2000, p.15.
Assisted Living Facility
Statistics
Forty-six percent of residents move into an assisted
living facility from their homes. Thirty-three percent of residents
move out of assisted living into a nursing home because a higher level of
care is necessary.
Source: Assisted Living Residence Profile,
About Assisted Living, The
National Center for Assisted Living, 2001.
Key Planning Points
1) A
Good Insurance Plan Relies Exclusively or Predominantly on Private Market
Insurance Solutions, Rather Than Government Entitlements.
A good insurance plan is based on basic assumptions and predictions.
The more or less predictable any element of the plan becomes, the more or
less reliable the overall plan will be.
You should rely on government
entitlements only when you cannot develop an adequate plan without them.
The existence, rules for, and amounts of government entitlements are
subject to change or elimination every year. The content of
entitlements are not based on medical reality; rather they are strictly
the product of political compromise and budgetary constraints.
For the above reasons, private contractual arrangements are better
planning tools than government entitlements. As long as a
financially strong insurer is chosen for a private contract of insurance
on reasonable terms, this arrangement can be quite predictable; it serves
as a far more stable choice for long-term insurance planning.
2)
Everybody Already Has A Plan Of Some Sort
Whether you realize it or not,
you have a plan.
The
“plan” may be simply to take things as they come, to live from paycheck to
paycheck, and to presume, therefore, that you will not get terribly sick,
old, or disabled.
Some form of
planning, whenever it occurs, it always better than no plan whatsoever.
3) Plan
For The Worst
A good plan has strategies to
deal with all contingencies – including the worst or most extreme ones.
Do not confuse
hoping for the best with
planning for the
worst. If your plan includes contingencies for the
worst-case-scenario, then there is no set of circumstances that will
undermine your carefully constructed plan, and you can be secure in the
knowledge that you will achieve your financial goals.
A Key
Consideration In Long-Term Care Employer-Sponsored Benefit Plans:
How is qualification for long-term care
benefits determined?
A federal employer-benefits tax provision in 1996 [known as HIPAA]
provided favorable tax status to long-term
care insurance plans offered by employers that meet
certain criteria. If you have a long-term care insurance plan that
is employer-sponsored, you need to carefully check how qualification for
benefits will be determined.
As with employer health, life, and disability insurance, if the
coverage is not adequate, you need to supplement it privately.
Private, non-employer-sponsored coverage is a basic necessity to
provide some form of continuity that is
completely missing from most employer plans by design.
Do NOT assume that your employer sponsored insurance is adequate by
itself. In fact, the experience of many people with chronic
illnesses demonstrates that employer-sponsored coverage often ceases
involuntarily at exactly the time it is needed most -- after the worker
herself becomes too ill to continue working, and precisely because
she could no longer work! While some employers offer continuing
insurance throughout a period of disability or disability retirement,
unless you have a contractual right to those benefits, there is no
guarantee that retiree benefits cannot be reduced or eliminated in the
future. If that were to happen, you would find it extremely
difficult to find any suitable replacement in the private marketplace.
Because long-term care policies are fairly new to employer plans, I
want to take an opportunity to point out some of the things to look for in
reviewing those policies' benefit provisions.
According to HIPAA, to qualify for benefits, an individual
must be determined to be chronically ill. Chronically
ill means that you are unable to perform at least 2 out
of 6 Activites of Daily Living (ADLs), without substantial
assistance, for a period expected to last at least 90
days, or have a severe cognitive impairment.
Does your plan specify that the beneficiary must require assistance with
more than 2 ADLs? The least restrictive formula under HIPAA only
uses 2; others may require a higher level of need. In any event, to
be tax qualified, at least 2 are required.
Here is a typical list of 6 ADLs:
Bathing
Dressing
Transferring
Toileting
Eating
Continence
Also, check whether the benefit requires "hands-on" or only "stand-by"
assistance. If only hands-on assistance qualifies for benefits, this
is a very restrictive benefit.
