HEARING - U.S. Senate Special Committee on Aging

151
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the $1,200 which is mentioned later in this letter are because
it represents the premium at age 65 as opposed to the premium
for the composite of all ages above 65, benefits are limited to
$40 per day as opposed to providing for full charges, and
benefits are limited to care received in a skilled nursing
facility.
Additional insight regarding affordability of private long-term
care insurance is gained by comparing an average premium (e.g.,
$1,200) with income figures contained in "Aging America, Trends
and Projections" prepared by your committee. For example, page
41 shows that the median income in 1984 for persons age 65 and
over was $7,349. Table 3-1 graphically displays distributions
by level of income and I presume that more definitive data was
available to support this graph. I am also attaching a table
which shows a distribution of income by size, age, and sex for
1983.
You also asked for some information regarding the cost of long-term
care insurance, especially if there was a spend-down deductible
provision. In response, I have gathered some information which
might be helpful in giving you a rough idea of the costs involved.
The figures that I found are for the year 1984. These figures show
the following expenditures in 1984 for people aged 65 and over for
nursing home charges:
Total Charges .$.. . . . . . I . . . . . . . . 525,105,000,000
Portion Paid by Patients (Out-of-Pocket). . . . 12,569,000,000
Portion Paid by Private Insurance
and other Private Sources. . . . . . . . . . . 469,000,000
Portion Paid by Medicare. . . . . . . . . . . . 539,000,000
Portion Paid by Medicaid. . . . . . . . . . . . 10,418,000,000
Portion Paid by Other Govt. Programs. . . . . . 1,110,000,000
Since there were approximately 28.5 million persons over age 65 in
1984, this means that the total cost of nursing home care per person
over age 65 was approximately S$So in 1984. Since the average cost
per stay in a nursing home was around 522,000, a $2,000 deductible
would still leave $20,000 out-of-pocket. In other words, it would
reduce the cost that would have to be met by some insurance program
by 2/22 or 9%. Since the cost per person was $880, a $2,000 deductible
would reduce this to $800. This means that an average insurance
premium to cover nursing home costs after a $2,000 deductible would
cost $800 for claims and possibly another $400 for marketing and
administrative expenses, making the total premium $1,200.* This is
a rough estimate of the average premium if all 28.5 million participated
in a program that paid 100% of charges in excess of $2,000
without limit. Actually, premiums would probably vary by age at
issue and reflect the impact of some underwriting selection and
limitations on daily benefit levels.
*This is for individual insurance. Group policies would involve
lower expenses and premiums.