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LTC Bullet: An Open Letter to the Medicare Commission

Tuesday September 8, 1998


*The following article by Center for Long-Term Care Financing President Stephen Moses will be published in the October issue of LTC News & Comment.*

"Good News and Bad News - An Open Letter to the Medicare Commission"

by Stephen A. Moses, President
Center for Long-Term Care Financing

Dear Medicare Commission:

There's good news and bad news.

You already know the bad news. Hemorrhaging health costs. Managed care backlash. Growing
pre-retirement uninsured. Contentious pressure groups. Impending fiscal insolvency. And the
threat of an aging Armageddon in health care when the baby boomers retire. Worst of all, even if you solve these acute care challenges, America still faces the thermo-nuclear time bomb of long-term care financing for the boomer generation.

Or maybe not. That's where we have some good news.

The Center for Long-Term Care Financing in Seattle, Washington recently published a white paper entitled "LTC Choice: A Simple, Cost-Free Solution to the Long-Term Care Financing Puzzle." This paper explains why America's long-term care service delivery and financing system is so dysfunctional and what we have to do to fix it. Wouldn't it be a big load off
the Commission's back if the long-term care problem really could be solved easily and inexpensively? Here's the answer in a nutshell:

America's long-term care difficulties are largely self-inflicted. We have been trying to solve the wrong problem. Our costly attempts to improve long-term care over the years have ironically made the situation worse. Why?

We have attacked long-term care as though it were a welfare problem. The commonplace diagnosis is that Americans are living longer, but dying slower, often in nursing homes at $50,000 per year. This catastrophic expense supposedly devastates the average family within months, forces the infirm elder onto welfare, and drives up Medicaid expenditures inexorably. Therefore, this shopworn analysis insists, we need to increase public long-term care financing radically. Unfortunately, taxpayers are no longer willing to foot the ever-escalating costs of expanded public financing. So, we're at loggerheads and gridlock in long-term care policy.

Now, consider a brazen apostasy. What if long-term care is not a welfare problem at all, but rather just the opposite? What if the reality is that Americans can ignore the risk of long-term care, avoid the premiums for private insurance, and shift the cost easily to Medicaid if and when the need for long-term custodial care ever arises?

That would explain why most Americans are in denial about the risk of long-term care despite the objective reality that nine percent will spend five years or more in a nursing home after age 65. It would explain why our long-term care service delivery system is biased toward nursing home care (paid for by Medicaid) and against home and community-based care (paid mostly out-of-pocket). It would explain why few senior Americans tap the equity in their homes (over $1.5 trillion) to pay for long-term care. (Medicaid exempts the home regardless of value.) Finally, it would explain why private long-term care insurance has been so slow to take off commercially. (People do not pay for insurance protection they can get from the government for free.)

This explanation of what ails our long-term care delivery and financing system may seem far-fetched, but the Center for Long-Term Care Financing has compiled hard evidence to prove it. The truth is that neither income nor assets are significant obstacles to qualifying quickly and easily for Medicaid nursing home benefits, without spending down one's estate. Widespread catastrophic nursing home spend down is a myth that has been irrefutably disproved by numerous empirical studies in the past decade. Finally, 85% to 90% of all nursing home costs in the United States come directly or indirectly from government financing or patients' income--not from assets or savings. In other words, all the available evidence suggests that life savings are not widely at risk of depletion on account of nursing home expenses. We have no room to provide the evidence here, but you will find it fully delivered and described in the LTC Choice paper.

For now, just consider what it means if we are right. In essence, America has had a national social health insurance program for long-term care since Medicaid was founded in 1965. No wonder people don't plan ahead, save, or insure against the risk of catastrophic long-term care expenses. Instead of continuing to anesthetize the public to this risk by increasing public financing of home and nursing home care, the only permanent solution is to compel people to confront the long-term care decision while they are still young enough, healthy enough, and affluent enough to take responsibility for themselves. That is the principle behind the LTC Choice proposal.

Under this plan, Americans would receive information from the government about the risk and cost of long-term care at the same time they learn about Medicare and Social Security, i.e. no later than age 65. At that age, long-term care insurance is still affordable to most Americans, especially if they tap their home equity with a reverse annuity mortgage or seek family support from heirs who wish to preserve an inheritable estate. Most people will do the responsible thing if they fully understand the risk. They will insure privately or set aside resources for long-term care. For people who do not, we advocate a new kind of safety net. If they are unable or refuse to take personal responsibility, they can begin reporting income and assets to the government annually. Then, when and if they need long-term care, the government will help them with a line of credit on their estate to purchase quality home care, assisted living, or nursing home care in the private marketplace. At the death of the last surviving exempt dependent relative, the recipient's estate pays back the loan. Only the balance passes to heirs after the debt to this generous publicly sponsored program is repaid.

This approach returns dignity to seniors, because financial assistance is not welfare if you pay it
back. It assures access to quality care at the appropriate level, instead of forcing the frail elderly
into welfare homes. It creates a strong incentive for the aging and their heirs to take the risk of long-term care seriously and to plan, save and insure early. It relieves the burden on taxpayers of financing long-term care, by shifting more of the cost to the private insurance industry. It breathes financial oxygen into the service delivery industry--home care, assisted living, and nursing homes--by providing a reliable private financing source to replace inadequate and unreliable Medicaid and Medicare financing. It will unleash the private long-term care insurance industry to fulfill its potential as a new funding source for quality long-term care.

Is LTC Choice just another "Big Brother" government program? Not at all. The current system is the height of big brotherism: nobody worries about long-term care until after the insurable event occurs, at which time heirs with a financial conflict of interest game the Medicaid system to take early inheritances and place the impaired elderly in nursing homes on welfare. The main idea of LTC Choice is to persuade the public to avoid that trap. We think most people will be responsible and insure privately so that they do not end up dependent on public assistance, i.e. Big Brother. Only a small minority will choose to rely on a government program that requires them to offer their estate as collateral in case they need a loan some day to pay for long-term care.

So, never mind the bad news that long-term care financing is a huge challenge. Just remember
the good news. We caused the problem ourselves and we can fix it. All we have to do is remove the perverse incentives in current public policy that discourage responsible planning for long-term care. Individual self-interest, personal responsibility, and accountable marketing of high-quality long-term care insurance products will do the rest.


Stephen A. Moses, President
Center for Long-Term Care Financing

You can subscribe to LTC News & Comment by calling 425-820-6650. If you would like to order a copy of "LTC Choice: A Simple, Cost-Free Solution to the Long-Term Care Financing Puzzle," contact Amanda Cooke at or 206-447-1340.