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LTC Bullet: Center President Addresses LTC Crisis before D.C. Media

Wednesday December 2, 1998


Center for Long-Term Care Financing President Stephen Moses addressed a National Press Club Forum on November 19, 1998 in Washington, D.C.

The topic of the Forum, which was well-attended by local and national reporters despite competing for coverage with Ken Starr's Congressional testimony, was "Should Long-Term Care
Financing Reform Be an Integral Part of the Social Security and Medicare Reform Debates?"

Eleanor Clift of Newsweek moderated the panel, which also included Paul Willging of the American Health Care Association, Josh Wiener of Brookings, Mary Beth Franklin of Kiplingers, Barb Stucki of the American Council on Life Insurance, and Dean Kay James of Regent University.

The panel members agreed that long-term care financing should immediately become part of the retirement security debate, but they disagreed strongly on the optimal balance between private
and public financing sources.

Mr. Moses' opening remarks, making the case for a strong private financing component, were as follows:

National Press Club Forum
November 19, 1998

"The Financial Impact of Long-Term Care on America's Baby Boomers"

Remarks of Stephen A. Moses, President
Center for Long-Term Care Financing, Seattle, Washington


Ladies and Gentlemen:

I want to present a contrarian position today. Financing long-term care for the baby-boom generation is not as big a crisis as most analysts make it out to be. In fact, it is relatively easy to solve compared to many other public policy challenges America faces. The Center for Long-Term Care Financing has offered one solution in our "LTC Choice" paper, which we will make available to everyone in attendance today.

Of course, it IS true that America's long-term care service delivery and financing system is fragmented, dysfunctional, and plagued by problems of access, quality, reimbursement,
discrimination and institutional bias. Furthermore, if nothing is done, long-term care financing may well dwarf health and retirement security in gravity when the boomers start to age and decline. My point is that these problems are largely self-inflicted by counterproductive public policy that is reasonably easy to correct.

In a nutshell, we have been trying to solve the wrong problem. We have treated long-term care as though it were a welfare issue. For example, analysts usually define the problem like this: "People are living longer, but dying slower, often in nursing homes at great expense. They quickly spend down their life savings, become destitute, and go on Medicaid, which strains this perpetually under-financed public assistance program severely."

If this "welfare paradigm" were an accurate description of reality, we would expect consumers to worry years in advance about the enormous financial risk of long-term care. They don't. The public is in denial about long-term care and routinely ignores the risk.

We would expect consumers to seek out low-cost home and community-based care and avoid expensive nursing homes. They don't. America has a severely underdeveloped home
and community-based services infrastructure and a serious problem with institutional bias.

We would expect consumers to tap the equity in their homes (70 percent of their net worth) through reverse annuity mortgages to supplement their incomes, purchase home care or assisted living, delay institutionalization, and postpone impoverishment. They don't. Home equity conversion remains very unpopular.

Finally, we would expect consumers to purchase private insurance to protect against the risk of long-term care in the same manner as they protect against other catastrophic financial risks.
They don't. Less than ten percent of seniors have purchased long-term care insurance and virtually none of the baby boomers have done so.

Are consumers completely irrational or is there something wrong with the prevailing welfare paradigm? What could explain such counterintuitive marketplace behavior? Imagine if the "entitlement paradigm" were true instead of the welfare paradigm: "In America today, you can ignore the risk of long-term care, avoid the premiums for private insurance, wait to see if you ever need formal long-term care, and if you do, someone else pays."

If the entitlement paradigm is true, consumer behavior makes perfect sense. People don't worry about long-term care because someone else, specifically Medicaid, pays. They go to nursing
homes instead of home and community-based care, because Medicaid provides nursing home care, but rarely HCBS. They do not tap the equity in their homes, because Medicaid exempts the
home and all contiguous property regardless of value. They don't buy insurance, because their assets are not genuinely at risk.

If the welfare paradigm is false, we have been trying to solve the wrong problem. If the entitlement paradigm is true, the real problem we face is much easier to solve. What is the evidence against the welfare paradigm and for the entitlement paradigm? The detailed answers and the proof are in the "LTC Choice" paper. [Instructions on how to order the "LTC Choice" report are provided at the end of this article.]

Suffice it here to say:

*Medicaid nursing home benefits are very easy to obtain without spending down even for the upper middle class despite the conventional wisdom that Medicaid eligibility requires impoverishment.

*The median elderly person in terms of income and assets qualifies for Medicaid nursing home benefits without spending down significant assets and even the well-to-do can qualify quickly and easily by consulting a Medicaid estate planning attorney.

*There is no evidence to support the widely held belief that catastrophic nursing home asset spend-down is commonplace. In fact, all of the empirical evidence shows the contrary.

*Upwards of 85 percent to 90 percent of all payments to nursing homes in the United States come from Medicaid, Medicare, Social Security income, other private patient income or other
private sources--NOT PATIENTS' ASSETS.

*Skyrocketing Medicare expenditures for extended home health care in recent years have further mitigated the public's exposure to long-term care financing risk.

In other words, people who fail to plan ahead for long-term care expenses routinely end up in nursing homes paid for by Medicaid or in extended home care paid for by Medicare. With every benign intent, government policy has anesthetized the public to the risk of catastrophic long-term care expenses. Consequently, people fail to plan ahead for long-term care when they are young, healthy, and affluent enough to insure for the risk. By the time most people confront the risk of long-term care directly, they are either too old to afford private insurance coverage or too infirm to qualify for such protection. Most of them, including a tragically large proportion of America's beloved World-War-II generation, end up in nursing homes on welfare by default, because that is the only way that remains to protect their estates from private long-term care expenses. Efforts to target Medicaid only to the genuinely needy by closing loopholes, mandating estate recoveries, or criminalizing Medicaid estate planning have not succeeded, because these interventions have always been attempted too late, usually after the need for long-term care has already occurred.

The solution is really fairly simple. We have to grab the public's attention about long-term care much earlier. Our "LTC Choice" proposal suggests providing people with information on the probability, cost, and options for financing long-term care no later than their early 60s when they are already attentive to other health and retirement issues including Medicare and Social Security. Of course, they must have a stronger reason to take this information seriously than they do now. So, at the same time that they learn about long-term care, people should confront a choice, the LTC choice: either insure privately for long-term care and lay this risk aside or acknowledge explicitly, formally and legally that public assistance for long-term care requires spending your own assets first. Faced with such a clear trade-off, most people will insure privately. For those who do not or cannot, we should have a kinder public program than we have now. Instead of forcing families to divest, shelter, or spend assets to qualify for Medicaid-financed nursing home care, let's help them obtain top-quality care in the private marketplace at the appropriate level: home care, assisted living or nursing home care. Let them use their estates as collateral, obtain federally re-insured reverse annuity loans from private financial institutions, and combine this new revenue with their regular income to pay for the care they want in the settings they prefer. Collect on the loans after the death of the last surviving, exempt, dependent relative.

This approach has many advantages over the current situation. Middle-class seniors regain their dignity: it is not welfare if you pay it back. Vulnerable elderly people get red-carpet access to
top-quality care: there is never a shortage of preferred long-term care beds or services for full-paying, private customers. Consumers return to the market place: someone else may pay the
monthly bill, but it all comes out of the family's estate in the long run, so buyers will be wary of price and quality. Providers receive the full market price for their services: home care companies, assisted living facilities, nursing homes, and even hitherto unforeseen purveyors of housing and care will compete avidly to offer the best possible services for the lowest possible fee. Government and the taxpayers save money: the only up front cost, which is more than compensated by savings in the Medicaid program, is a loan guarantee program to attract private
lenders to fund the fully collateralized system.

The biggest advantage to "LTC Choice," however, is the change in consumer behavior it will engender. Families will know with strict certainty that they cannot ignore the substantial risk of
long-term care. The choices will become stark for 40- and 50-year-olds. Plan now and buy insurance while you are young and healthy and good coverage is inexpensive. Or, take your chances, hope for the best, accept a dollar for dollar loss to your estate if you ever have to rely on the public program, and explicitly assume the risk that you may ultimately lose everything, including your home equity, and become dependent on welfare.

Our current long-term care financing system rewards people for ignoring the risk of long-term care, waiting until expensive nursing home institutionalization is unavoidable, and then taking advantage of the public welfare system to protect substantial amounts of income and assets. If we remove these perverse incentives in the existing public policy and give people real reasons to plan and insure early for long-term care, we can solve this "crisis" relatively quickly and turn our focus to other, more intransigent problems, such as Medicare and Social Security.

***Order a copy of the Center for Long-Term Care Financing's "LTC Choice" report by calling Amanda Cooke at 206-447-1340 or by sending your request to***