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LTC Bullet: Center's Message Resonates with Policy Experts

Tuesday January 19, 1999


In response to President Clinton's proposed long-term care initiative (see LTC Bullet: "Dr. Feelgood's LTC Prescription" at, Peter Spencer, Editor of Consumers' Research, recently published the following piece for Intellectual The Center for Long-Term Care Financing and its President Stephen Moses provided expert analysis to Mr. Spencer and are featured throughout the article.

Out of the Long-Term Care Mess
by Peter Spencer

President Clinton's recent, rather modest proposal for long-term care tax credits has focused attention on a looming problem for Americans -- how to pay for long-term care in old age?

How to pay indeed. The most expensive form of long-term care, the nursing home, averages $50,000 a year and in some areas quite a bit more. Home health care -- with part-time skilled nursing care, speech and physical therapy -- and other services easily cost more than $1,000 a month. A study a few years ago projected that about 40% of all elderly, those aged 65 and older, eventually would experience a nursing-home stay, and about 9% would stay for five years or more.

"With costs this high," The New York Times editorialized Monday, "few people can afford to pay the bills." Adding to this obvious concern is the fact that relatively few people bother to plan ahead and buy long-term care insurance, which can help defray nursing-home and home-care costs. Although sales of these policies have significantly grown, only about 5% of the elderly have them.

A piece of the government

Thus, people faced with how to pay either pull from their own resources or rely on government. The big payer, and growing of course, is the government.

From 1990 to 1997, the proportion of government-paid long-term care (including nursing homes and home health care) rose from 48% to 60%. Consumer out-of-pocket payments declined from 40% to 28% of spending, according to the Health Care Financing Administration. (Total long-term care spending over this time increased from $64 billion to $115 billion.)

Meanwhile, by all accounts, the nation is hurtling toward yet another financing crisis. Like its Medicare and Social Security brethren, long-term care financing, which is dominated by Medicaid for nursing-home coverage (out of federal and state funds) and Medicare for home-care coverage, already is under serious strain. And spending pressures will increase -- along with cost-control efforts and the resulting reduction in coverage and degradation in quality -- as the 76-million-strong baby-boom generation moves into old age.

The clear way out of this mess is to increase the use of private insurance, which, aside from financial security, provides more flexibility than government care. This concept was given the nod by President Clinton's policymakers, who have proposed to educate people about the need for such insurance and to allow federal workers to purchase group plans. It also has support in Congress.

However, a major obstacle will be the counterproductive incentives present in the current financing system. Chiefly, getting the government to pay for long-term care is not so difficult for most people. So why buy long-term care insurance for home health-care services, for example, when Medicare pays for them?

And consider Medicaid, which pays, at least in part, for about 72% of all nursing-home patient days. Conventional wisdom has it that people must become impoverished before Medicaid kicks in.

As the Times notes: "Medicaid is currently the major financing source for custodial care, but it is available only to people with extremely low incomes. Others have to deplete nearly all their assets before qualifying for Medicaid."

No incentives to plan ahead

Stephen Moses, president of the Center for Long-Term Care Financing in Seattle, puts "extremely low income" in perspective: "New York City residents who need nursing home care can qualify for Medicaid benefits despite having incomes of over $7,000 per month, more if they are married." Additionally, he adds, "Most assets are exempt already or they are easy to divest or convert to exempt status."

Confusion lies in how states determine eligibility for Medicaid coverage. Generally, Medicaid is a means-tested public assistance program -- a program for the poor, on paper anyway -- allowing seniors only about $2,000 in assets and income lower than the cost of nursing-home bills.

But in 30 states, Moses says, so much can be deducted from the base income -- including medical expenses, premiums, co-payments, prescription drugs and eyeglasses -- that only the top 5% to 10% of elderly incomes will not qualify for nursing-home coverage outright. And in the other 20 states, which use "income caps" that, for instance, cannot exceed $1,500 per month, it is relatively easy to shift the money to get under these caps. In short, income is not a barrier to getting on Medicaid.

Seniors also can have enormous assets and still be eligible. Houses, and all contiguous property, cars, house-hold goods, support for spouses, businesses, term life-insurance policies, for example, do not count.

It is no wonder that, due to the lenient requirements, roughly three-quarters of the people who enter nursing homes already are eligible for Medicaid coverage. And for those who are not, one of the increasing number of attorneys specializing in "Medicaid estate planning" will assist to hide assets "legally" so they, too, can receive taxpayer-financed care, if they so desire.

As it applies to long-term care, Medicaid has become a middle-class entitlement program. This helps explain why states such as California and New York have failed to generate much interest in private insurance purchases. People are not inclined to insure their assets with the government there to bail them out. And when reality hits, government does act, and you have the sad stories of children hiding assets and sending Mom to the nursing home when other types of care might have been possible if they had planned ahead.

Efforts at expanding long-term care insurance through tax credits or full deductibility are a positive step. But this does not necessarily help the people who, for lack of planning, end up in the Medicaid quagmire.

A lesson for the next generation

How do we end the entitlement without scrimping on care for the middle class or the poor?

The Center for Long-Term Care Financing offers an interesting solution [in its "LTC Choice" plan]: Rather than the government paying for long-term care for the middle class, have it provide fully collateralized, government-backed lines of credit on the estates of people who need long-term care (who choose not to buy private coverage).

"This would empower them to purchase red-carpet access to top-quality home care, assisted living and nursing-home care in the private marketplace," Moses says. The fact that they would have to pay these loans back out of their estates would encourage younger generations to plan ahead.

Peter Spencer, "Out of the Long-Term Care Mess," Intellectual Capital.Com, January 14, 1999.

*You can purchase a copy of the Center for Long-Term Care Financing's "LTC Choice" report for $24.95 by contacting Amanda Cooke at 206-447-1340 or by sending your order in a reply e-mail.*