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LTC Bullet: Scary Numbers

Monday January 25, 1999


Center President Stephen Moses wrote the following article at the end of 1998. A few days later, the Clinton Administration put aging and long-term care on the public policy agenda in a big way. The Administration deserves credit for raising and confronting these critical issues sooner rather than later. "Scary Numbers" explains why long-term care financing is so important. An abbreviated version of this article, adapted to the style of an op-ed piece, was published in the January 11, 1999 issue of National Underwriter's Life & Health Edition.

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

A reporter from the prestigious National Journal called me the other day with a fascinating inquiry. "Why," she asked, "isn't long-term care on the public policy agenda with Medicare and Social Security and how long can Medicaid--the principal payer for long-term care--survive unless something is done?"

What a great question! Everyone knows that Medicare is scheduled to go belly up in 2008. Social Security limps along until 2032, assuming Uncle Sugar can make good on the IOUs in the so-called "trust fund." But how long can Medicaid, which pays for over two-thirds of all nursing home patient days in the U.S., hang on before joining the social insurance programs in bankruptcy?

Let's answer the first question first. Long-term care is not on the public policy agenda yet for the same reason Medicare and Social Security were not there until recently. The political courage to confront a social problem is inversely proportional to the gravity of the problem and to the length of time before a crisis will occur. The long-term care financing problem compares with Medicare and Social Security in magnitude and the meltdown will come much later. No wonder long-term care is the only "third rail" that still retains a lethal political charge. Politicians figure it can wait.

Boy, are they wrong! Today's 77 million baby boomers start turning 85 years of age in 2030. If past history holds true, more than 20 percent of people over 85 will reside in nursing homes. By 2030, all the boomers will be over age 65, and between four and five percent of them will already reside in nursing homes. Researchers predict that nine percent of people over the age of 65 will spend five years or more in a nursing home. Nursing home care already averages $50,000 per year ($136 per day), up from $31,390 per year ($86 per day) in 1990. If 70 million boomers make it to senior status (over 65) and the researchers are right about the incidence of nursing home care, then almost seven million of the boomers will experience long-term stays costing at least $250,000 each in today's dollars. That totes up to $1.75 trillion (with a T). If you add in the cost of (1) nursing home stays lasting less than five years, (2) the popular, new option of assisted living, and (3) home health care, the total liability for long-term care is truly staggering.

So, how long can Medicaid survive as the payer of last resort for long-term care? The United States spent $82.8 billion on nursing home care in 1997, up from $30.7 billion in 1985, an increase of 270 percent. HCFA estimates nursing home costs will rise to $148.3 billion by 2007. Of the total spent in 1997, Medicaid paid 47.6 percent, practically unchanged from 47.2 percent in 1985. Medicare, however, paid 12.3 percent, up from 1.5 percent in 1985. Together, these two big public payers contributed 59.9 percent of the total cost of nursing home care in the United States in 1997, up from 48.7 percent in 1985. Clearly, public financing of nursing home care has been increasing rapidly as a proportion of total costs.

What about private financing of nursing home care? Just the opposite holds true. Out-of-pocket nursing home expenditures have fallen from 44.3 percent of the total in 1985 to 31.1 percent in 1997. Furthermore, a large proportion of these so-called "out-of-pocket" costs--possibly as much as two-fifths--are really just "spend-through" of Social Security income that people who are on Medicaid already must contribute toward their cost of care. (This explains why Medicaid pays for two-thirds of all nursing home patient days, but contributes only 48 percent toward the total cost of nursing home care.) In other words, after you deduct the direct and indirect public contributions to nursing home care from the total, very little remains to constitute a genuine out-of-pocket cost to private individuals that might heighten their sense of urgency about the need for early long-term care planning.

If the rate of decline in private out-of-pocket financing of nursing home care were to continue at the same, steady, gradual rate of the past 12 years, out-of-pocket nursing home expenditures would decline to zero by the year 2025. If the rate of increase in public financing of nursing home care were to continue at its same, steady, gradual rate of the past 12 years, Medicare and Medicaid financing of nursing home care would increase to 86 percent by the year 2025. Obviously, neither of these scenarios will occur. As a sage once said, "trends that cannot continue, won't." Indeed, public financing of long-term care is already showing terrible strains. Medicare is cutting back on growth in nursing home and home-health-care expenditures. Medicaid is shrugging under the burden of financing long-term care and already has a dismal reputation for problems with access, quality, reimbursement, discrimination and institutional bias. My guess is that Medicaid cannot survive much beyond the seniority of the baby boomers beginning in 2010. So what will replace it?

There's the rub. With every benign intent, government has been sending a message to the public that long-term care is a risk that people can ignore. By increasing Medicaid's contribution to nursing home care rapidly, by allowing out-of-pocket nursing home payments to decline drastically, and by permitting Medicare long-term home-healthcare expenditures to skyrocket uncontrollably, the government has anesthetized the public to the real financial risk of long-term care. Consequently, most people do not plan ahead for predictable long-term care expenses. Private long-term care insurance, which allows people to spread this risk, has penetrated less than ten percent of the senior market and virtually none of the crucial baby-boomer market.
Medicaid estate planning (the practice of artificially impoverishing frail elderly people to qualify them for Medicaid nursing home benefits without spending down their assets) is rampant. The day of reckoning is still a long way away. But the best time to confront and solve the problem is now. And no one has an answer to offer. Well, almost no one…

The Center for Long-Term Care Financing has proposed a solution called "LTC Choice" that, compared to the measures needed to save Medicare and Social Security, is a relatively easy fix. The government should educate American citizens about long-term care risk no later than when they reach age 60 to 65. People should be encouraged to insure privately for long-term care, but those who do not should have to agree in writing that they can expect no financial assistance for long-term care from the government until they exhaust their personal wealth. Instead of forcing people to impoverish themselves in order to gain access to a welfare-financed nursing home as the current system does, however, the government should offer a line of credit on the estates of the uninsured to empower them to purchase quality long-term care in the private marketplace at the appropriate level of care. Then, require seniors to pay back these fully secured loans out of their estates. That would send a very strong message to everyone else, especially their heirs, that long-term care is a risk they should take seriously and protect against early. Confronted with genuine risk of this kind, most Americans will do the responsible thing, insure and pay privately for long-term care, and thereby allow Medicaid to survive as a safety net for the truly needy.

If we act now to educate the public about long-term care risk and to provide strong, positive incentives to insure privately, America can avoid the worst consequences of a long-term care financing crisis. If we continue to hide behind the more proximate problems of Medicare and Social Security, we may finally resolve those matters only to find another huge fiscal catastrophe confronting us.

[For more information about the Center for Long-Term Care Financing or to purchase "LTC Choice: A Simple, Cost-Free Solution to the Long-Term Care Financing Puzzle" ($24.95), consult the Center's web site at or call 206-447-1340.]