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LTC Bullet:

New "Cadette" in the LTC Financing Battle

Monday March 27, 2000


The battle between advocates of private vs. public financing of long-term care continues to rage. Walter M. Cadette, a senior scholar at the Jerome Levy Economics Institute, recently joined the fray. His report--"Financing Long-Term Care: Replacing a Welfare Model with an Insurance Model"--is Number 59 in the Institute's "Public Policy Brief Series." You can download a copy at

Here are some notable quotes from the 34-page report followed by the Center for Long-Term Care Financing's analysis of its recommendations:

"By default more than by design, the nation has fashioned a welfare model for financing long-term care, pushing Medicaid far afield of its original purpose of providing for medical care of the indigent....." (p. 7)

"The welfare model...has been an open invitation for nonindigent Americans to find ways to maneuver around the maximum assets requirements." (p. 8)

"Medicaid itself acts as a major, if not the most important, impediment to the growth of the long-term care insurance market. Even high-income families presumably ask themselves, 'Why pay for insurance when Medicaid ensures virtually everyone against an extended nursing-home stay?' Medicaid has become, in effect, universal long-term care insurance...." (p. 12)

"Medicaid funds...go to many not in greatest need. Asset and income limits have given rise to a whole industry of estate planners adept at helping people meet the letter, although not the spirit, of the limits." (p. 13)

"Spending down to qualify for Medicaid in a nursing home, while reasonable in a welfare model, has made some elderly vulnerable to their children's greed as well as to their own infirmities." (p. 14)

"Private payment...can buy entry into the best facilities, whereas Medicaid beneficiaries are more likely to be refused because those facilities cannot cover the cost of caring for a resident with the amount a state government is prepared to reimburse under Medicaid (typically 20 percent to 30 percent less than the private-pay charges)." (p. 15)

"At stake is...'honest government'--one that not only does not fund inheritance protection but that also genuinely protects those with greatest need." (p. 16)

" insurance model cannot be developed as long as most Americans needing long-term care can turn to a safety net in the first instance. Medicaid or other safety net funds have to be reserved for those in greatest need." (p. 17)

The report concludes with the following recommendations:

"1. Integrate front-end care into Medicare, creating a Medicare Part C, building on the practice of reimbursing care after an acute illness....

"2. Mandate back-end insurance coverage and support it with income-scaled tax credits....

"3. Cut back Medicare reimbursement for routine health care to finance Medicare front-end long-term care coverage....

"4. Tighten Medicaid eligibility by lengthening look-back periods and otherwise making it difficult for people to count on Medicaid to finance long-term care." (pps. 24-25)

The Center for Long-Term Care Financing's analysis of these recommendations:

This report and its recommendations have made the long-term care financing problem more complicated than it really is. The fundamental issue is that government has anesthetized the public to the risk of long-term care by providing free or highly subsidized care for 35 years. What the report calls insurance "market failure" is really only the market adapting to government interference. Remove the interference, and themarket will no longer fail. Removing the interference is the real challenge. The report proposes Medicare Part C to pay for 6 months of long-term care. That will only serve to anesthetize the public further to the risk. The report proposes mandating the purchase of private insurance. That is more government interference. We know from efforts to control wages and prices that mandates just don't work and they cause all kinds ofunintended negative consequences. The report would reduce Medicare acute care spending to subsidize long-term care. That is a tough idea to sell politically when all the pressure today is to expand Medicare benefits to younger people and add prescription drugs. Finally, the report would tighten Medicaid eligibility and make it difficult for people to obtain the program's benefits. Everyone gives lip service to that objective. The real issue is HOW? Three presidents and eight Congresses have tried everything they can imagine, including criminalization, with a distinct lack of success.

We return to the solution proposed in the Center for Long-Term Care Financing's public policy paper "LTC Choice." Educate people about the risk and cost of LTC early. Give them the "LTC Choice" of either buying insurance or signing the "LTC Contract" obligating their estate as collateral for a publicly backed line of credit. That puts the public on record early--preferably in their fifties--that LTC is not a free entitlement. You pay now for insurance premiums, or you pay later with your estate. With the estate treated as formal collateral, just like a bank requires on a real estate loan, there will be no way to escape paying the piper when the loan comes due. When people really have assets at risk, they will buy LTC insurance. And their heirs will help them buy it to protect their own inheritances. This approach will allow us to give Medicaid back to the small percentage of truly poor so they can receive care equal to the private payers. It really is that simple. Remove the perverse incentives in public policy that punish responsible behavior and reward irresponsibility, and most people will do the right thing.

Despite our reservations about its analysis, conclusions and recommendations, the Center for Long-Term Care Financing congratulates Mr. Cadette for writing and the Levy Institute for publishing, a thoughtful and important contribution to the literature on the critical subject of long-term care financing.