LTC Bullet:  GAO on LTC:  New Testimony, Important but Flawed

Tuesday, March 26, 2002

Seattle--

*** The Center's LTC Graduate Seminar is a unique opportunity to spend a full day (9AM to 5PM) interacting with a leading authority on long-term care service delivery and financing and a small group of experienced LTC professionals.  Register for The LTC Graduate Seminars to be conducted April 22 in Baltimore, May 13 in Pittsburgh, and May 14 in Philadelphia by calling or emailing Amy Marohn at 425-377-9500 or amy@centerltc.org.  Once you express interest in attending an LTC Graduate Seminar anywhere in the country, Amy will keep you posted by email on dates and locations for future sessions.  For information on the seminar's content, the instructor, the current schedule, and other details, go to www.centerltc.org and click on "The LTC Graduate Seminar" or jump directly to http://www.centerltc.com/ltc_grad_seminar.htm.  If we don't have an LTC Graduate Seminar scheduled near you yet, let us know where you want us to come.  Or, get together 12 to 15 LTC professionals or senior advisors and we'll schedule a special program just for your group and at your location. ***

LTC Bullet:  GAO on LTC:  New Testimony, Important but Flawed

LTC Comment:  Good news and bad news!  The good news is that an important public figure has raised the visibility of long-term care financing as a critical social problem that must be addressed.  The bad news is that Comptroller General of the United States David M. Walker's testimony before Congress on financing long-term care for the baby boom said nothing new and displayed a fundamental misunderstanding of the issue.  Excerpts and our comments follow:

Source:  "Long-Term Care: Aging Baby Boom Generation Will Increase Demand and Burden on Federal and State Budgets", statement of David M. Walker, Comptroller General of the United States before the Senate Special Committee on Aging on March 21, 2002, GAO-02-544T, http://www.gao.gov/cgi-bin/getrpt?GAO-02-544T.

"In general, the aging of the baby boom generation will lead to a sharp growth in federal entitlement spending that, absent meaningful reforms, will represent an unsustainable burden on future generations. As the estimated 76 million baby boomers born between 1946 and 1964 become elderly, Medicare, Medicaid, and Social Security will nearly double as a share of the economy by 2035. We have been able to sustain these entitlements in the past with low depression-era birth rates and a large postwar workforce. However, absent substantive reform of entitlement programs, a rapid escalation of federal spending for Social Security, Medicare, and Medicaid beginning in less than 10 years from now is virtually certain to overwhelm the rest of the federal budget. . . .  While these are important issues, a broader focus should also include Medicaid, particularly as it involves financing long-term care."  (p. 1)

"Estimates suggest the future number of disabled elderly who cannot perform basic activities of daily living without assistance may be double today's level. . . .  Long-term care spending from all public and private sources, which was about $137 billion for persons of all ages in 2000, will increase dramatically in the coming decades as the baby boom generation ages. Spending on long-term care services just for the elderly is projected to increase at least two-and-a-half times and could nearly quadruple in constant dollars to $379 billion by 2050, according to some estimates. Without fundamental financing changes, Medicaid-which pays over one-third of long-term care expenditures for the elderly-can be expected to remain one of the largest funding sources, straining both federal and state governments."  (p. 2)

[LTC Comment:  Right on so far, but here's where the confusion sets in.]

"Over 60 percent of expenditures for long-term care services are paid for by public programs, primarily Medicaid and Medicare.  Individuals finance almost one-fourth of these expenditures out-of-pocket and, less often, private insurers pay for long-term care. . . .  In 2000, Medicaid paid 45 percent (about $62 billion) of total long-term care expenditures. . . .  In 2000, nursing home expenditures dominated Medicaid long-term care expenditures, accounting for 57 percent of its long-term care spending. . . .  In 2000, nursing home expenditures dominated Medicaid long-term care expenditures, accounting for 57 percent of its long-term care spending. . . .  Expenditures for Medicaid home-and community-based services grew ten-fold from 1990 to 2000-from $1.2 billion to $12.0 billion."  (pps. 3-5)

"Other significant long-term care financing sources include:  Individuals' out-of-pocket payments, the second largest payer of long-term care services, accounted for 23 percent (about $31 billion) of total expenditures in 2000.  The vast majority (80 percent) of these payments were used for nursing home care.  Medicare spending accounted for 14 percent (about $19 billion) of total long-term care expenditures in 2000.  While Medicare primarily covers acute care, it also pays for limited stays in post-acute skilled nursing care facilities and home health care.  Private insurance, which includes both traditional health insurance and long-term care insurance, 3 accounted for 11 percent (about $15 billion) of long-term care expenditures in 2000.  Less than 10 percent of the elderly and an even lower percentage of the near elderly (those aged 55 to 64) have purchased long-term care insurance, although the number of individuals purchasing long-term care insurance increased during the 1990s."  (p. 5)

[LTC Comment:  These statements are true, but misleading, for two reasons.  First, over half of the expenditures that GAO reports as "out-of-pocket" are really just contributions of Social Security and other income toward their cost of care by people who are ALREADY ON MEDICAID.  This is critical because, if Medicaid pays even one dollar toward the cost of a resident's care, the nursing home receives Medicaid's low reimbursement rate for that resident, even if the resident pays the remainder "out of pocket."  Low Medicaid reimbursement rates are driving nursing homes into bankruptcy across the U.S. and impeding their ability to provide access to quality care.  Second, the percentage of LTC costs funded by Medicaid and Medicare is not static.  It's been going up steadily for a decade (by at least 10 percentage points), while the percentage financed out of pocket has gone down just as steadily by at least 10 percentage points in the same time period.  Put these facts together and you find the real reason private LTC insurance is such a small factor in financing long-term care:  the vast majority of all expenditures for formal LTC services in the United States (upwards of 90 percent) are paid directly by Medicaid and Medicare or indirectly by Social Security and other income (NOT ASSETS).  Personal assets have not been and are not now significantly at risk for LTC spend-down.  Inasmuch as people only buy insurance against actual risk, private LTC insurance has remained a relatively undersold financial planning product.  Until policy makers realize how and why public financing of LTC crowds out the market for private LTC insurance, nothing will change and America's LTC service delivery and financing system will continue to spiral downward.  For extensive evidence to support this conclusion, see the Center for Long-Term Care Financing's three major reports in .pdf format at www.centerltc.org:  "LTC Choice," "The Myth of Unaffordability," and "The LTC Triathlon."] 

"It is unclear what effect continued growth in [government-] paid home care, assisted living facilities, or other care alternatives may have on future expenditures. Any increase in the availability of home care may reduce the average cost per disabled person, but the effect could be offset if there is an increase in the use of paid home care by persons currently not receiving these services."  (p. 14)

[LTC Comment:  This "woodwork factor" is only one possible outcome of greater government financing of home care and assisted living.  Two additional outcomes, even greater in potential significance, are the effect on Medicaid estate planning and long-term care insurance.  If the government starts paying for levels of LTC that people want, i.e. home care and assisted living, instead of paying only for nursing home care which people don't want, expect the market for Medicaid estate planning (artificial impoverishment to qualify for Medicaid) to explode and the market for private long-term care insurance (individuals taking personal responsibility for LTC risk) to collapse.]

"Private long-term care insurance has been viewed as a possible means of reducing catastrophic financial risk for the elderly needing long-term care and relieving some of the financial burden currently falling on public long-term care programs.  Increases in private insurance may lower public expenditures but raise spending overall because insurance increases individuals' financial resources when they become disabled and allows the purchase of additional services."  (p. 14)

[LTC Comment:  The criticism of private LTC insurance implied in this statement is actually a benefit.  Unlike government financing of LTC which is constantly struggling to contain costs, private insurance allows individuals and their families to protect fully for the real risk of LTC by purchasing the level of protection they prefer.  The more people have private LTC insurance, the fewer rely on Medicaid and the more resources Medicaid has to spend on the genuinely needy.  In other words, it is not a bad thing to increase spending on long-term care.  Such increases are critical to providing access to quality care at the appropriate level when the aging baby boom generation needs help.  Private financing and insurance permit such increases, while government financing--as the Comptroller General's testimony confirms--is now and will remain forever severely constrained by fiscal and political considerations.]

"Further, many baby boomers continue to assume they will never need such coverage or mistakenly believe that Medicare or their own private health insurance will provide comprehensive coverage for the services they need.  If private long-term care insurance is expected to play a larger role in financing future generations' long-term care needs, consumers need to be better informed about the costs of long-term care, the likelihood that they may need these services, and the limits of coverage through public programs and private health insurance."  (pps. 14-15)

[LTC Comment:  Actually, the public is not nearly as uninformed or stupid as this quote assumes.  Most people don't know who pays for long-term care, nor do they care, because they know somebody must pay.  They don't see Alzheimer's patients dying in the streets.  Someone takes care of them, the public figures.  Of course, as explained above, the truth is that the government DOES PAY for the vast majority of formal, professional LTC services provided in the United States either directly through Medicaid and Medicare or indirectly through the Social Security income contributed by Medicaid recipients toward their cost of care.  The bitter irony is that the public understands LTC financing subconsciously better than many bureaucrats and other "experts" understand it consciously.  The tragedy is that the very same government programs that have anesthetized the public to the risk of long-term care, are failing now to provide adequate reimbursement and are driving our service delivery system into the ground.]