LTC Bullet: Long-Term Care Crisis Builds

Thursday, April 3, 2003


LTC Comment: We face a looming age wave, rampant nursing home and assisted living bankruptcies, and bursting government budgets, yet the public's asleep about long-term care risk and private LTC insurance struggles. Read a cogent explanation of this seeming paradox after the ***news***.

*** Thomas A. Scully, Administrator of the Centers for Medicare and Medicaid Services (formerly HCFA), wrote the following in a February 19, 2003 letter on Department of Health and Human Services stationery: "CMS is very interested in the findings of the Milliman/CLTCF study. We look forward to the information your research may provide, particularly as it involves public policy proposals in the Medicaid program and stimulation of the LTC insurance market." Read the prospectus for the study to which Administrator Scully refers at . Only two of the 12 sponsors needed to fund this critical research have so far been found. Please review the prospectus, bring it to the attention of decision makers in your company or organization, and contact Center for Long-Term Care Financing President Stephen Moses ( or 206-283-7036 ) as soon as possible to pledge support. Financial supporters of this research will participate in the design of the project and analysis of the results under the objective direction and scrutiny of Milliman USA, the national actuarial firm. ***

*** The Fifth Annual National LTC Forum, nicknamed "Yes, You Can," will convene May 4-6, 2003 at Caesar's Palace in Las Vegas. Center for Long-Term Care Financing President Steve Moses will participate in the "Opening Session: The Lack of True LTC Marketing" on May 6. Go to for details. The two-day session is designed for producers and distributors of LTC insurance who want an advanced education in marketing. Sixteen workshops and all meals, hospitality functions, cocktail receptions and entertainment are included in the registration fee. A CLTC Master Class, taught by Harley Gordon, precedes the conference. ***


The LTC Data Base #3-010--WSJ-Harris Poll on Who Should Pay for LTC and Drugs

DON'T MISS OUR "VIRTUAL VISITS" TO: The Society of Actuaries' LTC Insurance Conference at AND The 16th Annual LTC Insurance Conference at . You'll find our comparison of the conferences, session summaries, interviews and pictures. Enjoy.

If you already qualify for The Zone, you can click the following link, enter your user name and password, and go directly to the latest donor zone content and the archives: . If you do not already qualify for The Zone, mail your tax-deductible contribution of $150 or more to the Center for Long-Term Care Financing, 2212 Queen Anne Avenue North, #110, Seattle, WA 98109. Then email your preferred user name and password (up to 10 characters each). You can also contribute online by credit card or direct withdrawal at . ***


LTC Comment: Our thanks to The Heartland Institute and Managing Editor Conrad Meier for permission to republish the following article from the March 2003 issue of Health Care News. More on Heartland and HCN after the article.

"Long-term Care Crisis Builds"

Author: Stephen A. Moses
Published: The Heartland Institute 03/01/2003

"State governments face their worst fiscal crises in 50 years. The federal budget flipped from a triple-digit surplus to a triple-digit deficit. Medicaid, which accounts for 20 percent of state budgets and 7 percent of the federal budget, is a large part of the problem.

"Long-term care (LTC) expenditures, consisting of payments for home care and nursing home care, consume a quarter to a half of most states' Medicaid budgets, and the federal government pays 57 percent of all Medicaid costs. Nevertheless, punishingly low Medicaid and Medicare long-term care reimbursements have driven thousands of nursing homes and home health agencies into bankruptcy.

"Is this just the price of providing a long-term care safety net for the poor? Or have state and federal policies crowded out private financing alternatives and exploded long-term care costs unnecessarily? The answer may surprise you.

"Medicaid Is Welfare

"Medicaid is a means-tested public assistance program. It is welfare. People who need acute, emergency, or preventive health care must be dirt poor to qualify for Medicaid.

"For anyone who needs nursing home care, however, the eligibility rules are very different and highly generous. Despite the conventional wisdom that people must be poor to qualify for Medicaid nursing home benefits, income only disqualifies the top tier of seniors.

"In 30 'medically needy' states, people qualify if they cannot afford private nursing home care, which averages nearly $5,000 per month. In the remaining 'income cap' states, most people with monthly income in excess of the ostensible $1,635 limit [$1,656 as of 2003] can set up Miller income trusts and qualify immediately. As of 2003, married couples are allowed to keep up to an additional $2,267 per month in income for the healthy spouse at home while the ill spouse receives nursing home care paid for by Medicaid.

"Nor do assets interfere with Medicaid nursing home eligibility for most people. While Medicaid recipients are allowed only $2,000 in non-exempt assets, they can also retain a home and all contiguous property of unlimited value, a business including the capital and cash flow of unlimited value, one automobile of unlimited value (if used for the recipient's benefit), a burial trust fund of unlimited value, practically unlimited home furnishings, and many other exempt assets.

"For people with really large financial holdings, Medicaid planning attorneys can quickly shelter or divest their wealth to achieve artificial impoverishment by means of sophisticated legal techniques. These include special trusts, annuities, self-canceling installment notes, life care contracts, and many others. Married couples can shelter half their joint assets up to $90,660 in addition to all the other exemptions.

"The average American senior qualifies easily for Medicaid nursing home benefits without fancy Medicaid planning, and virtually anyone else can qualify by hiring a Medicaid planner. The legal fee to impoverish even the well-to-do so they can receive Medicaid nursing home benefits is roughly equal on average to the cost of one month in a nursing home as a private payer.

"The truth is that no one has to be poor to receive nursing home care paid for by Medicaid. All anyone needs is a cash flow problem. Consequently, many people who could afford home care or assisted living by liquidating real estate or other exempt assets end up in nursing homes on Medicaid because that is the cheapest alternative available to them and their families.

"Devastating Consequences

"The consequences to America's long-term care service delivery and financing system have been devastating. The percentage of nursing home costs paid by government (mostly Medicaid and Medicare) has been going up for the past 13 years (from 49.6 percent in 1988 to 61.5 percent in 2001, up 11.9 percent), while out-of-pocket costs have been declining (from 38.5 percent in 1988 to 27.2 percent in 2001, down 11.3 percent).

"Thus, the consumer's liability for nursing home costs has gone down precipitously, while the government's liability has increased dramatically. No wonder nursing homes are struggling financially. Their dependency on stingy government reimbursements is increasing while their more profitable private payers are disappearing. And no wonder people are not buying LTC insurance as eagerly as insurers would like them to. Only 7 percent of seniors and hardly any of the baby boomers have insured privately for long-term care.

"Unfortunately, these problems are even worse than the preceding data suggest. Over half of the so-called "out-of-pocket" costs reported by the Centers for Medicare and Medicaid Services are really just contributions toward their cost of care by people already covered by Medicaid!

"These are not out-of-pocket costs in terms of asset spend-down, but rather only income, most of which comes from Social Security benefits, another government program. Thus, although Medicaid pays less than half the cost of nursing home care (47.5 percent of the dollars in 2001), it covers 70 percent of all nursing home residents. Because people in nursing homes on Medicaid tend to be long-stayers, Medicaid pays something toward nearly 80 percent of all patient days.

"No wonder the public is not as worried about nursing home costs as LTC insurers think they should be. No wonder nursing homes are facing bankruptcy all around the United States, when so much of their revenue comes from Medicaid, often at reimbursement rates less than the actual cost of care.

"Bottom Line

"Well-intentioned but perversely counterproductive public policy has anesthetized most Americans to the risk and cost of long-term care. For nearly 40 years, they have been able to ignore the risk, avoid the premiums for private insurance, and expect Medicaid and Medicare to pay for their long-term care if and when it's needed.

"Unfortunately, that old system is falling apart as access to and quality of government-financed long-term care have collapsed over the past decade. Already now, and far more so in the future, access to quality long-term care at the most appropriate and desirable levels (home care or assisted living) will require an ability to pay privately.

"We desperately need a change in public policy incentives to encourage Americans to take the risk of long-term care seriously, to plan early, and to save, invest, or insure so they can pay privately when they need long-term care.

"Stephen A. Moses is president of the Center for Long-Term Care Financing in Seattle, Washington. He can be reached by email at, or by phone at 206/283-7036.

"For more information ... see "LTC Choice: A Simple, Cost-Free Solution to the Long-Term Care Financing Puzzle," published by the Center for Long-Term Care Financing in September 1998. The 37-page report is available through PolicyBot. Point your Web browser to , click on the PolicyBot icon, and search for document #11573."

[You can also find the "LTC Choice" report at ]

From the Heartland website at : The Heartland Institute is a genuinely independent source of research and commentary founded in Chicago, Illinois in 1984. It is not affiliated with any political party, business, or foundation. Its activities are tax-exempt under Section 501(c)(3) of the Internal Revenue Code. Heartland's mission is to help build social movements in support of ideas that empower people. Such ideas include parental choice in education, choice and personal responsibility in health care, market-based approaches to environmental protection, privatization of public services, and deregulation in areas where property rights and markets do a better job than government bureaucracies.

Health Care News is The Heartland Institute's national monthly outreach publication for free-market health care reform. Subscribe to the print edition at or read it online at .