LTC Bullet: Scully Has it Right, Almost
Tuesday, June 3, 2003
LTC Comment: CMS Administrator Tom Scully's stream-of-consciousness speaking style is like reading James Joyce: hard to follow but you figure there must be a goldmine in there somewhere. In Scully's case, there is, and we'll dig out a few nuggets for you from a recent speech, after the ***news***.
*** This Bullet is sponsored by Target Insurance Services and Claude Thau, who serve LTCI producers nationwide. They say "Target sells 7.5 percent of the 10-pay LTCI in the USA. Our brokers receive simple, proven turn-key executive carve-out presentations. Currently, many brokers also receive contact points at well-targeted associations nationwide. Contact Claude Thau at mailto:email@example.com or 800-999-3026, x2241 to see if there are opportunities in your area." Thanks so much, Target and Claude, for your generous support of the Center. Won't you help too? Please go to http://www.centerltc.org/support/sponsor_bullets.htm to sponsor an LTC Bullet. Find out how you can sponsor other Center activities (e.g., articles, speeches, conference exhibits) by contacting Amy Marohn-McDougall at 425-377-9500 or mailto:firstname.lastname@example.org . ***
*** Erratum: Marilee Driscoll, author of "LTC Bullet: Massachusetts’s Legislators Misguided on LTCI," which we published on May 29, reports that the following sentence in her article was in error: "The 2000 regulation did an about-face, permitting 'nursing home only' policies but not 'home health-care only' policies." The correct sentence should have said: "The 2000 regulations did an about-face, permitting 'nursing home only' policies as well as 'home health-care only' policies." Thanks to Marilee for correcting the mistake and to "one of your astute readers" for catching it. ***
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LTC BULLET: SCULLY HAS IT RIGHT, ALMOST
LTC Comment: Following below is an excerpt from a speech by CMS Administrator Thomas Scully to the Georgetown University Long-Term Care Financing Project's May 21, 2003 conference titled "The 21st Century Challenge: Providing and Paying for Long-Term Care." You can access videos and transcripts of each of this meeting's presentations at http://www.kaisernetwork.org/health_cast/hcast_index.cfm?display=detail&hc=869 . But don't bother. The whole day, except the last hour, was a boring rehash of long-term care financing oldthink. Then Scully came to the podium. He's a daring, insightful, shoot-from-the-hip, uniquely entertaining speaker, but . . . oh well, you'll see what we mean. Definitely try to read the transcript of his remarks below, but just in case you get lost or impatient, here's what we take from it.
1. Long-term care is expensive, will become more so, and is placing tremendous fiscal strain on Medicaid and Medicare.
2. Middle and upper class people routinely qualify for Medicaid nursing home benefits without spending down, often with the help of attorneys, and, whether you condone this practice or not, no one thinks it is the best way to provide long-term care for the elderly.
3. Most seniors own their homes and most of these own their homes free and clear. Aging Americans have a huge financial resource locked up in their home equity that could be liquefied by means of reverse mortgages to produce supplemental income to help them live richer lives.
4. Supplemental income from reverse mortgages could be used to purchase quality long-term care services in the private marketplace, thus preventing or delaying dependency on Medicaid nursing home care.
5. Alternatively, income from reverse mortgages could be used to purchase private long-term care insurance in cases where the individual is insurable medically, but the premium might otherwise be unaffordable.
So far, Administrator Scully's plan is right on the mark. But, here's where he falls short. He states that the reverse mortgage should be entirely voluntary and that it will not become a pre-condition for Medicaid eligibility. Of course, that proviso defeats the whole idea. Reverse mortgages have not become popular in the past for the simple reason that Medicaid exempts the home and all contiguous property regardless of value. If the home value is not at risk, why tap into it to pay privately for long-term care or LTC insurance? Of course, we among the LTC savvy know it still makes sense, because private-payers command better care in a wider range of care settings. But most people don't see that nuance, at least not in time. Their choice--usually made by adult heirs after a parent is mentally incapacitated--is between free or subsidized Medicaid nursing home care and full private-pay spend-down for anything else.
Scully and CMS are on the right track with their push to encourage home equity conversion. But unless and until it becomes a condition of eligibility, most people will ignore the opportunity until it's too late and take advantage of Medicaid's generous and elastic eligibility rules. Because Medicaid's ostensible estate recovery requirement is as easy to evade as eligibility is to obtain in the first place, the program remains inheritance insurance for boomer heirs instead of the LTC safety for the poor that it is supposed to be. For a "kinder and gentler" solution to the spend-down dilemma, see "LTC Choice: A Simple, Cost-Free Solution to the Long-Term Care Financing Puzzle" at http://www.centerltc.com/pubs/CLTCFReport.pdf . In the meantime, here is Scully in his own inimitable words.
"Perspectives from the Centers for Medicare and Medicaid Services"
Administrator Tom Scully of the Centers for Medicare and Medicaid Services
Source: The Henry Kaiser Foundation website at http://www.kaisernetwork.org/health_cast/hcast_index.cfm?display=detail&hc=869 .
Note that every page of the transcript has the following caveat in a footnote: "kaisernetwork.org makes every effort to ensure the accuracy of written transcripts, but due to the nature of transcribing recorded material and the deadlines involved, they may contain errors or incomplete content. We apologize for any inaccuracies."
Mr. Tom Scully: ". . . we have an enormous population of nursing homes, middle class and upper class people in nursing homes and obviously as you all know there's a huge debate about what to do about that in a spend down and so we have half the lawyers in the United States that I know of that are involved in the long-term care spend down business which is fine and that's happening in many states and you can say whether it's good or bad but I really believe that most people don't want to be in nursing homes now if that's the only option that they have to fund their long-term care they're going to transfer their assets and go in a nursing home but I don't think that's what most people want and I think we (unintelligible) the fact that we get 70% of the nursing home (unintelligible) now paid for by Medicaid that's a pretty shocking trend and the Medicaid program is now going to be about $320 billion dollars next year and the fastest growing part of long-term care, it's the biggest intangible for the states that they can't predict or control is nursing home care and some of those people are low income and they really, really need it and some of those people probably shouldn't be in that category but if you're trying to take care of the disabled and you're trying to take care of our women and kids and then you look at where the Medicaid population explosion is and it's really in long-term care.
"I think realistically we're going to change that and then the states will say that you can't spend down anymore? No. I know but I do think there are a lot of other ways to take the pressure off which gets to my primary idea which I'm pushing which is that I believe that a lot of people have access in their home that can be tapped and I think that when you look into reverse mortgages and what assets people have, we have 70% of the people in the United States that are seniors that have a paid off mortgage, the average national is about $70,000 and many people have assets of over $100,000 dollars and that's not going to solve all of their problems but what frequently happens is they transfer that to their kids and they spend down on the Medicaid. If they had a clear, easy, understandable, non-threatening way where they could get a reverse mortgage so maybe some of you know that (unintelligible) exist that they have that cash and equity in their house so that they don't have to pay another penny so they don't have to be scared of losing their house and draw on that to pay for home healthcare as some kind of long-term care insurance package a lot of people would choose that. I don't think we should force them to do it but I can tell you that I'm going through that right now with my mother and I certainly can tell you that if you're looking to get into long-term care and you want to stay at home that's a very good option. I don't think it should be mandatory but we have an awful lot of people who take the assets in their house and they transfer it to their kids then they go on the Medicaid and I don't that's a good - I think we should at least give them the option and give them the (unintelligible) choice of that and most of the time for seniors it's an incredibly confusing thing, they don't trust banks, they don't trust anybody, you tell them to sign a note on my house and I guarantee you don't have to pay another penny and we'll finance your long-term care and don't worry about it, most seniors will think - they're just not going to trust you which is why it's never happened and the (unintelligible) program is not exactly structured like that.
"I believe that if we structured a program where we actually made it like student loans, we could walk into (unintelligible) bank or some other bank and have a clear Medicare sponsored structured four or five packages that you want to put up 60% of the equity in your house and you want to put in long-term care package now. There would be an awful lot of people who would choose that because they'd much rather stay at home, they'd much rather get some type of home health insurance policy to stay at home and get coverage and you'd take a lot of pressure off the Medicaid system but most people don't understand that. Most seniors are scared of banks, they're scared of these problems and I believe that if you take the HUD program for reverse mortgages and tie it to together with the trust that people have in Medicare and say look here's some clear choices, you're not going to lose your house, you're not going to have to pay any more money but you can take this to stay at home or go to assisted living and get some other options and you'll take an enormous amount of pressure for the next 25 years off the Medicaid program and start putting the resources where the resources should be, the disabled, low income kids and families and people that really truly need it and even (unintelligible) these (unintelligible) policies and still need to go after four or five years into a Medicaid nursing home but if you're looking at really where the pressure's coming from the pressure's coming from middle income people in nursing homes and it's not making it easy for the states and it's (unintelligible) creating (unintelligible) problems in the disabled community and more problems for S-CHIP and basically you know basic Medicaid kids and families and I think if you're looking for places to find new sources of financing, give people choices I wouldn't advocate to start changing the spend down rates but if you're trying to get people to find new resources and find new places to finance this coverage I don't believe and I'll just say how many of the people in this audience have long-term care insurance? That's probably about three times - probably ten times the national rate, there's probably about 15% of the people in this room but no matter what you do I just think people change employers too much, structurally we're not set up for people to have portable long-term care insurance, a lot of people are not going to buy it at this point and hopefully we can change that over the years but I think it's going to be a long time before we get these 20 and 25 year olds buying long-term care insurance the way they buy health insurance or life insurance. So maybe we're going to start thinking about how do they get long-term care insurance when they're 65 or 70. My mother bought long-term care insurance when you're 71 that's counter intuitive you shouldn't be buying your long-term care insurance when you're 71 but I think if you're looking for a way to finance this (unintelligible) in a large way when people pay off their mortgages their entire life and they get to be 70 what's their primary asset? They're primary asset is the equity in their house and you know my mom paid $17,000 bucks for her house in 1954, she's lived there ever since and she doesn't think of it as an asset - I don't know what it's worth now but it's probably worth about $200,000 dollars and she never thinks of that in assets to pay off her - to pay for long-term care and it should be you know she was and there's no senior in the world that would want to sign a second mortgage to pay more money but if you said you could put up your house, you'll never lose it, you're greedy kid, me, is not going to get the assets that you can draw down to pay for your long-term care costs then that's a very viable option for a lot of people and I think it would work and hopefully we can get a program between HUD and HHS to come up with some easy structured, easily understandable options to do this and now in fairness I shouldn't take credit for this idea because it's not my idea it's actually NCOA's idea and somebody in here, I'm sure there's some of them and the AARP but I think it's a good idea and I've been pushing Secretary Thompson to do it and I think he's working - we're working with HUD to try and pull - to push this idea and I think in the long run of all the options that we're looking at and things that we can do and we can argue about Medicaid whether we should have higher (unintelligible) or lower (unintelligible) or different rules forever taking the pressure off from the places where Medicaid was never relied on to work I think is a critical ingredient in the future, moving forward and then providing long-term care to the people that truly need it and so the enormous population that we see coming our way.
"Anyway that's the quick - I had a long speech and I didn't look at it so that's a good thing. Very lucky for all of you guys but again this is not a front burner project for CMS, it's not in my day to day job description but I just think structurally the pressures we're going to have in this area are huge and the pressures on Medicaid are huge and I think if we look at it right now and if you look where the governors are cutting services, they're cutting people off the Medicaid rolls, families and kids because long-term care population is not something that they're really able to restrict or cut and it's one big finite thought and the governors are up for some tough choices as are we and I just think if you're going to put the money where I think most people think it should be going, disabled, kids and families and truly low income seniors you need to find ways to take pressure off that because you can't have 13%, 14% inflation forever. Well did I wear you out? Was that enough? Hey all right. It's never a good thing when you're (unintelligible) start generating (unintelligible) [laughter]."