LTC Bullet: How Can Private LTC Insurance Help Save Medicaid?

Wednesday, June 25, 2003


LTC Comment: As Medicaid buckles, people and businesses dependent on the program's critical long-term care benefit are suffering. How could private LTC insurance take more of the fiscal burden off Medicaid and Medicare in the future? More after the ***news***.

*** Today's Bullet is sponsored by Marilee Driscoll, CLU, CSA, the nationally recognized LTC speaker, consultant and author. She says "generate a buzz at your next agent meeting or prospecting event by bringing in the author of the 'Complete Idiot's Guide to Long-term Care Planning.'" Contact Marilee at (508) 830-9975, or e-mail to and subscribe to her free monthly newsletter at . Thanks, Marilee, for your generous support of the Center. Won't you help too? Please go to 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 . ***

*** Claude Thau, President of Thau, Inc. and Chairman of the Board of Directors of the Center for Long-Term Care Financing, appeared on Jacqueline Marcell's "Coping with Caregiving" radio show last Saturday. You can listen to the interview at . Just find Segment Number 1, Show Date 6/21/03, and then "click here to listen." Claude explains the tremendous service Medicaid provides in financing long-term care and proposes a public policy change to save Medicaid by increasing private financing sources. We featured Claude's proposal, which the Center for Long-Term Care Financing endorses as a very promising approach, in "LTC Bullet--How to Save Medicaid LTC" published October 24, 2002: . ***

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LTC COMMENT: It's no longer news that most states are in fiscal crisis or that funding Medicaid, especially the program's LTC component, is a big part of the problem. We bring you today some excerpts from and a link to a new "Lewin Group" study that drives home exactly how desperate the problem is already and how much worse it may become. Next, we provide some hard data about the impact of Medicaid on the nursing home industry in one fairly typical state--Wisconsin. Then, we explain why private financing, especially home equity conversion and private LTC insurance, does not do more to prevent excessive dependency on Medicaid's LTC benefit. Finally, we suggest what needs to be done to increase the role of private financing and relieve the LTC burden on Medicaid.

The Lewin Group, "The Medicaid Dilemma: Shrinking Budgets, Difficult Choices," TrendWatch, Vol. 5, No. 2, June 2003, .

"States currently are grappling with their worst budget crises since World War II. Over the last three years, states have had to close budget gaps approaching $200 billion." (p. 1)

"Medicaid is a prime target for budget cuts. Between 1990 and 2002, state Medicaid spending (excluding the federal match) grew from $32 billion to $108 billion. The program now accounts for 15 percent of total state spending--second in size only to education." (p. 1)

"In FY 2003, Medicaid spending was estimated at $286 billion from all funding sources--more than Medicare at $279 billion--with about 57 percent funded by the federal government. According to the Congressional Budget Office, Medicaid spending is projected to grow about nine percent annually for the remainder of the decade."

"In 2002, Medicaid covered 51 million individuals, overtaking Medicare as the nation's largest public insurance program, both in terms of beneficiaries and spending." (p. 2)

". . . the elderly and disabled comprise only a quarter of beneficiaries but account for approximately 70 percent of spending." (p. 2)

"Recently, Medicaid costs have been growing rapidly; program spending grew by 13 percent in 2002. Key drivers of growth include increased caseloads--due to eligibility expansions and outreach efforts--and the rising costs of LONG-TERM CARE and prescription drugs." (p. 2, emphasis added)

"Close to two-thirds of Medicaid spending is for optional services and/or populations [including long-term care for the elderly]." (p. 3)

"When faced with a budget crisis, states may initially look to draw down reserve fund balances or shift more Medicaid cost to the federal government before cutting benefits or eligibility. . . . States may then decide to reduce payments to hospitals and other providers [e.g. nursing homes] or eliminate planned payment increases in order to reduce Medicaid spending. However, rate cuts are very unpopular, because in many areas, providers already are paid less than costs of care for Medicaid patients. . . . The choices of last resort usually are cutting covered benefits and limiting eligibility." (p. 5)

"Many fear that Medicaid cuts, in whatever form they take, will adversely affect access and coverage for the nation's most vulnerable citizens. According to the Center for Budget and Policy Priorities, up to 1.7 million Americans could lose coverage entirely under proposals recently signed or under consideration in state legislatures." (p. 6)

This "TrendWatch" report contains numerous charts and graphs showing, for example: plummeting state tax revenues; growing state budget deficits; steady growth in Medicaid enrollment; disproportionate expenditures for the elderly/disabled and nursing home care; lists of mandatory and optional Medicaid eligibility groups; a list of options states are considering to cut Medicaid costs; and numbers of state residents who lost coverage in 2003.

LTC COMMENT: The foregoing Lewin report documents the crisis in Medicaid starkly, but it does not focus directly on long-term care. We thank the Wisconsin Association of Homes and Services for the Aging, Inc. and its Executive Director John Sauer for the following facts regarding the impact of Medicaid on nursing homes in Wisconsin. Most other states face conditions that are as bad or worse.

* 24 of the state's 411 licensed nursing homes (5.8%) have closed since 1999, including 13 facilities in Milwaukee, Waukesha or Racine Counties.

* 52 facilities have been in receivership since 1999; 11 remain in receivership. As many as 29 other facilities have entered into a downsizing agreement with the Department of Health and Family Services (DHFS) [the Medicaid agency].

* An internal review of 379 facilities conducted late last year by the DHFS found that 193 of those facilities, or 50.7%, are at "financial risk": 138 facilities are operating at a net loss, 111 facilities are operating with negative working capital, and 57 facilities have both a net loss and negative working capital.

What's Wrong?

* According to the Wisconsin Legislative Audit Bureau, only 9.9% of Wisconsin's nursing facilities were fully reimbursed for the costs they incurred to care for their Medicaid nursing home resident/recipients in 2001.

* 69.25% of Wisconsin's 37,506 nursing home residents are Medicaid recipients.

* The average Medicaid-certified nursing facility in Wisconsin today loses $13.72 each day for every Medicaid resident it serves. For a 100-bed facility with a Medicaid census at the 69.25% statewide average, that results in an annual loss of approximately $350,000 for that facility to care for its Medicaid residents.

* The average per diem Medicaid rate paid to a Wisconsin nursing home in 2001 (the latest available data) was $106/day. A $106/day rate for 24-hour care equates to a payment rate of just under $4.42 per hour, which is less than most babysitters receive.

* The difference between Medicaid costs incurred by Wisconsin nursing homes in 2000-01 and Medicaid reimbursement received to pay for those incurred costs was $122.8 million.

* Many facilities attempt to subsidize their Medicaid losses by maximizing their Medicare revenues. However, Medicare payments to Wisconsin skilled nursing facilities (SNF) were reduced by $38.8 million on October 1, 2002, when a 9.9% nationwide cut in Medicare reimbursement went into effect. The result: the average Wisconsin SNF will lose $30.89 per day for each Medicare resident it serves. Maximizing Medicare revenues to subsidize Medicaid losses is a thing of the past.

* The average rate charged to private pay nursing home residents is $44/day higher, or a 41.5%, than the average Medicaid rate. Stated differently, a private pay resident pays an average of $1,320/month more for their care than a facility receives in government reimbursement for the care of a Medicaid resident. It is the private pay nursing home resident who truly subsidizes Medicaid underfunding.

The Dilemma

There is not a provider, consumer, family member or elected official in Wisconsin who does not advocate for improvement in the quality of care provided Wisconsin's nursing home residents and the need for increased staffing and wage levels of the dedicated caregivers who serve those residents. However, the deep-felt public passion for those objectives has never been mirrored with a corresponding public commitment of resources to achieve those goals. Until the needed resources are provided to enable those laudable objectives to be achieved, the fate and well-being of over a quarter of a million Wisconsin nursing home residents, caregivers and their families will continue to hang in the balance.

LTC COMMENT: Here's the problem in a nutshell: Medicaid is cracking under the weight of too many recipients and too much cost. It cannot pay nursing homes enough for them to provide access to quality care and still remain financially viable. Financing sources that used to make up the Medicaid shortfall for nursing homes--cost shifting from private payers and relatively generous Medicare reimbursements--are disappearing. Medicaid can't cut costs by moving people out of nursing homes into cheaper home and community-based care, because people come out of the wood work to seek such services when they are offered, Medicaid planning explodes, private LTC financing declines, and Medicaid costs balloon.

What's the solution? First, recognize that Medicaid is trying to do too much for too many. Conventional wisdom to the contrary notwithstanding, Medicaid LTC eligibility does not require impoverishment. Anyone with an income less than the cost of private nursing home care qualifies. Assets are no problem if held in exempt form such as a home, business, automobile, prepaid burial trust fund, etc. Of course, even people who exceed Medicaid's already generous income and asset eligibility limits, can consult Medicaid planning attorneys and qualify quickly by transferring or sheltering their excess wealth. The simple solution is to eliminate the exemptions of illiquid assets and require a reverse mortgage before granting Medicaid LTC eligibility. That would immediately pump much-needed private financing into all levels of the LTC service delivery system. Longer-term, having a real spend down liability would lead the aging and their boomer heirs, to purchase private LTC insurance in much greater numbers. In time, LTC insurance would become a much larger payor for nursing home and home health services. Medicaid, if serving fewer genuinely needy recipients as a result of more sensible eligibility controls, could pay more adequately for a broader range of higher quality LTC services while still controlling costs.

This solution has been overlooked heretofore because of its political sensitivity. No politician or public administrator wants to tell the public that benefits they've received in the past will no longer be there in the future. Unfortunately, however, our worn out, welfare-financed, nursing home based long-term care system is collapsing. The measures states are already taking to cut costs, such as eliminating critical services and coverage groups, are far more draconian and politically sensitive than the alternative, i.e., to require seniors with substantial illiquid assets to draw down their home equity before qualifying for Medicaid. Inasmuch as reverse mortgages are structured to permit families to remain in their homes even if their equity is drawn down completely, the negative financial impact would fall only on heirs. Thus, the secret to saving Medicaid and unleashing the potential of private LTC financing, is to change the program from the inheritance insurance it has become into the LTC safety net for the poor that it was always intended to be.

The Center for Long-Term Care Financing works with state Medicaid programs to help them target their resources more effectively to the needy and to encourage private LTC financing through home equity conversion and LTC insurance. Several states would like to bring the Center in to conduct projects and provide consulting along those lines. We're looking LTC insurers, providers, or others who would be willing to sponsor such work and provide financial support. In each participating state, the Center will conduct a study, publish a report with detailed recommendations, and conduct a statewide conference of key LTC stakeholder groups to hammer home the policy changes necessary to save Medicaid and unleash the potential of private LTC insurance. Please contact Center for Long-Term Care Financing President Stephen Moses at 206-283-7036 or to explore the possibilities.