LTC Bullet: Index of Uninsurability Needs Adjustment

Tuesday, August 12, 2003

Phoenix, AZ--

LTC Comment: A long-term care "index of uninsurability" published recently concludes "85 percent in America uninsured against long-term care risk," but if that's true and LTC risks and costs are catastrophic, why aren't more people insured? More after the ***news.***

*** The Center for Long-Term Care Financing is taking a "Summer Sabbatical" for staff vacations and organizational "house cleaning." We will not publish LTC Bullets, LTC E-Alerts, LTC Readers, or LTC Data Updates from August 18 through September 19, 2003. In the meantime, please do use this break from the usual reading to have a closer look at the Center's website: . You'll find our major reports, copies of many published articles, verbatim transcripts of speeches, details on the Center's popular LTC Graduate Seminar, archives by date and subject of all 460 LTC Bullets published so far, archives of the E-Alerts, Readers and Data Updates (if you're a donor), and much, much more. If you need to reach Center staff, don't hesitate to contact Center President Steve Moses at 206-283-7036 or , Executive Director Amy McDougall at 425-377-9500 or , or Administrative Coordinator Damon Moses at 206-283-7036 or . See you in the Fall. ***

*** Bullets readers and Center supporters often contact us to ask "What can I do locally?" People really want to help discourage the abuse of Medicaid planning and encourage responsible LTC planning. Here's an idea. Romeo Raabe, who is an agent, trainer, and author, in Green Bay, Wisconsin, wants to "form a coalition and start writing letters to the editors of various state newspapers." Mr. Raabe was instrumental in working with state legislators in Wisconsin to discourage the authorization of insurance continuing education credits for a course on artificial self-impoverishment to qualify for Medicaid. The state legislators encouraged him to get the word out about Medicaid planning to editors of local newspapers. Raabe tells us he'd like to help coordinate such an initiative with others around the country who share his concerns. If you're interested in such an initiative, contact Romeo Raabe at or (920) 884-9606. (Mr. Raabe wrote the text for "LTC Bullet: Options for the LTC Uninsurable," published Thursday, May 22, 2003, which is available at .) ***

*** LATEST DONOR-ONLY ZONE CONTENT: Here's the latest Zone content followed by instructions on how to subscribe.

LTC E-Alert #3-049--The Art of LTC
(The old saw that "art is long and time is fleeting" was never so apt.)

The LTC Reader #3-036--CBO Warns Cost of Senior Drug Benefit Could Explode
(The proposed Medicare prescription drug benefit has political momentum even though CBO says it could cost over $1 trillion--hundreds of times the cost of above-the-line LTCI tax deductibility.)

The LTC Data Update #3-021--MetLife vs. GE: Battle of the LTC Cost Surveys
(This Data Update contains summaries of and links to the latest surveys on nursing home and home health costs across the country.)

Don't miss our "virtual visits" to major LTC industry conferences in The Zone. You'll find our comparison of the conferences, session summaries, interviews and pictures at .

Individual donors of $150 or more and corporate donors to the Center for Long-Term Care Financing receive our daily email LTC Bullets, LTC E-Alerts, LTC Readers, and LTC Data Updates for a full year. You'll also get access to the donor-only zone where these publications are archived along with other donor-only features. 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 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: Following immediately below is a press release from the "Long-Term Care Financing Strategy Group" (LTCFSG) in Washington, DC. It describes an index of uninsurability which concludes that only 15 percent of Americans are insured--either publicly or privately--for long-term care. We congratulate the LTCFSG for a creative contribution toward understanding and solving our country's long-term care service delivery and financing problem. But if long-term care is such a huge risk (nine percent probability after age 65 of a five-year or longer stay in an LTC facility averaging $35,000 to $85,000 per year), then how is it that so few people have been motivated to insure privately against this risk?

To explain the puzzle, we offer the second item below: an article titled "So What if Government Pays for Most Long-Term Care?," by Stephen Moses, which is currently one of the two headline articles on's LTC/Medicare topic page: .

The reason the "index of uninsurability" appears to show that the vast majority of all Americans are uninsured for long-term care is that it does not take into account the fact that most people end up receiving their long-term care funded entirely or heavily subsidized by Medicaid or Medicare. Although most Americans are not currently receiving Medicaid benefits, for example, Medicaid ends up paying for nearly 80 percent of all patient days in nursing homes. Most people who own private long-term care insurance are not currently in claim either, but they are covered because their policies will pay when benefits are triggered. Applying the same reasoning to Medicaid will lead to a conclusion that the vast majority of Americans ARE covered for long-term care even though they do not know it or think about it. The reality that government pays for most LTC in the U.S. enables the public's denial about the need to insure for long-term care. That's the real reason most people do not seek private insurance protection for long-term care.

Read both of the items below, reach your own conclusions, and let us know what you think.



For Immediate Release
Sunday, August 10, 2003
Media Contact:

Bob Blancato
Matz, Blancato & Associates

Debra J. Caruso
DJC Communications


A new index released today indicates that more than eight out of every ten Americans over the age of 45 (85 percent) are unprotected against the costs of long-term care by virtue of having neither public nor private insurance coverage.

The Index of Long-Term Care Uninsured, produced by the Long-Term Care Financing Strategy Group of Washington D.C., also revealed the following:

* The total number of uninsured for long-term care is 82 million.
* 89 percent of those between 45 and 64 are uninsured for long-term care.
* For those 65 and over, 77 percent are uninsured for long-term care.

The Index is based on a concept developed by John A. Cutler, J.D., a long-term care policy expert, with research analysis conducted by Marc Cohen Ph.D., President, LifePlans Inc. The Index was compiled using Census data as well as data compiled for use by the Medicaid program.

"It is important that we begin to address the nation's long term care financing crisis now, before the baby boomers reach retirement age and need care in unprecedented numbers," noted Joyce Ruddock, Vice President, Long-Term Care, MetLife, and the founder of the LTC Financing Strategy Group. "Ultimately we will need a public/private approach involving Medicaid and other public programs, the tax code, long-term care insurance, support for family caregivers, and an education campaign encouraging individuals to take personal responsibility for long-term care needs."

Ruddock continued, "In the Index, one finding in particular stands out. It shows that 16 percent of those 65 and over who are at suitable income levels now have private long-term care insurance, demonstrating that education about Medicare and the fact that it does not cover long-term care is having an impact."

The Long-Term Care Financing Strategy Group is a non-profit, non-partisan think tank comprised of academics, researchers, policy analysts, and individuals representing aging organizations, providers, insurers and others. It brings together public and private perspectives, and provides a forum to address long-term care financing issues and offer solutions.

Long-term care is defined as a wide range of supportive and health services for persons who have lost the capacity for self-care due to illness or frailty. Need for long-term care is measured by how much assistance is needed with Activities of Daily Living (ADLs) such as eating, dressing, bathing, toileting and transferring from a bed to a chair. According to the Congressional Research Service, in the year 2000 national spending of all forms for long-term care was $137 billion. About 9 million persons over age 18 receive long-term care assistance.



"So What if Government Pays for Most Long-Term Care?" by Stephen A. Moses,,

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% in 1988 to 61.5% in 2001, up 11.9%) while out-of-pocket costs have been declining (from 38.5% in 1988 to 27.2% in 2001, down 11.3%). Source:

So what? The consumer's liability for nursing home costs has gone down precipitously, while the government's liability has increased dramatically. No wonder people are not as eager to buy LTC insurance as insurers would like them to be! No wonder nursing homes are struggling financially--their dependency on stingy government reimbursements is increasing while their more profitable private payers are disappearing.

Unfortunately, these problems are even worse than the preceding data suggest. Over half of the so-called "out-of-pocket" costs reported by CMS 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% 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.

So what? Medicaid pays in full or subsidizes almost four-fifths of all nursing home patient days and if it pays even one dollar per month (with the rest contributed from the recipient's income) the nursing home receives Medicaid's dismally low reimbursement rate. 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 cost of providing the care.

Don't be fooled by the 7.6% of nursing home costs that CMS reports as having been paid by "private health insurance." They derive this number by subtracting all the known costs from 100% and reporting the remainder as private insurance. No one knows how much private health insurance really pays toward nursing home care, because most long-term care insurance pays beneficiaries, not nursing homes. Thus, a large proportion of insurance payments for nursing home care get reported as if they were "out-of-pocket" payments because private payers write the checks to the nursing home and are reimbursed by their LTC insurance policies.

How does all this affect assisted living facilities? ALFs are 90% private pay and they cost an average of $25,000 to $30,000 per year. Many people who could afford assisted living by spending down their illiquid wealth choose instead to take advantage of Medicaid nursing home benefits. Medicaid exempts one home and all contiguous property, one business, and one automobile, all of unlimited value, plus many other non-countable assets, not to mention sophisticated asset sheltering techniques marketed by Medicaid planning attorneys. Income rarely interferes with Medicaid nursing home eligibility unless such income far exceeds the cost of private nursing home care.

So what? For most people, Medicaid nursing home benefits are easy to obtain without spending down assets significantly and Medicaid's income contribution requirement is usually much less expensive than paying the full cost of assisted living. No wonder ALFs are struggling to attract enough private payers to be profitable. No wonder people are not as eager to buy LTC insurance as insurers would like them to be.

The situation with home health care financing is very similar to nursing home financing. According to CMS, America spent $33.2 billion on home care in 2001. Medicare and Medicaid paid 51.5% of this total and private insurance paid 21.1%. Only 19.0% of home health care costs were paid out of pocket. The remainder came from several small public and private financing sources. Data source:

So what? Only one out of every five dollars spent on home health care comes out of the pockets of patients. No wonder they do not feel the sense of urgency about this risk that long-term care insurers think they should. No wonder "Sizable reductions in Medicare payments between 1997 and 1999 led approximately 3,500 agencies to merge, withdraw from Medicare, or close entirely."

Bottom line, people only buy insurance against real financial risk. As long as they can ignore the risk, avoid the premiums, and get government to pay for their long-term care when and if such care is needed, they will remain in "denial" about the need for LTC insurance. As long as Medicaid and Medicare are paying for a huge proportion of all nursing home and home health care costs while out-of-pocket expenditures remain only nominal, nursing homes and home health agencies will continue starved for financial oxygen.

The solution is simple. For the answer, read our report titled "LTC Choice: A Simple, Cost-Free Solution to the Long-Term Care Financing Puzzle" at .

Stephen A. Moses is president of the Center for Long-Term Care Financing in Seattle, WA. Reach him at or 206-283-7036. Or visit . The Center for Long-Term Care Financing is a charitable, nonprofit think tank and public policy organization with the mission of ensuring quality long-term care for all Americans. Subscribe to the Center's free online newsletter "LTC Bullets" by emailing your request to . Attend the Center's full-day "LTC Graduate Seminar."