LTC Bullet--Changing LTC Public Policy: Why-What-When?
Wednesday, February 18, 2004
LTC Comment: Why is long-term care service delivery and financing such a mess and when is the Administration and Congress going to do something about it? More after the *news.*
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The LTC Reader #4-007-- Medical Liability Crisis Threatens Medical and Long-Term Care (Growing liability crisis emphasizes need for more LTCi and HEC.)
The LTC Reader #4-008--BLS Report Gives Different, Positive Perspective on LTCI (BLS gives update and statistics on the group long-term care insurance market.)
LTC E-Alert #4-010--Access to and Quality of LTC Depend on Ability to Pay Privately (Boomers high expectations for top notch LTC will require insurance, savings, or home equity.)
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LTC BULLET--CHANGING LTC PUBLIC POLICY: WHY-WHAT-WHEN?
LTC Comment: Following is a speech by Center President Steve Moses delivered at the Fourth Annual Society of Actuaries Long-Term Care Insurance Conference in Houston, Texas on February 10, 2004. Steve's assignment was to make the case for more private financing of long-term care. He shared the podium with panel moderator Winthrop Cashdollar, Executive Director for DI & LTCI at AAHP-HIAA, and Dr. Judith Feder, Professor and Dean of Public Policy at Georgetown University. Dr. Feder made the case for heavier public financing of long-term care. You may also access these remarks by Steve Moses on the Center for Long-Term Care Financing's website at http://www.centerltc.com/speakers/center_speeches.htm .
CHANGING LTC PUBLIC POLICY: WHY-WHAT-WHEN?
Stephen A. Moses
Good morning, ladies and gentlemen
My task today is to suggest answers to some weighty questions that are on everyone's mind.
In order to answer those questions convincingly, I'm going first to explain what's wrong with the current publicly financed long-term care system and make the case for more private financing.
I'll address the specific questions posed in the flyer for this program later. In the meantime, let's tackle the really big questions that confront us. We have to answer these questions first before we can predict or prescribe specific public policy changes.
What's wrong with long-term care service delivery and financing in the US today? How has public policy contributed to these problems? How can we change public policy to improve the long-term care system? What's holding back the needed changes? And when can we expect Congress and the President to act?
So, first of all, what's wrong with long-term care service delivery and financing in the US today? Plenty.
Nursing homes are in dire straits. At one point, 22 percent of all nursing home beds in the country were in bankrupt facilities.
Assisted living facilities are filling too slowly to be profitable.
America's home and community based services infrastructure is underdeveloped and starved for financial oxygen.
Debt and equity capital to build, operate and maintain long-term care facilities and services are severely limited.
Staff shortages have become severe at all levels of long-term care, especially for hands-on custodial caregivers such as nurse's aides.
Care quality is a serious concern at all levels of care.
Tort liability is enormous, especially for large nursing home and assisted living companies. Law firms specialize in boilerplate malpractice suits.
Consequently, liability insurance premiums have skyrocketed for long-term care providers leaving many self-insured or unprotected altogether.
Most seniors would rather get care at home and in the community, but our long-term care system still has a strong institutional, or nursing-home, bias.
Medicaid is the primary payor of long-term care, but it has a dismal reputation for problems of access, quality, inadequate reimbursement, institutional bias and discrimination.
Medicare cutbacks have contributed to massive bankruptcies in the nursing home and home health industries.
Few people can afford to pay privately for expensive professional long-term care, yet market penetration for long-term care insurance remains low and sales are declining.
What a mess! And the Age Wave of Baby Boomers has not yet begun to crest, much less crash upon us.
If you think we've got problems now, just wait until the generation of "sex, drugs and rock & roll" starts rocking and rolling into long-term care!
So, that brings us to question number 2. How has public policy contributed to these problems?
Conventional wisdom is that long-term care expenses devastate families all across the country, forcing them into impoverishment, and thus overloading public financing programs like Medicaid and Medicare.
Therefore, the argument goes, we must increase government financing for long-term care to serve more people and to offer more desirable services, such as home and community-based care, for everyone.
Alas, the truth is diametrically opposite to the conventional wisdom and therein lies the difficulty.
Trying to solve the problems in long-term care by adding more government financing is like trying to put out a fire by dousing it with gasoline.
When it comes to long-term care, government is the problem, not the solution.
There is in fact no empirical evidence of widespread catastrophic spend-down for long-term care.
Three dozen "spend-down" studies in the late 1980s and early '90s showed that only 15 to 25 percent of nursing home residents even began private pay and converted to Medicaid.
As small as these spend-down percentages are, they include everyone who used artificial self-impoverishment to qualify for Medicaid, not just those who spent down the old-fashioned way by writing big checks.
If people are not spending down their life savings for long-term care, then who is paying for these expensive services?
In a word, government. Here are the latest facts from the Centers for Medicare and Medicaid Services.
In 2002, America spent $103.2 billion on nursing home care:
Together, Medicaid and Medicare paid 64 percent, almost two-thirds of this total. That's up from less than half in 1988.
On the other hand, so-called "out-of-pocket costs" accounted for only 25 percent of nursing home expenditures in 2002, down from 39 percent in 1988.
So the share of nursing home care paid by government has gone way up, whereas the share paid out-of-pocket has gone way down over the past decade and a half.
But here's the kicker: half or more of what CMS reports as out-of-pocket costs is really just spend-through of Social Security income of people who are already on Medicaid!
Bottom line: the vast majority, upwards of 85 to 90 percent of all nursing home payments in the US come directly or indirectly from government programs or from personal income, not assets.
No wonder people are not worried about alleged catastrophic long-term care costs. No wonder they're in denial. No wonder they don't buy insurance against a risk they correctly perceive does not exist!
The same is true for professional home health care. America spent $36.1 billion on home care in 2002, but only one dollar in five came out of pocket. The rest was paid by Medicaid, Medicare or private insurance, and the private insurance was mostly health insurance, not LTC insurance.
How can this be true? How is it that the government pays for the vast majority of all long-term care?
Simple, Medicare has no means test and Medicaid's means test is (a) generous to begin with, and (b) extremely elastic when stretched by legal experts.
Without going into details, Medicaid does not require impoverishment, but only a cash flow problem.
It does not matter how much income you have as long if your medical expenses, including private nursing home care, consume most of your income.
Families can retain unlimited assets such as a home and all contiguous property, a business including the capital and cash flow, one automobile, home furnishings, term life insurance, etc.
Of course, with the help of professional advisors, people can establish special trusts, annuities, life care contracts or other methods to qualify for Medicaid without spending down.
But, so called Medicaid planning is just the tip of the iceberg. Most people qualify easily without having to use sophisticated legal dodges.
So what does all this mean? What is the relationship between past and current public policy and the severe problems I described earlier in our long-term care service delivery and financing system?
By paying for most professional long-term care for nearly 40 years, well-intentioned government policy has directly caused most of our long-term care problems.
Heavy government financing has anesthetized the public to the risk of long-term care, resulting in excessive Medicaid dependency and low demand for private long-term care insurance.
Government financing has paid mostly for nursing home care, resulting in the long-term care system's institutional bias.
Efforts to convert Medicaid to home and community-based care have been stymied by induced demand (the woodwork factor) and inadequate government resources.
Low reimbursements from Medicaid have caused staff shortages and quality problems. BDO Seidman, the accounting and consulting firm, recently reported that Medicaid reimbursed nursing homes $4.1 billion short of the cost of providing the care in 2001.
On average nationally, Medicaid pays nursing homes only 70 percent of the private pay rate.
Without adequate cash flow, providers are unable to hire, train and retain qualified staff.
As a consequence, staff shortages have exacerbated quality problems.
Instead of increasing reimbursements, however, Medicaid has imposed a "regulatory Jihad" on long-term care providers, to quote a leader in the field.
Thus, providers are caught between the rock of inadequate reimbursement and the hard place of quality mandates.
The quality problems incidental to inadequate public reimbursements have led directly to gigantic tort liability settlements against long-term care providers.
Sometimes, the attorneys suing Medicaid providers for poor care are the very same lawyers who artificially impoverished their affluent clients to qualify them for Medicaid in the first place.
In the meantime, the public has not yet awakened to the real risk of long-term care, i.e. access to quality care, not asset spend-down.
Most people don't know who pays for long-term care, but they have a pretty good idea that somebody must . . . and they're right!
They may say they think Medicare pays, but the truth is that Medicaid does pay.
Consequently, most people do not plan, save, invest or insure against the risk of long-term care and end up quickly on the slippery slope toward Medicaid nursing home institutionalization.
And so goes the downward spiral: easy access to inadequate public financing of long-term care discourages private financing alternatives which leads to fiscally unhealthy providers which causes quality problems which exacerbate tort liability, increase regulation and lead to demands for even more government financing of long-term care.
That's the vicious cycle long-term care is in. That is what we have to change.
So, let's turn now to question number 3. How can we change public policy to improve the long-term care system?
Once you understand what is actually causing the problems, as I've just explained, the solution is simple.
If too much public financing of long-term care has anesthetized the public to the risk and caused over-reliance on welfare-financed nursing home care, then the answer is to change the perverse incentives in public policy that trap families on Medicaid so that more people take personal responsibility, plan early, save or insure, and pay privately for long-term care.
That will relieve the burden on Medicaid and Medicare and save those programs for less fortunate people who have no choice but to depend on them.
The key is to identify the main repository of untapped wealth that could solve America's long-term care financing crisis.
Eighty percent of seniors own their homes and 73 percent of these own their homes free and clear. There is $1.8 trillion locked up in home equity of seniors that could go to finance long-term care.
Home equity is not used for long-term care today because Medicaid exempts the home and all contiguous property regardless of value, and because Medicaid estate recovery programs, mandated by Congress in 1993 for the purpose of tapping that major resource, among others, are not effectively implemented or publicized in most states.
The best way to bring home equity into the long-term care financing system is to require that the equity be put to use through a reverse annuity mortgage before someone can become eligible for Medicaid financed long-term care.
Reverse mortgages or RAM's are highly regulated nowadays and very safe. They protect the borrowers' use of the home indefinitely while providing a steady stream of supplemental income that can be used to purchase long-term care services, or to pay long-term care insurance premiums for those who are still insurable medically.
CMS has already started encouraging the voluntary use of home equity, but that is not enough. People will not tap the equity in their homes for long-term care services or insurance if that equity is not at risk.
Some other measures should be taken to target Medicaid to the genuinely needy. For example, the waiver requests from Minnesota, Connecticut, and Massachusetts to extend the Medicaid transfer of assets look back period to five years and to start the eligibility penalty at the date of eligibility instead of the date of transfer would help.
For our purposes today, however, it's the principle that matters. The key point is that Medicaid no longer provides a long-term care safety net for the poor. It has become "inheritance insurance" for the baby-boom generation.
As long as it remains so, no progress will be made in reforming long-term care.
Medicaid and Medicare nursing home and home health expenditures will continue to explode. State and federal fiscal crises will worsen. Tax payers will balk at the cost. Long-term care insurance sales will drift or decline. Institutional bias will continue. Care quality will decline. Tort liability will grow. And we'll creep ever closer to the demographic catastrophe that certainly awaits a decade or two in the future.
Now, we can answer the specific questions posed in the brochure for today's program.
* What are the prospects for above-the-line LTCI premium tax deductibility?
Answer: The prospects are nil for the foreseeable future. The government is broke and getting broker all the time. No one is paying any attention to long-term care, because the issues surrounding Social Security, Medicare and the uninsured have center stage. Besides, tax deductibility, while it may save money in the future, is perceived to be very expensive now. Add to that, the fact that the tax deductibility bills also include costly tax credits for caregivers and you have a fiscal non-starter.
Do you want to know how to get tax deductibility for LTC insurance? Show the feds and the states how to pay for it. How? Simple. Implement the controls on Medicaid eligibility I've recommended, enforce estate recoveries, and educate the public about the risk. You'll save more than enough money on Medicaid immediately to fund tax deductibility and unleash demand for LTC insurance at the same time.
Next question: * What is the appropriate role for the public sector?
Answer: The appropriate role for the public sector in long-term care is to provide a safety net for the genuinely needy. Unfortunately, it does much more than that today. We already have national social health insurance for long-term care and it is a disaster, as I've explained. The only way to attract private financing to long-term care is to end the Medicaid and Medicare monopsony. (A monopsony is a single-buyer in a market, the opposite of a monopoly or single-seller, but its economic consequences are equally dire.)
Save Medicaid for the poor and you'll ensure strong markets for home equity conversion and long-term care insurance which will improve access to and quality of long-term care for rich and poor alike.
* Can a private/public partnership be realized?
Answer: Yes, of course a private/public partnership is possible. But not until the public sector stops co-opting the long-term care service delivery and financing market by paying for most care for most people, including the middle and upper-middle class, as well as the poor.
It appears more and more likely that the Long-Term Care Partnership Programs that have languished since Henry Waxman crippled them in 1993 will be freed from the estate recovery requirement. If so, that means more publicity for long-term care insurance and sales are likely to increase on the margin.
But major breakthroughs will not occur until the Medicaid eligibility leaks are closed, home equity is tapped, and people come to feel a real personal liability for their own long-term care expenditures.
* What are Congress and the Administration waiting for?
Answer: Politicians and public administrators will not act until long-term care becomes a crisis. It's nearing that condition now, and that's why state Medicaid programs are beginning to seek ways to control their hemorrhaging long-term care expenditures. I predict that systemic change will not occur any time soon and that we'll drift toward stricter Medicaid eligibility rules and stronger estate recovery enforcement.
Over time, the public will realize that quality long-term care at the most appropriate level, requires the ability to pay privately. That realization will be the system's salvation, but it will be slow in coming.
In the meantime, the people in this audience are the country's best hope to save the system from total collapse.
If you realize and confront the real reason why long-term care service delivery and financing are hurting in this country . . . if you ignore the mistaken conventional wisdom about catastrophic asset spend-down . . . if you fight for public policy to target Medicaid to the poor . . . if you convince consumers to protect themselves and their families with private insurance . . . then you can mitigate the disaster that is approaching.
Unfortunately, I don't think we'll dodge the bullet completely. Ironically, the heavy reliance on public financing of long-term care will continue to drag the system into insolvency. The people hurt most will be the poor. They don't have the savvy to work the system. They lack the "key money" to buy their way into the better Medicaid facilities.
Just remember this: the best way to help the poor is not to become one of them! Empowering people to retain their wealth, their choice, their independence and their dignity is the critical role you play in this saga.