Bullet: Who Should Pay for
Tuesday, September 13, 2005
LTC Comment: Here
is a succinct explanation of America's long-term care crisis:
how it came to be, where it's headed, and how to mitigate the damage.
Following are Steve Moses's opening remarks for a debate
with New York Medicaid planner Vincent Russo at the Cato Institute on September
7, 2005. View the debate webcast at
In preparation for this debate, we collected 17 pages (8200
words) of Medicaid planning promises and propositions offered by members of the
National Academy of Elder Law Attorneys (NAELA) from around the United States.
Check out "Medicaid Planning Quotes" at http://www.centerltc.com/medicaid_planning_quotes.htm
. Full source citations provided.
If you read these advertisements, you'll never wonder again why Medicaid
is collapsing financially or why so few people buy private LTC insurance.
Find out how to set up a lucrative Medicaid planning legal
practice; learn how to buy cattle to qualify for Medicaid; understand the
"half-a-loaf" strategy; fathom the benefits of irrevocable income-only
trusts; find out why someone with $1 million isn't wealthy and should plan for
Medicaid; learn why and how Medicaid is available almost no matter how much you
own; buy a business to qualify for Medicaid; etc.
Here's a sample: "I WOULD SAY THE BULK OF OUR CLIENTELE IS IN THE $500 TO $900 THOUSAND DOLLAR RANGE [emphasis added]."
Who Should Pay?"
Stephen A. Moses
If the question is "Who should pay for long-term
care?," the average person will answer "Anybody but me."
Next best, they'll say "Everyone should pay."
Hence, the tendency to pass the financing burden on to government.
Finally, if nothing else works, most people will prepare to
pay their own way. That's when they
turn to private insurance.
Winston Churchill said "You can trust the Americans to
do the right thing, but only after they've tried everything else first."
So, let's ask: What
have we tried already in long-term care financing? That is, who does pay for long-term care and what have been
vast majority of all formal long-term care services are financed by government.
Although Medicaid pays only half the dollars for nursing
home care, it covers two-thirds of nursing home residents and touches nearly 80
percent of all patient days with its dismally low reimbursement rates.
Even the so-called "out-of-pocket" expenditures
for nursing home care--which are down from 39 percent to 28 percent in the past
15 years--come mostly from Social Security benefits that Medicaid recipients
have to contribute toward their cost of care.
At 12 percent, Medicare is a much larger payer for nursing
home care than most people realize.
For home care, only 17 percent of the costs are paid by
patients. The rest comes primarily
from Medicare and Medicaid.
Now, what has this heavy dependency on public financing of
long-term care achieved?
We have a severely dysfunctional, welfare-financed, nursing
home based long-term care system that serves no one well, least of all the poor.
Long-term care today is plagued by institutional bias, too
little home and community-based care, inadequate revenue, impending
bankruptcies, a dearth of investment capital, staff shortages, access and
quality problems, huge tort liability, unaffordable liability insurance, too few
full-pay private payers and too many low-pay Medicaid recipients.
How in the world did we get into such a mess in the
wealthiest country in the world?
In 1965, Medicaid came along and started paying for nursing
The nursing home industry saw a huge new source of revenue
and naturally built more facilities as fast as they could raise the walls.
The public figured nursing home care was free, so why pay
out of pocket for home care or insurance.
That's how institutional bias began and that's why a market
for home care, assisted living and long-term care insurance did not even begin
to develop until decades later.
Before long, of course, Medicaid nursing home costs
Figuring, "they can't charge us for a bed that doesn't
exist," government capped the supply of nursing home beds by requiring
certificates of need.
But capping supply only drove up the price as nursing homes
raised their rates to compensate. So
Medicaid capped what it would pay for nursing home care.
In turn, nursing homes raised rates for private payers to
make up the difference. That was
the origin of "cost shifting" from Medicaid to private payers.
It was also the beginning of the differential between low
Medicaid reimbursements, often less than the cost of providing the care, and
market-level private pay rates.
Over time, Medicaid nursing home census grew and private
pay census declined, as fewer people could afford the higher private pay rates
and Medicaid eligibility became easier and easier to obtain.
A new practice of law--Medicaid estate planning--evolved to
impoverish people artificially so they could qualify for Medicaid without
spending down their own assets for care.
But the average person in terms of income and assets could
qualify for Medicaid even without such legal machinations because of the
program's generous eligibility criteria.
Income is rarely an obstacle to Medicaid long-term care
eligibility because all medical expenses, including the cost of private nursing
home care, are deducted from an applicant's income before determining
eligibility in most states.
In other states, "Miller income diversion
trusts," allow people with higher incomes to qualify routinely.
Assets are no obstacle to Medicaid long-term care
eligibility because people are allowed to retain unlimited equity in a home, a
business, a car, home furnishings, prepaid burials, term life insurance, etc.
Now, with supply and price capped and Medicaid eligibility
easier and easier for their residents to obtain, quality of care became harder
and harder for nursing homes to achieve.
Thus arose the access and quality problems that led to
heavy government regulation of nursing facilities.
Today, nursing homes are caught between the rock of
inadequate Medicaid reimbursement and the hard place of intense quality
Or, as industry executives expressed it to me once:
the government expects Ritz Carlton care for Motel 6 rates while imposing
a regulatory Jihad.
In the meantime, both Medicaid and Medicare have played a
growing role in financing home care, which most people prefer, but which those
programs cannot afford to fund adequately.
The end result is that the public has been anesthetized to
the risk of long-term care even as state and federal coffers have been emptied
by government's efforts to help.
It's the same old story:
good intentions led to unforeseen and tragic consequences.
Well, that brings us to the most important question to ask:
Not, who should pay for long-term care?
That is really moot.
Rather, who WILL pay for long-term care in the future?
Certainly not government.
That well is dry. Almost, no
one is so na´ve anymore as to expect a new publicly financed long-term care
system to come along.
Those who would add long-term care to Medicare no longer
have any credibility. That program
already has a $60 trillion unfunded liability and just took on the huge new
fiscal responsibility of providing pharmacy benefits to the elderly.
Add to that the impending insolvency of Social Security,
the gargantuan unfunded liability of Medicaid long-term care, the cost of
fighting the war on terror, and now a $100 billion (or more) charge to rebuild
the Gulf coast.
More and more, the hard reality is becoming clear:
if you want access to quality long-term care at home, in the community,
or in the best nursing facilities you must be able to pay privately for it.
As publicly financed long-term care continues to
deteriorate, more and more people will turn to their home equity as the only way
to pay for acceptable care.
81 percent of people 62 years of age or older own their
homes and 74 percent of those own them free and clear.
Nearly $2 trillion is available and easily accessible through home equity
conversion, while still retaining use of the home.
When the only choice remaining is "languish in
welfare-financed long-term care or spend down your home equity to get quality
care," more people will turn to private insurance as a viable alternative.
With more people insured and paying privately at market
rates, care choices and quality will improve for everyone, rich and poor alike.
With fewer people dependent on Medicaid, the welfare
program will be better able to provide a wider range of higher quality care to
the genuinely needy.
We will get to that point by default simply by staying on
the current course. Medicaid will
collapse and many people, especially the poor, will be hurt.
Or, we can remove the perverse incentives in public policy
that currently trap people in institutions on Medicaid.
The single most important step to take is to stop using
Medicaid as inheritance insurance for the baby boom generation.
We need to tighten eligibility, require spend down of
illiquid home equity as a condition of eligibility, and enforce estate recovery
We need to stop the abuse of Medicaid by planners who
artificially impoverish their affluent clients to qualify them for public
And, we need to give Medicaid back to the people it was
originally intended to serve: the
poor and underprivileged.
When the choice for most Americans is "pay me now or
pay me later," as in the old Fram oil filter commercial, most people will
do the honorable thing.
They will save, invest or insure for long-term care and
everyone will be better off.
The good news about America's long-term care financing
problem is this:
It has been self-inflicted by well-intentioned, but
perversely counterproductive public policy.
If we stop doing what we've always done, we'll start
getting a different result.
And that is the very definition of sanity, isn't it?