Bullet: So What If the Government
Pays for Most LTC?, 2004 Data Update
Thursday, January 12, 2006
LTC Comment: Heads
up! We're about to explain why
long-term care insurance sales have disappointed and why the nursing home and
assisted living businesses are in such a woeful financial condition.
After the ***news.***
*** GOOD NEWS, BAD NEWS.
According to Congress Daily:
"House Speaker Hastert has tentatively set a vote Feb. 1 on a $39.7
billion five-year deficit reduction package to finish action on the bill after a
procedural maneuver by Senate Democrats late last month kicked the measure back
to the House." That vote will
take place the day after President Bush's State of the Union Address on January
31 and five days before he sends the Fiscal Year 2007 budget to the Hill.
Proponents of the deficit reduction bill "expect to narrowly approve
the bill again," said Congress Daily.
That's the good news.
Here's the bad news. "AARP
and the Emergency Campaign for America's Priorities--an umbrella organization
representing labor and student groups and low-income advocates--are rolling out
new ad campaigns in the next two weeks" opposing passage.
What a farce! These
profiteers on poverty don't help the poor by fighting against Medicaid reform.
Their goal is to preserve the status quo which siphons scarce, critically
needed public assistance funds into the pockets of their affluent members by
means of Medicaid planning abuse. We'll
keep you apprised of developments as this public policy cliffhanger approaches
its climax. ***
*** HALF OF GDP GOBBLED BY ENTITLEMENTS AND INTEREST IN
2050. "The Christian
Science Monitor on Tuesday examined how some experts have raised concerns
that Medicare, Medicaid and Social Security might represent a 'fiscal time bomb'
for the U.S. and that large 'tax hikes and benefit cuts may be needed' to
address the issue. For example,
recent reductions to Medicare spending approved by Congress are 'a drop in the
bucket' compared with the cost of the new prescription drug benefit, and program
trustees have estimated that the Medicare trust fund will become insolvent by
2020, the Monitor reports. In
addition, the Congressional Budget Office has estimated that Medicare, Medicaid,
Social Security and interest on the national debt could account for half of the
U.S. gross domestic product by 2050."
(Source: Kaiser Daily Health
Policy Report - Wednesday, January
LTC BULLET: SO
WHAT IF THE GOVERNMENT PAYS FOR MOST LTC?, 2004 DATA UPDATE
LTC Comment: Once
a year around this time the Centers for Medicare and Medicaid Services (CMS)
report health care expenditure data for the latest year of record.
Recently, CMS posted 2004 statistics on its website at http://www.cms.hhs.gov/NationalHealthExpendData/02_NationalHealthAccountsHistorical.asp#TopOfPage.
The current issue of Health Affairs (Vol. 25, Issue 1, pps. 186-196) contains a summary
and analysis of the new data titled "National
Health Spending in 2004: Recent
Slowdown Led by Prescription Drug Spending." Registered
subscribers to Health Affairs can
access the full text of the article online at http://content.healthaffairs.org/cgi/content/full/25/1/186.
You can find the CMS source data free of charge at:
is our annual analysis of the new nursing home and home health care data.
"So What If the Government Pays for Most LTC?, 2004
Stephen A. Moses
Ever wonder why LTC insurance sales and market penetration
are so discouraging? Or why LTC
service providers are always struggling to survive financially and still provide
quality care? Read on.
America spent $115.2 billion on nursing home care in 2004.
The percentage of nursing home costs paid by government (mostly Medicaid
and Medicare) has gone up over the past 16 years (from 49.6% in 1988 to 58.2% in
2004, up 8.6% of the total) while out-of-pocket costs have declined (from 38.5%
in 1988 to 27.7% in 2004, down 10.8% of the total).
Table 8. (Note:
The current version of this table has dropped 1988 data.
Data cited here for 1988 are taken from the version of this table posted
by CMS in January 2004.)
So what? The
consumer's liability for nursing home costs has gone down precipitously (from
38.5% in 1988 to 27.7% in 2004, a decline of 28.1%), while the government's
liability has increased dramatically (from 49.6% in 1988 to 58.2% in 2004, a
rise of 17.3%). 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 (44.3% of the dollars
in 2004), it covers two-thirds 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 four-fifths of all nursing home patient days.
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 insolvency 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 7.8% of nursing home costs that CMS
reports as having been paid by "private health insurance" in 2004.
They derive that 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 gets reported as if it were
"out-of-pocket" payments because private payers write the checks to
the nursing home but are reimbursed by their LTC insurance policies.
This fact further inflates the out-of-pocket figure artificially.
How does all this affect assisted living facilities?
ALFs are 90% private pay and they cost an average of $34,860 per year
(Source: MetLife survey at http://www.metlife.com/WPSAssets/84989326101130770986V1F2005%20Assisted%20Living%20Survey.pdf). 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 $43.2 billion on home health care in 2004.
Medicare and Medicaid paid 69.7% of this total and private insurance paid
12.0%. Only 11.3% 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 nine 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
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 remain starved for
solution is simple. Target Medicaid
financing of long-term care to the needy and use the savings to fund education
and tax incentives to encourage the public to plan early to be able to pay
privately for long-term care. For
ideas and recommendations on how to implement this solution, see www.centerltc.com.
especially "The Realist's Guide to Medicaid and Long-Term Care" at http://www.centerltc.org/realistsguide.pdf
"Aging America's Achilles' Heel: Medicaid Long-Term Care" at http://www.centerltc.com/AgingAmericasAchillesHeel.pdf.
movement is afoot in Congress to address some of these issues.
Bills passed in nearly identical form by the House and Senate tighten
Medicaid eligibility and expand the LTC Partnership program. Cross
your fingers that the House of Representatives re-passes the deficit reduction
bill when it votes again February 1, so this important legislation can go to the
President to be signed into law.
isn't a panacea. It will require
diligent effort to ensure that the state and federal governments implement and
enforce the new rules. But for the
long-term care security of aging Americans and for the financial viability of
the private insurance, home equity conversion, and long-term care provider
businesses, nothing remotely as important has happened in the past twelve years.
Stephen A. Moses is president of the Center for Long-Term Care Reform in Seattle, Washington. The Center's mission is to ensure quality long-term care for all Americans. Steve Moses writes, speaks and consults throughout the United States on long-term care policy. He is the author of the study "Aging America's Achilles' Heel: Medicaid Long-Term Care," published by the Cato Institute (www.cato.org). Learn more at www.centerltc.com or email email@example.com.