LTC 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 11, 2006) 



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  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  You can find the CMS source data free of charge at: 

Following is our annual analysis of the new nursing home and home health care data. 


"So What If the Government Pays for Most LTC?, 2004 Data Update"
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).  Source:, 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  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:, Table 10 

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 they should.  

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 remain starved for financial oxygen.   

The 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

Note especially "The Realist's Guide to Medicaid and Long-Term Care" at
"Aging America's Achilles' Heel:  Medicaid Long-Term Care" at  

Thankfully, 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.   

This 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 (  Learn more at or email