LTC Bullet:  New LTC Research and What It Means for You 

Wednesday, November 29, 2006 


LTC Comment:  One new report shows a sharp decline in nursing home utilization, but another confirms 7% of Medicaid beneficiaries who use LTC account for 52% of the program's costs.  What does this mean for LTCi, reverse mortgages and the Medicaid safety net?  Answers after the ***news.*** 

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LTC Comment:  In the past week or so, two new studies have appeared that shed some very interesting light on America's long-term care service delivery and financing system. 

On the one hand, nursing home utilization by people over the age of 65 has plummeted.  For more on that, see where you'll find The Lewin Group's new study and a webcast by its author, Lisa Alecxih, describing her findings followed by a panel discussion.  For a quick overview, go to the UPI article at  Bottom line, according to the UPI piece: 

"The study showed that, since 1999, the number of people aged 65 and older in nursing homes dropped more than 8 percent from 1.44 million to 1.32 million, but more dramatically, nursing-home use among the 'oldest old' fell by a full two-thirds, from 21.1 percent in 1985 to 13.9 percent in 2004. Without this shift away from nursing-home care -- which was the only long-term-care option 20 years ago -- and toward community-based care, nearly 2 million seniors would be living in nursing homes today. But instead, the nursing-home population is dropping towards half that number, or 1.32 million residents as of 2004." 

Wow, great news!  Fewer elderly people dying slowly in nursing homes and more octogenarians living longer, happier lives in their own homes and communities. 

But now, juxtapose this upbeat trend and prognostication with findings from another new study.  This one's published by the Kaiser Commission on Medicaid and the Uninsured and available at  Here are the highlights: 

"Medicaid long-term care users accounted for 7% of the Medicaid population in 2002 but over half (52%) of total Medicaid spending. . . . 

"One-third of elderly Medicaid enrollees used long-term care services, but they accounted for 86% of all Medicaid spending on the elderly. . . . 

"Fifteen percent of beneficiaries classified as disabled used long-term care services, but they accounted for 58% of all Medicaid spending on the disabled.  

"Dual eligibles [Medicaid recipients who also receive Medicare benefits] accounted for two-thirds of Medicaid enrollees who used long-term services and a similar share of spending. . . ." 

LTC Comment:  Whoa!  Let me see if I have this right.  The good news is that fewer people reside in nursing homes.  The bad news is that LTC is the monster that ate Medicaid.     

So, how come everyone's so happy about the decline in nursing home utilization when long-term care in general is a huge part of Medicaid already and likely to grow exponentially in the decades ahead?   

The answer is that most academics and government (state and federal) policy makers think home and community-based long-term care is cheaper to provide than nursing home care.  So, they figure, no matter how big the LTC problem is in the future, at least it's smaller than it would have been if we were still warehousing all the elderly in expensive nursing homes.  Medicaid should be able to provide more long-term care to more people at the same or lower cost.  At least, that's what they think. 

Now, let's analyze this situation based on the hard lessons learned by the private long-term care insurance industry over the past twenty years.   

When LTCi was mostly nursing home insurance, policy holders were loath to file claims.  Who wants to go to a nursing home? 

As LTCi expanded to include among its benefits home care, assisted living, adult day care, respite care, case management, etc., etc., the whole claims dynamic changed.  Now everyone with a policy wants to collect all the LTC benefits they can legitimately claim and more if they can get away with it. 

Result?  More claims from more insureds, higher costs, rising premiums, tougher sales, lower profits, a flat or declining market, and companies exiting the business.  Sound familiar? 

What makes the advocates of government-financed long-term care think their experience will be any different?  Certainly, it won't. 

As Medicaid converts from funding primarily nursing home care to primarily home and community-based care, the welfare program--already a huge drain on state and federal budgets--will undergo the same consequences as the private LTCi industry. 

To wit, demand for Medicaid will increase when the program offers services people want instead of nursing home care.  Medicaid estate planning will grow if it gets people home and community-based care, and even in some states, Medicaid payments for relatives to provide the care.  Demand for private LTC insurance and reverse mortgages--the two major private financing alternatives for long-term care--will decline.  Why pay premiums or use your home equity if government will provide the services previously only available to private payers?  Either Medicaid program costs will explode or long lines will form of eligibles waiting for access to services.  Neither eventuality will please consumers or voters. 

Clearly, both public and private financing of long-term care are heading toward a total meltdown.  And it's all so completely unnecessary.  The solution is obvious and easy.  Well, it's easy practically speaking if not politically. 

The solution is to target Medicaid-financed long-term care to people truly in need.  Stop using Medicaid as inheritance insurance for baby-boomer heirs.  Tighten up the eligibility rules; shut down Medicaid estate planning; enforce liens and estate recoveries.  Then take some of the savings from these measures and use them to educate and incentivize people to purchase long-term care insurance and to use home equity conversion.   

Do these things and, within a decade, the long-term care financing crisis will be resolved.  Extra private LTC financing will save the public safety net.  The elderly will get better care in the most appropriate settings whether they pay privately or depend on public assistance.  LTC providers will thrive.  Wall Street will again offer the debt and equity capital to build, operate and maintain the huge infrastructure we will need someday to care for aging boomers.   

It can be done.  But it will take more insight and will than most academics and public policy makers bring to these issues and questions today.  In time, of course, demographics and fiscal reality will force their hands.  If they stay on the present course, Medicaid and Medicare will collapse, private insurance and reverse mortgages will explode in popularity among those who can afford them, but the poor will suffer tremendously. 

It's up to us who see what's coming to sound the warning and urge responsible changes in policy.  But we're in a race against the clock and the clock's winning.