LTC Bullet:  What, Me Worry About Medicaid and LTC? 

Wednesday, February 28, 2007 

Santa Fe, NM-- 

LTC Comment:  The "What, Me Worry?" crowd of policy analysts who want government to pay for all LTC were out in force last week.  We puncture their palaver after the ***news.*** 

*** REFERRALS.  Thank you for reading the Center for Long-Term Care Reform's latest "LTC Bullets" newsletter.  If you know somebody who would be interested in this publication, please recommend us by clicking here.   If you have received this edition as a forward, and would like your own subscription, you may subscribe here.  Thank you. ***   

*** JESSE SLOME AND AALTCI DO IT AGAIN.  They turned what probably would have been a much more negative article on LTCi relatively positive.  Read "Many give short shrift to long-term care insurance:  Industry is revamping policies to customize their premium payments and benefit levels," by Janet Kidd Stewart in the February 25, 2007 Chicago Tribune here. *** 

*** LEARN ABOUT LTC PROVIDERS:  McKnight's Long-Term Care News is sponsoring a unique online trade show March 14 and 15.  It's an opportunity to find out what's happening on the service delivery side of the long-term care industry.  Check out the details at http://www.mcknightsonline.com/content/index.php?id=153. *** 

*** ECONOMIC EDUCATION.  As today's LTC Bullet proves, many leading analysts of the health and long-term care economies just don't understand fundamental economics.  For a wonderful daily education in that subject, we strongly recommend a free e-newsletter called "In Brief" published by the Foundation for Economic Education (www.fee.org).  Every day, "In Brief" pulls three quotes from the news and follows them with a hyperlink to a "FEE Timely Classic," an article previously published in the organization's monthly magazine "The Freeman:  Ideas on Liberty," which reveals the fallacy and debunks the reasoning in the news item.  Subscribe to "In Brief" at http://www.fee.org/newsletter/.  Read it for a year and you'll know more about sound economic reasoning than the vast majority of "experts" in the popular and health policy media. *** 

 

LTC BULLET:  WHAT, ME WORRY ABOUT MEDICAID AND LTC? 

LTC Comment:  Should we be concerned that Medicaid, a public welfare program, pays for most long-term care in the United States?  No, says one article in the web version of Health Affairs.  Another article in the same journal says spend even more and shift the cost from states to the federal government. 

We'll critique those arguments in a moment, but first consider this objective baseline.  Once a year, the Centers for Medicare and Medicaid Services (CMS) lays out a projection of National Health Expenditures (NHE) for the next decade.  Following is a citation and link to the latest version of those estimates, as published also in Health Affairs.  Next come excerpts covering projected long-term care costs. 

John A. Poisal, et al., "Trends:  Health Spending Projections Through 2016:  Modest Changes Obscure Part D's Impact," Health Affairs, February 21, 2007, pps. w242-w253, http://content.healthaffairs.org/cgi/reprint/hlthaff.26.2.w242v1, subscription required, footnotes and exhibits omitted.  

"Spending for two Medicaid services is expected to accelerate in 2006:  home health care (from 14.0 percent in 2005 to 19.8 percent in 2006) and other personal health care (from 8.1 percent in 2005 to 10.0 percent in 2006; data not shown).  This latter category includes spending from home and community-based waivers.  These accelerations reflect states' continuing efforts to use home health care and home and community-based services to provide long-term care to Medicaid recipients as substitutes for traditional institutional services."  (pps. w248-w249) 

"Long-term care. Growth in spending for nursing home care is projected to decelerate from 6.0 percent in 2005 to 3.4 percent in 2006, driven by Medicaid and Medicare. Medicaid spending growth in this area is expected to decrease from 3.9 percent in 2005 to 1.3 percent in 2006, related to provisions in the DRA and states' efforts to control costs, including restricting asset transfers before Medicaid eligibility begins. Private spending is anticipated to grow 5.0 percent in 2006. Nursing home spending growth is expected to remain fairly steady from 2007 through 2010 averaging around 5.0 percent per year, before a gradual acceleration over the latter half of the projection period, partly as a result of population aging. Home health spending growth is projected to climb 1.4 percentage points to 12.5 percent in 2006 . . ., making it the fastest growing service in health care. This increase is chiefly driven by faster growth in Medicaid spending on this sector, rising from 14.0 percent in 2005 to a projected growth rate of 19.8 percent in 2006 (data not shown). Medicare spending for home health is expected to increase 10.8 percent in 2006. Total growth is expected to average 7.6 percent per year from 2007 through 2016, with the strongest growth coming from Medicaid."  (p. w252) 

LTC Comment:  What this means is that growth in nursing home expenditures is moderating while growth in home health expenditures, especially those of Medicaid, continues to explode.  Good news, right?  We're depending less on expensive nursing home care that most people don't want anyway and more on home care which most people prefer. 

Okay, but economically, this is a double-edged sword.  Despite the change in venue of service, overall government costs continue to rise for several reasons.  The more attractive publicly financed LTC is (home care instead of nursing home care), the more people come out of the "woodwork" to take advantage of it, the more attractive Medicaid planning (artificial self-impoverishment to qualify for public assistance) becomes and the less like people are to use their home equity or buy private insurance to pay for long-term care. 

In other words, as long as government programs pay for most long-term care, making the services those programs provide more attractive has the effect of driving up costs AND crowding out demand for alternative private funding sources that could otherwise relieve the fiscal burden on the public programs and make their more attractive service delivery systems affordable.  The obvious solution is to tighten eligibility for public financing of long-term care, but that option isn't on the table anymore.  With state and federal tax receipts going through the roof, politicians at all levels are looking for ways to spend more money, with nary an eye to the next recession, which may already be looming on the horizon. 

Now consider the rosy scenario described in the following article. 

Richard Kronick and David Rousseau, "Is Medicaid Sustainable?  Spending Projections for the Program's Second Forty Years," Health Affairs Web Exclusive, February 23, 2007, pps. w271-w287, http://content.healthaffairs.org/cgi/reprint/hlthaff.26.2.w271v1, footnotes omitted.  

Excerpts: 

"Aged. The specter of increased Medicaid LTC costs as the baby boomers age looms over all discussions of Medicaid's future. As the share of the population over age eight-five increases from 1.6 percent today to a projected 3.6 percent in 2045, LTC costs will inevitably increase. Three factors are expected to moderate Medicaid LTC costs as a share of NHE [national health expenditures]. First, the age-specific rate of disability is expected to continue to decline, resulting in fewer LTC needs for a person of a given age in 2045 than in 2005. Second, baby boomers have more income and assets than their parents had, and the fraction of the elderly relying on Medicaid for LTC is expected to decline. Third, and most importantly, projected growth in the price of nursing home and home health services is much slower than the projected growth rate in NHE per capita. Health care is a technology-intensive industry, and projected growth in per capita NHE is 1-2 percent per year above the rate of growth of GDP [gross domestic product] per capita. In contrast, LTC is a labor-intensive industry, and projected growth in LTC prices is approximately 1 percent per year below the rate of growth in NHE per capita. As a result, even though the number of elderly people using Medicaid LTC services is projected to increase, projected Medicaid spending on the aged is expected to increase only marginally as a share of NHE.    

"Over the forty-year projection period, aged Medicaid enrollees as a share of the population are projected to increase by approximately 50 percent: from 1.5 percent to 2.3 percent of the population. However, as a result of projected modest rates of growth in nursing facility per diem and home health per visit costs, Medicaid spending on the aged is projected to change very little: declining from 3.9 percent of NHE in 2003 to 3.4 percent in 2006 following the implementation of Medicare Part D, declining further to 3.0 percent in 2025 before the bulge of the baby-boom generation turns eighty, and then increasing slightly to 3.6 percent in 2045 as the baby boomers' use of LTC increases. Even with the anticipated increase from 2020 to 2045, Medicaid spending on the aged as a share of NHE is projected to be virtually the same in 2045 as they were in 2003." (pps. w279-w280)  

"Despite concerns about the LTC needs of the baby boomers and the pressures placed on Medicaid by the expected decline in employer-sponsored insurance, Medicaid spending as a share of NHE will average 16.6 percent from 2006 to 2025, roughly unchanged from 16.5 percent in 2005, and then increase slowly to 19.0 percent by 2045." (p. w284) 

"Even assuming that Medicaid stays constant as a share of NHE, it is expected to increase as a share of GDP because NHE is projected to increase as a share of GDP. However, under our intermediate assumptions for Medicaid spending growth, real growth in state government revenue for services other than Medicaid is expected to be substantial from 2006 to 2025. That growth will be 0.3-0.5 percent less per year than if Medicaid spending were to remain constant as a share of GDP, but real state spending growth for services other than Medicaid from 2006 to 2025 is still projected to average 1.8 percent annually if state revenues are constant as a share of GDP, or 2.5 percent if state revenues continue their historical path of increasing modestly as a share of GDP. There is little indication that Medicaid will be the 'Pac-Man that ate state budgets.'"  (p. w285) 

"[T]he results reported in this paper make it clear that the growth of Medicaid spending as a share of the economy over the next forty years will largely be driven by the growth of health spending as a share of the economy."  (w285) 

"We hope that this work makes clear that there is no need to rush headlong into changes in Medicaid for fear that Medicaid is unsustainable or will bankrupt state and federal taxpayers. A measured and careful approach makes much more sense."  (p. w286) 

LTC Comment:  Here's their argument in a nutshell:  although national health expenditures [NHE] will continue to grow alarmingly as a percentage of gross domestic product [GDP], Medicaid expenditures for long-term care are unlikely to increase as a percentage of NHE.  So, Medicaid isn't the problem.  In other words, drop the larger context of the total and health care economies and you can pretend Medicaid isn't the "Pac-Man" it's been made out to be. 

Now, consider this analogy.  A man is carrying a backpack full of rocks and bricks.  Every couple miles, somebody adds rocks and bricks to his load in the original proportion.  The pack gets heavier and heavier; the man shrugs and slows under the added weight; but the proportional contribution of rocks and bricks to his struggle remains the same.  The man is our economy; the rocks are Medicaid; and the bricks are the rest of the health care sector.  Neither the man nor the economy cares what's dragging them down.  They just want out from under the excess freight. 

Kronick and Rousseau's sanguine outlook about Medicaid assumes that the American economy can go on pumping out state and federal tax revenues sufficient to continue indefinitely funding a heavier and heavier load of government health expenditures.  But the truth is that the more government takes out of the productive economy, the less able the economy is to generate tax revenues to fund increasing government expenditures.  The specious argument in this article could only have been made in a "Goldilocks" economy that seems like it could go on forever. 

Hopefully, yesterday's market collapse following a reduction in reported fourth-quarter 2006 economic growth will help to wake up these and other political and economic Pollyannas before it's too late.  But, don't count on it as our third article to review today ominously suggests: 

John Holahan and Alan Weil, "Toward Real Medicaid Reform," Health Affairs Web Exclusive, February 23, 2007, p. w254-w270, http://content.healthaffairs.org/cgi/reprint/hlthaff.26.2.w254v1, footnotes omitted.  

Excerpts: 

"Long-term care. Reform of public financing of long-term care is generally beyond the scope of this paper. Two areas, however, strike us as particularly important. First, efforts to limit large transfers of assets to obtain Medicaid eligibility are clearly appropriate, although they are not likely to result in sizable budget savings. But, more importantly, current spend-down requirements for institutional care result in the near-impoverishment of residents before they become eligible. There should be changes in these requirements for institutional care permitting people to retain higher levels of assets and income. The second is the extreme unevenness in coverage of home and community-based services (and resulting unmet needs) for impaired elderly and disabled people. The new option in the DRA to convert such services from waivers to optional services could be made mandatory along with increasing the income threshold and expanding the list of services covered." (p. w267) 

"The reforms we have discussed in this paper . . . would shift more financial responsibilities to the federal government, which has far superior taxing and borrowing capabilities, and thus provide fiscal relief to states."  (p. w267) 

LTC Comment:  How should we fix Medicaid and long-term care?  Holahan and Weil suggest that we make Medicaid LTC services easier to get, by reducing spend-down requirements, and more attractive, by paying for more home care and less nursing home care.  In combination, that's a recipe for fiscal disaster as we've shown here and elsewhere many times before.  See especially "Aging America's Achilles' Heel:  Medicaid Long-Term Care" at http://www.cato.org/pubs/pas/pa549.pdf.   

Good grief!  Will these people never learn?  To add injury to this insult of our intelligence, they propose to relieve states of the heavy and growing burden of Medicaid LTC by dumping the whole financial load on the federal government.  Why?  Because the feds have "far superior taxing and borrowing capabilities."  In other words, finding yourself in a deep fiscal hole, don't stop digging.  Bring in the bull dozers.  Dig faster and deeper! 

Let's close with the good news.  Although, America's long-term care financing problems are self-inflicted by perversely counterproductive public policy, the solution is easy.  Target Medicaid to people truly in need; stop using the program as free inheritance insurance for baby boomers; and employ the resulting savings to fund education and tax incentives favoring private LTC financing alternatives like reverse mortgages and long-term care insurance.  In other words, the real solution is the diametrical opposite of what the "experts" critiqued in today's Bullet are suggesting.  Ugh!