LTC Bullet:  LTCI's Share of LTC Costs 

Tuesday, November 20, 2007 


LTC Comment:  Scholars who should know better say LTC insurance covers 7% of LTC costs.  That's incorrect, misleading and counterproductive for improving LTC financing policy.  Details after the ***news.*** 

*** TODAY'S LTC BULLET is sponsored by, which has provided LTCI sales, marketing, presentation systems and custom consumer websites for over seven years and helped more than 5,000 subscribers attain higher levels of LTCI sales success.  Explore their suite of products and sign up to receive their free monthly sales tip at  Contact:  Jennifer Sullivan, 877-603-2771 or  We thank for sponsoring this LTC Bullet and for supporting the Center for Long-Term Care Reform’s 2008 “National Long-Term Care Consciousness Tour.”  If you'd like to sponsor a Bullet and have an ad on the LTC Blog at, contact Damon at 206-283-7036 or *** 

*** YOUR BEST 3 MINUTES TODAY.  A new study highlighted by CBS Evening News details the financial and emotional stress faced by family caregivers of the elderly in the United States.  Here's the lead and the link:  

"More Americans are facing it, and it's costing them big.  What they're facing is caring for an elderly parent or spouse.  A new study reveals that those who care for a loved one aged 50 or older spend more money than average households spend on health care and entertainment combined - that's more than 10 percent of their average income.  Sandra Hughes will have this story."  Watch the vignette.   

Our thanks to Center member and LTC Graduate Seminar participant Ric Schafer of Minneapolis for this tip. *** 



LTC Comment:  Many Americans will watch the news story about caregiving costs highlighted above and conclude:  "the government needs to do something about this."  Few will see the irony that excessive public financing of long-term care since 1965 has caused the problem.  

By making nursing home care virtually free for the middle class, Medicaid (1) created our LTC system's nursing home bias, (2) impeded development of a privately financed market for low-cost home and community-based care, (3) anesthetized the public to LTC risk, (4) crowded out private funding sources like insurance and home equity conversion, and (5) led directly to the excessive financial and emotional strains on families unprepared and unprotected financially for relief from the heavy demands of caregiving. 

So once again, let's ask the critical question:  "So What if the Government Pays for Most Long-Term Care?"  

Following is my letter to the editor of National Underwriter correcting an error in a cited Georgetown University study.  After the letter, stay tuned for a fuller explanation of why the question "who pays for LTC?" is so very, very important. 


Stephen A. Moses, "Letter To The Editor:  Study Disputed," LTC E-Wire, National Underwriter, November 5, 2007.  

Letter To The Editor: 

Study Disputed 

Stephen Moses writes:  Your “Did you know” section in the October 2007 issue of LTC e-Wire cited a study by Georgetown University that asserted that private LTC insurance covered just 7% of total national spending on LTC services in 2005 (click here for entire article). Medicaid paid almost half of it, while the remainder was paid largely by Medicare or by individuals, according to the study. 

That 7% number is flat wrong. What the Centers for Medicare and Medicaid Services (CMS) reports as private health insurance (PHI) includes major medical and Medigap coverage. They have no way to discern how much private LTC insurance pays toward long term care. 

Most LTC insurance pays beneficiaries, who then pay their providers. That shows up as out-of-pocket costs in CMS data. Truth is, the way they compute that 7% figure is to start with 100%, subtract sources they know such as Medicare, Medicaid, Veterans Administration, etc. and assume that whatever remains is PHI. Nevertheless, many writers, including serious “experts,” don't understand the facts and publish the misleading number as though it represented LTC insurer payments. 

If LTC insurance accounted for 7% of LTC expenditures, the provider industry would take the product seriously. It doesn't, and they don't. Actual LTC insurer payments for LTC are probably closer to 2% or 3%, although no one knows for sure, as I've explained. 

Furthermore, the statement that Medicaid paid almost half of LTC costs is accurate but misleading. People on Medicaid have to contribute their income toward Medicaid's cost of care. Fully half of “out-of-pocket” expenditures are “spend-through” of Social Security income by people who are already on Medicaid. 

Add up Medicaid, Medicare, Social Security, Veterans Administration, and other miscellaneous [non-private-asset] sources, and you can account for nearly 90% of the entire cost of nursing home care nationally. No wonder people don't buy LTC insurance; the government already pays for the most expensive level of care. 

Stephen A. Moses
Center for Long-Term Care Reform, Inc. 
Seattle, Wash. 


LTC Comment:  You might reasonably ask "So What?"  So what if LTCI pays less of the total cost of LTC than CMS seems to report?  So what if Medicaid affects much more LTC financing than CMS data suggest?  So what if out-of-pocket expenditures for LTC as reported by CMS are highly misleading?  We answer those questions every January when CMS reports new annual data.  

Our last such report was titled "LTC Bullet:  So What If the Government Pays for Most LTC?, 2005 Data Update" published Thursday, January 11, 2007.  Read it anytime at or now as follows: 


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 2005 statistics on its website here.  

The current issue of Health Affairs (Vol. 26, Issue 1, pps. 142-153) contains a summary and analysis of the new data titled "National Health Spending in 2005:  The Slowdown Continues."  Registered subscribers to Health Affairs can access the full text of the article online 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?, 2005 Data Update"
Stephen A. Moses 

Ever wonder why LTC insurance sales and market penetration are so discouraging?  Or why reverse mortgages are rarely used to pay for long-term care?  Or why LTC service providers are always struggling to survive financially and still provide quality care?  Read on. 

America spent $121.9 billion on nursing home care in 2005.  The percentage of nursing home costs paid by Medicaid and Medicare has gone up over the past 35 years (from 26.8% in 1970 to 59.6% in 2005, up 32.8 % of the total) while out-of-pocket costs have declined (from 52.0% in 1970 to 26.5% in 2005, down 25.5% of the total).  Source, Table 8. 

So what?  The consumer's liability for nursing home costs has declined almost by half in the past three and a half decades, while the share paid by Medicaid and Medicare has more than doubled.  

No wonder people are not as eager to buy LTC insurance as insurers would like them to be!  No wonder they don't use home equity for LTC when Medicaid exempts the home.  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 (43.9% of the dollars in 2005), 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 7.5% of nursing home costs that CMS reports as having been paid by "private health insurance" in 2005.  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 $35,616 per year (Source:  MetLife survey here).  Many people who could afford assisted living by spending down their illiquid wealth, especially home equity, choose instead to take advantage of Medicaid nursing home benefits.  Medicaid exempts one home and all contiguous property (up to $500,000 or $750,000 depending on the state), plus one business, and one automobile of unlimited value, plus many other non-countable assets, not to mention sophisticated asset sheltering and divestment 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 $47.5 billion on home health care in 2005.  Medicare (37.7%) and Medicaid (32.6%) paid 70.3% of this total and private insurance paid 12.2%.  Only 10.7% 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?  Less than one out of every nine dollars spent on home health care comes out of the pockets of patients and a large portion of that comes from the income (not assets) of people already on Medicaid. 

No wonder the public does 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  

Last year in the Deficit Reduction Act, Congress took some small steps toward addressing these problems.  A cap was placed on Medicaid's home equity exemption and several of the more egregious Medicaid planning abuses were ended.  But much more remains to be done.  With the Age Wave starting to crest and threatening to crash over the next three decades, we can only hope it isn't too late already. 

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