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 SellingLTC.com, which has
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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:
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."
thanks to Center member and LTC Graduate Seminar participant Ric Schafer
of Minneapolis for this tip. ***
LTC BULLET: LTCI'S
SHARE OF LTC COSTS
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
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,
Letter To The Editor:
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
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
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
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
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 http://www.centerltc.com/bullets/archives2007/670.htm
or now as follows:
LTC BULLET: SO
WHAT IF THE GOVERNMENT PAYS FOR MOST LTC?, 2005 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 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 http://content.healthaffairs.org/cgi/content/abstract/26/1/142.
is our annual analysis of the new nursing home and home health care
"So What If the Government Pays for Most LTC?,
2005 Data Update"
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?
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).
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
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.
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.
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,
especially "The Realist's Guide to Medicaid and Long-Term
Care" at http://www.centerltc.org/realistsguide.pdf
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 (www.cato.org). Learn more at www.centerltc.com or email firstname.lastname@example.org.