LTC Bullet:  So What If the Government Pays for Most LTC?, 2006 Data Update 

Thursday, January 16, 2008 


LTC Comment:  Heads up!  We're about to explain why long-term care insurance sales have disappointed, why people don't "use their homes to stay at home" and why LTC providers who depend on public financing are at risk.  After the ***news.*** 

*** WHAT WOULD MLK SAY?  "Black nursing home residents are one-third more likely to be hospitalized than their white counterparts, according to university researchers who analyzed data on more than 500,000 residents and 9,000 facilities recently.  Nearly a quarter (24.1%) of black residents were hospitalized in the study period (2000 onward), while 18.5% of white residents were hospitalized during the same span. Researchers associated with Brown University's Albert Medical School said conditions ranged from pressure ulcers to dehydration and malnutrition.   

[LTC Comment:  Racism?  Not that simple:]   

"'The percentage of residents who had to be hospitalized was strongly correlated with the residents on Medicaid, which also was strongly tied to facilities with limited resources,' said lead study author Andrea Gruneir. Her report, which is to appear in the June issue of the journal Health Services Research, concludes the racial admissions differences could be lessened by devoting more resources to facilities that most rely on Medicaid funding."  Source: Daily Update, 1/16/8. 

LTC Comment:  A better solution would be to improve Medicaid as a safety net for people truly in need by targeting it to the poor.  Then use the savings to attract more private financing to the LTC system by encouraging LTC insurance, reverse mortgages, and LTC planning.  That is the only way to improve long-term care for everyone:  rich, poor and in between.  *** 

*** LTC TOUR SPONSOR PACKET.  Check it out at .  You'll find the whys and wherefores of the LTC Tour; the sponsor levels, benefits and costs; pictures of the Silver Bullet of LTC with sizing and positioning of sponsors' signage; our schedule and itinerary and more.  Too small to sponsor at the higher levels?  There's a wonderful role for you too.  Become a Regional Representative of the Center for Long-Term Care Reform and work with me in your local area to organize speaking events, attract media attention, and wake the public up about LTC planning.  For those details, go to *** 

*** MORE MEDIA COVERAGE OF THE TOUR:  "Where in the Heck is Steve Moses This Month?  The Center for Long-Term Care Reform's Steve Moses is taking the issue of long-term care on the road.  In a specially-equipped Airstream trailer (the Silver Bullet), Moses will travel around the country and discuss the problems with Medicaid expansion and long-term care insurance as a private sector alternative.  Read his latest update here  If you would like to schedule an event with Steve, get more information here"  (Source:  SPN Medicaid Exchange, 1-15-2008.  This newsletter is published by the National Center for Policy Analysis in Dallas, TX and is a wonderful resource for news and analysis about all aspects of Medicaid.) *** 

*** YESTERDAY ON THE TOUR, I worked with the Center's Miami Regional Representative George Braddock of G. Holmes Braddock & Associates.  George and I and "Fearless Caregiver" Gary Barg ( were interviewed by Joseph Cooper, host of the WLRN 93.1 "Topical Currents" show.  We hope to have a link for you to that hour-long call-in program by early next week.  Later in the day, Regional Rep Braddock interviewed me on video at the University of Miami's state-of-the-art broadcast studio for a program we also want to make available to you soon.   

Already, with only two weeks of the LTC Tour behind us, I'm constantly amazed at the resourcefulness and creativity of the Center for Long-Term Care Reform's Regional Representatives.  Together we will continue throughout this year to wake up America to the importance of responsible long-term care planning and rational LTC public policy.  If you want to join the LTC Tour as a Regional Rep of the Center, contact Damon at 206-283-7036 or for details.  When you qualify, you'll work directly with me to plan speaking events and media opportunities in your area. *** 



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 2006 statistics on its website at  

The current issue of Health Affairs (Vol. 27, Issue 1, pps. 14-29) contains a summary and analysis of the new data titled "National Health Spending in 2006:  A Year of Change for Prescription Drugs."  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?, 2006 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 $124.9 billion on nursing home care in 2006.  The percentage of nursing home costs paid by Medicaid and Medicare has gone up over the past 36 years (from 26.8% in 1970 to 60.1% in 2006, up 33.3 % of the total) while out-of-pocket costs have declined (from 52.0% in 1970 to 26.4% in 2006, down 25.6% of the total).  Source:, Table 9.

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 (43.4% of the dollars in 2006), 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 7.4% of nursing home costs that CMS reports as having been paid by "private health insurance" in 2006.  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 $35,628 per year (Source:  MetLife survey at  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 $52.7 billion on home health care in 2006.  Medicare (37.6%) and Medicaid (33.6%) paid 71.2% of this total and private insurance paid 11.4%.  Only 11.2% of home health care costs were paid out of pocket.  The remainder came from several small public and private financing sources.  Data source:, Tables 4 and 11. 

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  

In the Deficit Reduction Act of 2005, 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