LTC Bullet: New LTC Financing Study Uninterpreted or Misinterpreted

Tuesday, March 24, 2009

Novato, California--

LTC Comment: A new report on LTC financing by Avalere Health was reported uncritically by many and mistakenly by one source. Details after the ***news.*** [omitted]



LTC Comment: A December 2008 "chart book" commissioned by the SCAN Foundation and developed by Avalere Health LLC is worth a quick look. It's titled "Long-Term Care --- an Essential Element of Healthcare Reform." You can find it at

Half a dozen publications I follow highlighted this report. Most described the study's allegedly most important finding uncritically. To wit: more people pay privately for long-term care than previously thought. One reporter put this spin on that finding by titling his story: "Study debunks long-term care Medicaid 'myth,' researchers say."

Evidently, we're supposed to interpret this to mean Medicaid isn't such a big factor in long-term care after all. So how could it be crowding out the market for private LTC insurance? All right, let's take a look at the actual data and see what they really mean.

The Avalere report says 35 percent of long-term care is privately financed. That's higher than usually reported because it includes the cost of assisted living, which is usually left out of such computations. Furthermore: "In 2006, individuals and their families contributed an estimated $64 billion in private out-of-pocket spending on long-term care. In addition, families and communities played a central role in the nation's long-term care system by providing unpaid care giving valued at $350 billion." (p. 18)

Gee, all that private spending and unpaid care does seem to dwarf Medicaid's piddly 43 percent of long-term care costs. But, think again. Take all the numbers apart and see what they mean. For example:

Avalere says out-of-pocket costs are 28 percent of the total private financing. But the report doesn't acknowledge that fully half of that 28 percent is nothing more than the spend-through of Social Security income of people already on Medicaid. How do you think Medicaid pays only 43 percent of LTC costs but covers two-thirds of all nursing home residents? Sure, it is private financing. But it comes directly from another grossly underfunded government program. Social Security has a $16 trillion unfunded liability. What happens when Social Security can't go on propping up Medicaid LTC?

And how about the other seven percent of the 35 percent reported as total private financing? That's attributed to "private insurance." Most people think that tag means private LTC insurance, but it doesn't. LTCi pays only $3.5 billion of the $165 billion for LTC, or about 2.1 percent. The seven percent attributed to private insurance is really a constructed number derived by subtracting all the known sources of LTC financing from 100 percent and assuming the remainder is "private insurance." If it has any meaning at all, it includes major medical and MedSupp payments as well as LTCi.

Now, consider whether including assisted living payments in the computation of private LTC financing is appropriate. Sure, ALFs are mostly private pay, but assisted living has a large food and lodging component that is not really care related. Same for nursing homes? True, but the care component of skilled nursing is a much higher proportion for the vast majority of residents.

The Avalere study makes some interesting observations about Medicare. For example, Medicare pays 18 percent of all LTC costs. That's not much compared to Medicaid, but here's the difference. Medicare pays very generously. Nursing homes and home health agencies make sizable profits on their Medicare business, whereas they lose money on Medicaid patients. The study also points out that while Medicare does not pay for long-term care directly, many of the program's post acute care services may "fill in" for LTC needs. Examples include Medicare-financed hospice care and home health care.

Now consider this. Medicare has an $86 trillion unfunded liability. When Medicare stops propping up Medicaid's LTC financing, what will happen? Who's going to make up the difference? Not LTC insurance as long as that market's crowded out by the massive ongoing disproportion of government LTC financing.

Bottom line: what this Avalere report seems to suggest on the surface to some, i.e. that private LTC financing is a bigger factor than we thought, is really a misunderstanding. Add up all the sources of LTC financing in the report and see what you get:

Medicaid: 43 percent
Medicare: 18
Out-of-pocket: 28
     SS income: 14
     Other: 14
Insurance: 7
Other: 4
     TOTAL 100 percent
In other words:
Pure Private: 14 percent
Third party: 82 percent
Other: 4 percent

The reason this matters is that most expensive long-term care is paid either directly by government (Medicaid and Medicare), indirectly by government (Social Security spend-through by Medicaid recipients) or by other third parties (insurance carriers). That's why most Americans are asleep about the risk and cost of long-term care. That's why they fail to plan early to save, invest or insure for long-term care. And thatís why baby boomers are in for a world of LTC hurt, when the bottom falls out of government-financed long-term care.

For more analysis of this issue, see "LTC Bullet: So What If the Government Pays for Most LTC?, 2007 Data Update," Tuesday, January 13, 2009 at

Ah, but what about the $350 billion worth of unpaid care contributed by families, mostly women. Doesn't that count? Of course it does. Unpaid care is a tremendous financial and emotional strain on families. But ask yourself "Why is so much long-term care unpaid and provided by family members?"

The answer is clear. Since 1965, the government has paid for most expensive long-term care. That reality anesthetized the public to LTC cost and left most people uninsured and unable to purchase professional care to supplement family care. At the same time, family care became less easily available as women, the primary caregivers, went more and more into the formal work force. The terrible cost and stress of family care-giving occurs today because those same women are forced to leave or reduce their compensated work to take care of loved ones without pay and without paid professional assistance.

Government financed long-term care that goes beyond a safety net for the poor has had many negative consequences. It crowded out a market for high quality home and community-based care by paying mostly for nursing homes. It impeded a market for private LTC insurance by providing free or radically subsidized care after the insurable event occurred. It caused quality of long-term care to plummet by paying inadequately for all levels of care. It choked off desperately needed investment capital to build, operate and maintain the vast long-term care infrastructure boomers will need someday.

In a nutshell: Solving the USA's long-term care problem by adding more government financing would be like putting out a fire . . . by dousing it with gasoline!