LTC Bullet: So What If the Government Pays for Most Long-Term Care?

Wednesday, July 15, 2009


LTC Comment: The Society of Financial Service Professionals has republished our January LTC Bullet on the disastrous unintended consequences of government LTC financing. We invite you to take another look too, after the ***news.***


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LTC Comment: The Society of Financial Service Professionals ( publishes a quarterly newsletter titled Risk Management: Life, Health, Disability, Casualty & Liability Insurance. Its July 2009 issue includes my article, originally published as a LTC Bullet in January 2009, titled "So What If the Government Pays for Most LTC?"

I want to thank Risk Management Managing Editor Bill Drennan for highlighting our analysis of the LTC financing problem and for adding the following complimentary introduction. You can read our original LTC Bullet of the same title on the Center's website archives here or below after Mr. Drennan's introduction.


Introduction to Risk Management's "So What If the Government Pays for Most LTC?", by Stephen A. Moses

Editor's Note: Stephen Moses, arguably one of the most visible advocates for personal responsibility in long-term care, raises a question that many advisors probably have wondered about at one time or another: "So what if the government foots the bill?" Well, as Mr. Moses clearly indicates, the government already is footing much of the bill and with potentially disastrous consequences for patients, their families and LTC providers, not to mention taxpayers. But, wait a minute! Does anyone really believe that the government should be the payer of last resort for LTC? Should government foot the bill for every American when the need for LTC surfaces--regardless of a person's income or wealth? Should we have a "social security" net for LTC? Is all this talk about personal responsibility for LTC just talk (albeit well intended)? No need to hide behind elaborate Medicaid planning. Simplify Medicaid planning and make it available to everyone. Is this the solution? Is this what we want? Can we afford it?

As an advisor, what are you telling clients, especially older clients, about paying for LTC should the need arise? What's your solution to the challenge of LTC?

Let us hear from you on these issues. Join the Risk Management Section's eGroup discussion forum (go to and click on eGroups). We have invited Stephen Moses to join our discussion threads.



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 2007 statistics on its website at

The current issue of Health Affairs (Vol. 28, Issue 1, pps. 246-261) contains a summary and analysis of the new data titled "National Health Spending In 2007: Slower Drug Spending Contributes to Lowest Rate of Overall Growth Since 1998." 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?, 2007 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 $131.3 billion on nursing home care in 2007. The percentage of nursing home costs paid by Medicaid and Medicare has gone up over the past 37 years (from 26.8% in 1970 to 59.4% in 2007, up 32.6 % of the total) while out-of-pocket costs have declined (from 52.0% in 1970 to 26.9% in 2007, down 25.1% 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 most home equity. 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 (41.7% of the dollars in 2007), 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 almost 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 2007. 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 $36,372 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 $59.0 billion on home health care in 2007. Medicare (40.3%) and Medicaid (34.7%) paid 75.0% of this total and private insurance paid 9.5%. Only 10.2% 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? Only one out of every ten 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 LTC Graduate Seminar Transcript" at (requires password, contact; "Aging America's Achilles' Heel: Medicaid Long-Term Care" at; and "The Realist's Guide to Medicaid and 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 two 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