LTC Bullet: So What If the Government Pays for Most LTC?, 2009 Data Update
Wednesday, January 26, 2011
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.
LTC BULLET: SO WHAT IF THE GOVERNMENT PAYS FOR MOST LTC?, 2009 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 2009 statistics on its website at http://www.cms.hhs.gov/NationalHealthExpendData/downloads/tables.pdf.
The current issue of Health Affairs (Vol. 30, No. 1, pps. 11-22) contains a summary and analysis of the new data titled "Recession Contributes to Slowest Annual Rate of Increase in Health Spending in Five Decades." Registered subscribers to Health Affairs can access the full text of the article online at http://content.healthaffairs.org/content/30/1/11.full.pdf+html.
Note that CMS changed the definition of National Health Expenditure Accounts (NHEA) categories this year, adding for example Continuing Care Retirement Communities (CCRCs) to Nursing Care Facilities. This change had the effect of reducing Medicaid's reported contribution to the cost of nursing home care from over 40% in 2008 to under one-third (32.8%) in 2009. CMS also created a new category called "Other Third Party Payers" (7.1%) which includes "worksite health care, other private revenues, Indian Health Service, workers' compensation, general assistance, maternal and child health, vocational rehabilitation, other federal programs, Substance Abuse and Mental Health Services Administration, other state and local programs, and school health." For definitions of all NHEA categories, see http://www.cms.gov/NationalHealthExpendData/downloads/quickref.pdf.
Following is our annual analysis of the new nursing home and home health care data.
"So What If the Government Pays for Most LTC?, 2009 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 $137.0 billion on nursing facilities and Continuing Care Retirement Communities in 2009. The percentage of these costs paid by Medicaid and Medicare has gone up over the past 39 years (from 26.8% in 1970 to 53.2% in 2009, up 26.4 % of the total) while out-of-pocket costs have declined (from 49.5% in 1970 to 29.1% in 2009, down 20.4% of the total). Source: http://www.cms.hhs.gov/NationalHealthExpendData/downloads/tables.pdf, Table 9.
SO WHAT? Consumers' liability for nursing home and CCRC costs has declined by almost 40% in the past 3.9 decades, while the share paid by Medicaid and Medicare has very nearly 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 parsimonious 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 one-third the cost of nursing home care (32.8% of the dollars in 2009), 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 7.7% of nursing home costs that CMS reports as having been paid by "private health insurance" in 2009. That category does not include private long-term care insurance. (See category definitions here.) No one knows how much LTC insurance pays toward nursing home care, because most LTCI policies pay 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 $39,516 per year (Source: 2010 MetLife survey at http://www.metlife.com/assets/cao/mmi/publications/studies/2010/mmi-2010-market-survey-long-term-care-costs.pdf). 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 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 $68.3 billion on home health care in 2009. Medicare (43.6%) and Medicaid (35.6%) paid 79.2% of this total and private insurance paid 7.3%. Only 8.8% of home health care costs were paid out of pocket. The remainder came from several small public and private financing sources. Data source: http://www.cms.hhs.gov/NationalHealthExpendData/downloads/tables.pdf, Table 4.
SO WHAT? Less than 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 www.centerltc.com.
"Medi-Cal Long-Term Care: Safety Net or Hammock?" at http://www.pacificresearch.org/docLib/20110104_LongTermCare_final(2).pdf;
"Doing LTC RIght" at http://www.centerltc.com/pubs/Doing_LTC_RIght.pdf;
"The LTC Graduate Seminar Transcript" at http://www.centerltc.com/members/LTCGradSemTranscription.pdf (requires password, contact firstname.lastname@example.org);
"Aging America's Achilles' Heel: Medicaid Long-Term Care" at http://www.centerltc.com/AgingAmericasAchillesHeel.pdf; and
"The Realist's Guide to Medicaid and Long-Term Care" at http://www.centerltc.org/realistsguide.pdf.
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 (www.cato.org). Learn more at www.centerltc.com or email email@example.com.