LTC Bullet:  Does California Need a Long-Term Care "Czar"?

Wednesday, May 11, 2011

Seattle--

LTC Comment:  What California's "Little Hoover Commission's" LTC report left out is far more important than what it included as you'll see from my state legislative testimony after the ***news.***

*** TODAY'S LTC BULLET is sponsored by Claude Thau, a General Agent who helps LTCi producers build business in any market (individual, executive carve-out, work-site, affinity, financial institution, referrals from other professionals, etc.). He has been expert in CLASS for 6 years and has tools to leverage CLASS for private LTCi sales. Claude is the lead author of the Milliman Broker World LTCi Surveys, was named one of the 10 "Power People" in the LTCi industry by Senior Market Advisor in 2007 and was Chairman of the Board of the Center for Long-Term Care Financing. Test Claude by calling 800-999-3026, x2241 or email him at claudet@targetins.com to ask questions or get references. ***

*** 2011 CARE COSTS:  "Although long-term care costs in nursing homes and assisted living facilities continued to rise last year, in-home care costs did not increase at all, and have risen very little in the past six years, according to the 2011 Cost of Care Survey sponsored by Genworth Financial, a provider of long-term care insurance."  (US News, 5/10/11)  Cost of care map here; key findings here; full report here; "Beyond Dollars" report here. ***

*** TOP TEN LTCI PRODUCERS named by AALTCI:  "The nation's top long-term care insurance agents and brokers in each state were recognized today for their commitment and results during the prior year."  (PRLog, 5/9/11)  Check 'em out here. ***

LTC BULLET:  DOES CALIFORNIA NEED A LONG-TERM CARE "CZAR"?

LTC Comment:  From March to November 2010, California's "Little Hoover Commission" studied the Golden State's long-term care system.  In April 2011, the Commission published a report titled "A Long-Term Strategy for Long-Term Care."

That report calls on the state to streamline and consolidate its LTC organizational structure, to create a "seamless continuum of long-term care services," and to find a "champion" ("LTC Czar?") to promote those goals.

In my testimony yesterday before the California Senate's Human Services Committee, I criticized the Little Hoover Commission's report for what it includes (mostly bureaucratic reorganization) and what it leaves out (anything having to do with the causes of or solutions for California's LTC service and financing problems).

I pointed out that no amount of streamlining, consolidating and championing state LTC programs and activities will save them from financial collapse without finding ways to attract more private financing for long-term care to relieve the fiscal burden on the state.

Unfortunately, the Little Hoover Commission's report contains no analysis or recommendations about how and why (1) Medi-Cal LTC is bankrupting the state, (2) few Californians pay for their own LTC and most rely on Medi-Cal, (3) LTC insurance market penetration is only 5.4 percent; (4) hardly anyone in California uses home equity conversion to pay for LTC; (5) the California LTC Partnership Program is dying for lack of attention; and a whole range of additional issues that bear directly on California's disastrous long-term care service and financing problems.

As one of our Center supporters put it:  "I read the first 50 pages of the Hoover Report - no mention of people spending money out of their own pockets for LTC.  No mention of LTC insurance.  It's a recommendation to set up a new Government Agency to coordinate the efforts of other State agencies currently administering state-tax-funded programs for LTC.  It's basically someone in the State trying to set up their own little kingdom, ignoring how LTC is actually funded and assuming the bankrupt State of California is going to come up with more dollars to fund the Baby Boomers' LTC.  Just arranging the deck chairs on the Titanic.  Steve could provide a wake up call."

And so I did.  I testified that I had good news for the Committee and the Commission.  All the needful questions have been asked and answered in another report, titled "Medi-Cal Long-Term Care:  Safety Net or Hammock?" published by the Pacific Research Institute and by the Center for Long-Term Care Reform in January of this year.  Our report provides a step-by-step approach to save Medi-Cal billions of dollars while improving access to and quality of long-term care for all Californians.

In a nutshell, California doesn't need a long-term care "champion" or "Czar."  It needs some good, common-sense analysis of its LTC problem and a few simple measures to target scarce public resources to the neediest while encouraging everyone else to plan responsibly for long-term care.

Special thanks are due to the Center for LTC Reform supporters who made supplemental contributions that enabled me to travel to Sacramento and provide this legislative testimony:  Prudential Financial, Joe Sturla, Jack Schmitz, Carol Gardner, Steve Forman, Gary Charlon, Sally Leimbach, Bob Callanan, Terry Wood, Michael Bellmont, Susan Geffen, Bill Dorffi, Annemiek Storm, Gene Tapper, Alan Jonas, Julie Garron, Charles C. Arnold.

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Following is Steve Moses's testimony before an Informational Hearing of the California Senate Human Services Committee as presented on Tuesday, May 9, 2011 at the Capitol in Sacramento, California.

Madame Chair and Members of the Committee,

Thank you for inviting me to comment on the Little Hoover Commission's report titled "A Long-Term Strategy for Long-Term Care."

I confess I'm a little puzzled by what that report includes AND even more so by what it leaves out.

The report attributes California's catastrophic long-term care service delivery and financing problem to inadequate central planning.

Its three major recommendations are to (1) create a new state department, (2) pursue "visioning and strategy-building" to "create a seamless continuum" of care and (3) find a long-term care "champion."

The report seems to be saying--just keep doing what you're doing but do it more efficiently!

I'm not sure that will help very much.

Today, I'd like you to consider some of the absolutely critical questions that the Little Hoover Commission report ignores altogether.  For example:

  • Why does most of the cost of long-term care fall on state and federal programs in the first place?
  • Why is a public assistance program, Medi-Cal, the dominant payer for LTC?
  • Why do so few Californians pay for their own LTC?
  • Why do you have to "rebalance" away from nursing home care toward home care when no one wants to go to a nursing home?
  • Why is the cost of Medi-Cal long-term care bankrupting the state?
  • Why is access to and quality of care so problematical?
  • How can California possibly support such a system as you have now when the Age Wave crests and crashes?

The Little Hoover Commission study purports to tell you how to fix long-term care in California without even mentioning, much less answering, these key issues.

But, I have some good news for you today.  All these questions have been addressed and answered in another report, titled "Medi-Cal Long-Term Care:  Safety Net or Hammock?"

It was published by the Pacific Research Institute and by my own Center for Long-Term Care Reform.  It provides step-by-step measures you can take to improve LTC services and financing in California while radically reducing Medi-Cal expenditures.

Here's how our report addresses the key questions that the Little Hoover Commission ignored:

  • Why does most of the cost of long-term care fall on state and federal programs in the first place?

In 1965, the federal government made long-term care provided in a nursing home virtually free of charge by creating the Medicaid program.

In the beginning, Medicaid had no transfer of assets restrictions or estate recovery requirements.  Virtually anyone could qualify easily and, in time, practically everyone did.

Over the years, private-pay residents nearly disappeared and Medi-Cal became by far the biggest funder of long-term care.

  • Why is a public assistance program, Medi-Cal, the dominant payer for LTC?

Most people think Medi-Cal requires catastrophic spend down into total impoverishment before people become eligible for it. 

But if that were true, Medi-Cal would be a relatively minor funder of LTC.  The truth is very different and much more complicated.

Income almost never disqualifies someone from Medi-Cal LTC eligibility.  In California, if your total medical expenses, including the cost of private nursing home care, reduce your residual income to poverty level, you're eligible.

You don't have to be low income.  You only need to have a "cash flow" problem after you pay all your medical and LTC bills.

But what about assets?  Isn't true you can only retain $2,000?

Yes, but no one cares how you spend your wealth to get down to that level?  Take a world cruise; throw a party of Ziegfield follies proportion.  As long as you get value and you don't just give away your wealth, it doesn't count.

You do not have to spend down for long-term care!  You can retain virtually unlimited exempt assets, such as

  • Home equity up to of a million dollars (only $37,000 in England)
  • A business including the capital and cash flow of unlimited value, including even a multi-unit apartment house if you claim one of the units as the home you intend to return to.
  • One auto of unlimited value, which because it's exempt, you can give away, buy another and so on until you reach the $2,000 cash limit:  The "Two Mercedes Rule"
  • Prepaid burial funds of unlimited value for the Medi-Cal recipient and all his or her immediate family members.  Upwards of 85% of all recipients have done so.
  • Unlimited term life insurance
  • Unlimited household goods and personal belongings, including "heirlooms"
  • IRA assets as long as you're receiving periodic interest and principal payments

The rules for married couples are even more generous, allowing community spouses to retain $2,739 per month of income and $109,500 in assets in addition to all the other exemptions.  California is far more generous in this regard than most states.

On top of all this, California has a plague of so-called Medi-Cal planners, attorneys and other financial advisors who artificially impoverish clients to qualify them for Medi-Cal benefits using techniques such as trusts, transfers, "Medi-Cal friendly" annuities, and "life care contracts."

Medi-Cal planners target adult children of frail and infirm elderly offering early inheritances to the heirs and free long-term care to their parents, assuring access to the best Medi-Cal has to offer by holding back "key money" to pay privately long enough to buy their way into the nicest facilities that still have some Medi-Cal beds.

  • Why do so few Californians pay for their own LTC?

Simple.  Ever since Medi-Cal began in the late 1960s, Californians have been able to ignore the risk and cost of long-term care, avoid paying premiums for private insurance, wait to see if they ever need expensive care and, if they do, divert the cost to Medi-Cal while preserving inheritances for their heirs.

The more apt question is:  Why do any Californians pay for their own long-term care? 

The answer is that Medi-Cal has such a poor reputation for problems of access, quality, reimbursement, discrimination, institutional bias and loss of independence, that some people are willing to pay privately for quality home care or assisted living even though they could get care for free from the state.

  • Why do you have to "rebalance" away from nursing home care toward home care when no one wants to go to a nursing home?

California has made a huge investment in the altogether noble effort to provide more of the LTC services people prefer (home and community-based) and less of the care they'd rather avoid--nursing homes.

You should ask: why do you have a nursing home bias in the first place?  The answer is that Medi-Cal made nursing home care virtually free and thus crowded out a private market for home and community based services.

Will home care services save money?  All the research says they won't.  HCBS delay but do not replace institutional care.  People live longer and end up in nursing homes anyway, costing more across their lifetimes and across the whole caseload.

Furthermore, when Medi-Cal provides services people want like home care, more people want them.  Both caseload and costs increase.

  • Why is the cost of Medi-Cal long-term care bankrupting the state?

By making long-term care basically a free publicly provided good, the state of California, has anesthetized consumers to the risk and cost of long-term care.  People don't worry about LTC until they need it.  Then it's too late to save, invest or insure.

Medi-Cal LTC's income and asset limits are so generous that most middle class people qualify easily after they already need LTC and even affluent people can qualify quickly and inexpensively with the help of Medi-Cal planners.

While the federal government requires states to recover benefits paid from the estates of deceased Medi-Cal recipients, California does not maximize this potential source of non-tax revenue; most Californians are not aware of the liability; and Medi-Cal planners routinely advise their clients how to evade estate recovery rules.

Medi-Cal's home equity exemption of $750,000 is nearly double the median home value in the state of $343,000.  No wonder Californians don't use home equity conversion, through formal or informal reverse mortgages, to fund their own LTC.

With the high cost of LTC easy to avoid after the insurable event occurs, most Californians don't even consider the option of purchasing private long-term care insurance.  The state has no tax incentives for the purchase of that kind of insurance and has dropped the ball on the LTC Partnership Program which could help much more.

  • Why is access to and quality of care so problematical?

By turning over most long-term care financing to a virtually bankrupt welfare program, California has denied LTC providers--including nursing homes, assisted living facilities, and home care agencies--adequate funding to ensure access to quality long-term care.

  • How can California possibly support such a system as you have now when the Age Wave crests and crashes?

In a nutshell, it can't.  Medi-Cal is finished as the dominant payer of long-term care in California.  Public officials can recognize that fact, adapt, and preserve a much smaller safety net program.  Or you can ignore the problem, watch the system fall apart, and end up with the same attenuated public system by default.

So, what should you do?  Our report lays out a plan with both general and specific recommendations.

In general:

  • Clearly establish the principle that long-term care is a personal responsibility, not a social right.
  • Conduct a comprehensive review of the current LTC service delivery and financing system to identify and eliminate policies that encourage public dependency.
  • Incentivize the middle class and affluent to plan early and save, invest, or insure for LTC.
  • Reduce the number of expensive Medi-Cal/Medicare "dual eligibles" in the future by diverting more Californians to private LTC financing alternatives while they are still young enough, healthy enough, and affluent enough to save, invest or insure for LTC.
  • Stop expecting "rebalancing" to save money and start providing more home- and community-based services, but to fewer, needier recipients.
  • Get out of the way of private markets. Encourage private-sector sources of financing such as greater asset spend-down, estate recovery, home equity conversion, and private long-term care insurance.
  • Pay LTC providers adequately to ensure access to quality care at the most appropriate level for a much smaller caseload.
  • Forget the chimera of the CLASS Act and insist on actuarially solvent private LTC insurance solidly grounded in well-established insurance principles.

For specific proposals on how to achieve those general recommendations efficiently and cost-effectively, please refer to our report.

In conclusion . . .

California's long-term care financing problem is not a lack of central planning.  Reorganizing, creating new bureaucracies, or appointing a "long-term care Czar" won't help.

Medi-Cal does too much for too many too poorly.  You need to do more for fewer people who really need it, but better.

If you keep doing what you've always done, even if you do it marginally better, you'll keep getting the same result. 

Expecting otherwise is Einstein's definition of insanity.

Thank you.

Stephen A. Moses is president of the Center for Long-Term Care Reform (www.centerltc.com) in Seattle, Washington.  Reach him at smoses@centerltc.com or 206-283-7036.