LTC Bullet:  LTC Numbers You Can Trust

Friday, April 13, 2012

Santa Fe, NM—

LTC Comment:  Who says 70 percent of seniors will need LTC?  What exactly does that mean?  Whose numbers can you trust?
 


LTC BULLET:  LTC NUMBERS YOU CAN TRUST

LTC Comment:  One of the biggest benefits of membership in the Center for Long-Term Care Reform is the ability to ask us questions about LTC financing and expect a quick reply. 

Long-time friend, supporter and member of the Center, LTCI broker Ed Hutman, CLTC, LTCP of Group LTC Services and Baygroup Insurance in Baltimore, Maryland recently posed the following question to us.  (Published with Mr. Hutman’s permission.)

“Steve:  I have not seen these particular statistics (from your newsletter shown below).

All right. We know 70 percent of seniors will require some long-term care and 20 percent will need five years or more. We know LTC is very expensive whether it's provided in a nursing home, assisted living facility or in your own home. We know private long-term care insurance is inexpensive compared to the cost of care if needed. We know most Americans could afford LTC insurance, but too few buy it. Why?  (From LTC Bullet:  The Completely Understandable LTCI Buyer’s Guide, Friday, March 30, 2012)

The only specific study that I have seen that appears to have credibility (though due to its age perhaps no longer relevant) is the Kemper Murtaugh Study reported in the New England Journal of Medicine in Feb. 1991.  I believe their finding was that of the people reaching age 65 in 1990 43 per cent would spend some time in a nursing home (52% women, 33% men) and of that number 1 in 11 (9%) would require care for longer than 5 years. If I misread the study and their statement was that 1 in 11 of the total population would require more than 5 years of care, then the percentage of those who actually required care for more than 5 years would be 20%.  If there was another study that was conducted, please let me know. . .  Ed

My same-day reply follows.  If you are a member of the Center for Long-Term Care Reform or if you join (here or by contacting Damon at 206-283-7036 or damon@centerltc.com), we’ll do our level best to give you the same kind of accurate, quick-turnaround answers.  “The Almanac of Long-Term Care,” referenced in my reply to Ed, is a feature in our members-only website, “The Zone.”  Your user name and password as a Center member will get you into the LTC Almanac and many other resources available only in The Zone.

Hi Ed,

Excellent question. We haven't used the old Kemper Murtaugh NEJM article since this one came out:

Peter Kemper, Harriet L. Komisar, and Lisa Alecxih, "Long-Term Care Over an Uncertain Future: What Can Current Retirees Expect?," Inquiry, Vol. 42, Winter 2005/2006, pps. 335-350, http://www.inquiryjournal.org/.

Below is my entry in "The Almanac of Long-Term Care" describing and quoting the newer article including a link to my critique of it in a contemporaneous LTC Bullet.  I've highlighted the sentence that covers the "70%/20%" stats (actually 69%/20%) that you see referenced everywhere these days.  By the way, as a member of the Center you have access to the LTC Almanac in The Zone.  It's a good place to look when you're searching for information like this . . ..

I have a feeling that other readers may have the same question you raised.  They also might benefit from a reminder about the LTC Almanac resource. May I use your question and my answer in an upcoming [LTC Bullet]?

Best regards, 

Steve

Stephen A. Moses, President
Center for Long-Term Care Reform
2212 Queen Anne Avenue North, #110
Seattle, WA 98109
Office: 206-283-7036
Fax: 206-283-6536
Email: smoses@centerltc.com
Web site: www.centerltc.com

The Center for Long-Term Care Reform is a private institute dedicated to ensuring quality long-term care for all Americans. Sign up for our LTC Bullets online newsletter and become a member of the Center at www.centerltc.com.

--------------

Excerpt from “The Almanac of Long-Term Care

Inquiry Article 2006

Peter Kemper, Harriet L. Komisar, and Lisa Alecxih, "Long-Term Care Over an Uncertain Future: What Can Current Retirees Expect?," Inquiry, Vol. 42, Winter 2005/2006, pps. 335-350, http://www.inquiryjournal.org/.  I purchased a copy of this article from Inquiry.  See files.

Steve Moses’s critique of the Inquiry article, taking issue with many of its assumptions and conclusions, is here:  “LTC Bullet:  Microsimulate This!,” Tuesday, March 28, 2006, http://www.centerltc.com/bullets/archives2006/622.htm)

Quotations from the Inquiry article follow.  The data points Ed Hutman asked about specifically are highlighted:

Abstract: "The leading edge of the baby boom generation is nearing retirement and facing uncertainty about its need for long-term care (LTC). Using a microsimulation model, this analysis projected that people currently turning age 65 will need LTC for three years on average. An important share of needed care will be covered by public programs and some private insurance, but much of the care will be an uninsured private responsibility of individuals and their families-a responsibility that will be distributed unequally. While over a third of those now turning 65 are projected to never receive family care, three out of 10 will rely on family care for more than two years. Similarly, half of people turning 65 will have no private out-of-pocket expenditures for LTC, while more than one in 20 are projected to spend $100,000 or more of their own money (in present discounted value). Policy debate that focuses only on income security and acute care-and the corresponding Social Security and Medicare programs-misses the third, largely private, risk that retirees face: that of needing LTC." (p. 335)

"Medicaid pays for LTC, but only for those with limited income and assets. This means individuals must have low income and savings, or must exhaust their financial resources, if they are to qualify for Medicaid coverage." (p. 335)

"In general, the model projections assume that current policy and behavior continue into the future. For example, Medicaid benefits and income and asset eligibility requirements are assumed to continue unchanged." (p. 338)

"For Medicaid eligibility and benefits, the model applies uniform eligibility rules, reflecting average national criteria, rather than modeling the details of each state's Medicaid program. This is because the core population on which the model is based is not representative at the state level." (p. 339)

"To determine Medicaid's role in nursing home care, the model simulates Medicaid eligibility, including the process of individuals using their income and drawing down their assets to pay for LTC, some to the level of Medicaid eligibility." (p. 340)

"Another important source of uncertainty surrounds changes in public policy and people's behavioral responses to them. For example, during the past decade, state expansions of Medicaid home and community-based services waiver programs and federal legislation changing Medicare's payment system for home health services affected the use of LTC services in important ways, but would have been difficult to foresee. Future policy changes are similarly difficult to foresee. For the present analysis, however, our purpose is to focus attention on the policy issues assuming there will be no change in policy, rather than to analyze the effect of policy that might be enacted." (p. 341)

"Over the rest of their lives, the current cohort of 65-year-olds will need, on average, LTC (facility care, formal home care services, or informal care at home) for a total of three years, according to the model simulations (see Table 1). Dramatic differences, although not surprising, exist between women and men. Women will need LTC for a longer time-for an average of 3.7 years, compared with 2.2 years for men.

"These averages mask enormous variation in the need for LTC. While an estimated 31% of people currently turning 65 will not need any LTC before they die, 20% will need care for more than five years. Indeed, those in the top 10% with respect to years of care need will account for 37% of the total years of care needed by the cohort (not shown)." (p. 341-42, emphasis added.)

"Because only 3% of people in the cohort are projected to use services paid for by private LTC insurance, out-of-pocket spending dominates the private expenditure distribution. Fifty percent of the retiring cohort will have no out-of-pocket expenditures for LTC, but 6% will incur out-of-pocket expenditures with a present value of $100,000 or more." (p. 345)

"Out-of-pocket expenditures will be incurred by those who rely on Medicaid as well as by those who do not. Among the 30% of people who will receive some LTC coverage under Medicaid during the rest of their lives, 95% will spend some money out of pocket for LTC (see Table 5). These expenditures include both assets that they ''spend down'' before becoming eligible for Medicaid and income, which Medicaid requires beneficiaries to contribute toward their care (except for a small personal-needs allowance). The amount spent out of pocket by those who rely on Medicaid for LTC will range widely. While 52% will have out-of-pocket expenses of less than $10,000 (including those with none), about 10% will spend $100,000 or more out of pocket in some combination of income and assets. Indeed, the average out-of-pocket expenditures for people who receive some Medicaid LTC will be an estimated $35,000." (p. 345)

"Public programs and private insurance will pay for 55% of paid care received either at home or in facilities. The remaining 45% of LTC expenditures will be paid for out of pocket." (p. 345)

Results

"Over the rest of their lives, the current cohort of 65-year-olds will need, on average, LTC (facility care, formal home care services, or informal care at home) for a total of three years, according to the model simulations (see Table 1). Dramatic differences, although not surprising, exist between women and men. Women will need LTC for a longer time-for an average of 3.7 years, compared with 2.2 years for men.

"These averages mask enormous variation in the need for LTC. While an estimated 31% of people currently turning 65 will not need any LTC before they die, 20% will need care for more than five years. Indeed, those in the top 10% with respect to years of care need will account for 37% of the total years of care needed by the cohort (not shown). [Emphasis added]

"Women have a higher risk of ever needing LTC than men-an estimated 79% of women currently turning 65 will need LTC sometime before they die, compared with 58% of men. Women also face a greater risk of a lengthy period of LTC need-28% will need care for more than five years versus 11% of men." (pps. 341-42)

"People currently turning 65 face a substantial risk of relying on their families for extended periods of caregiving. Sixty-five percent of all people in the cohort will spend some time at home with LTC need. Among the entire cohort, 30% will receive more than two years of care at home, and 11% will receive more than five years of care at home. Twenty-three percent of the cohort will rely solely on informal care for longer than two years, and 6% will do so for more than five years.

"Individuals also differ widely in their projected use of facility care. While 63% of people in the cohort will not use any nursing home or assisted living care, 8% will spend more than five years in facilities. The model projects that 35% of the cohort will use nursing home care, with 5% spending more than five years in nursing facilities. Fewer people will use assisted living facilities. The model estimates that 13% of the cohort will use this type of care, 1% for more than five years." (p. 343)

The model estimates that average lifetime use among nursing home users is about 2.3 years (not shown), within the 1.8- to 2.8-year range of previous estimates. Among nursing home users, the risk of using more than five years of care is about 14% (not shown), again within the 12% to 21% range of other estimates. (p. 343)

"Projected expenditures for LTC services are substantial. The present discounted value of lifetime LTC expenditures is estimated to average $47,000 in 2005 dollars (see Table 3). This is the average amount per person that would have to be set aside and invested for people at age 65 to pay for all their LTC expenditures over the rest of their lives. The amount a specific person will need varies widely among individuals. Government programs are projected to pay for 53% of total LTC expenditures of the cohort turning 65. Private LTC insurance is projected to cover only about 2% of the cohort's LTC expenditures. On average, the cohort faces out-of-pocket expenditures of $21,100. Thus, 45% of the cohort's total LTC expenditures are projected to be an uninsured private expense.

"Nursing and assisted living facility care will account for the lion's share of the cohort's LTC expenditures-an average of $38,900. Over three-quarters of these expenditures will be for nursing facility care, based on the modeling assumptions about growth in assisted living. Public programs, primarily Medicaid, will pay for 46% of all facility care (not shown). The rest will be paid for privately, nearly all out of pocket. However, the mix of public and private funds will differ strikingly for nursing home and assisted living care-public sources will pay 57% of average lifetime nursing facility expenditures, while private sources (out-of-pocket spending and private LTC insurance) will pay 92% of the expenditures for care in assisted living facilities." (p. 343)

"Fifty percent of the retiring cohort will have no out-of-pocket expenditures for LTC, but 6% will incur out-of-pocket expenditures with a present value of $100,000 or more." (p. 345)

"These expenditures include both assets that they ''spend down'' before becoming eligible for Medicaid and income, which Medicaid requires beneficiaries to contribute toward their care (except for a small personal-needs allowance). The amount spent out of pocket by those who rely on Medicaid for LTC will range widely. While 52% will have out-of-pocket expenses of less than $10,000 (including those with none), about 10% will spend $100,000 or more out of pocket in some combination of income and assets. Indeed, the average out-of-pocket expenditures for people who receive some Medicaid LTC will be an estimated $35,000." (p. 345)

Discussion

"It is this wide variation in the projected need for LTC that poses a challenge for both individuals and policymakers. The challenge can be thought of usefully as an insurance problem. Indeed, given its wide variation and uncertainty, LTC need appears to be the archetypal insurable risk that could be spread by insurance, public or private. A private insurance market exists to do so, and government programs provide public insurance for some LTC. The simulations clearly show, however, that existing private and public insurance leaves substantial gaps in coverage of LTC risks-both risks of incurring out-of-pocket costs and risks to families of providing in-kind care." (p. 346)

"The role that private LTC insurance can play in spreading risk is relatively small for a number of reasons. First, not everyone can purchase insurance because insurers underwrite to protect against adverse selection (Murtaugh, Kemper, and Spillman 1995). Second, demand for private LTC insurance is limited. Premiums are high relative to the financial resources of many retirees. Many people consider the product expensive, in part because administrative costs such as marketing and underwriting expenses account for a substantial share of premiums (Lewis, Wilkin, and Merlis 2003; Brown and Finkelstein 2004a).8 People are also uncertain about whether the insurance benefits will cover enough care, and the right type of care, if they need it. In addition, Medicaid's safety-net coverage of LTC for people who exhaust their resources may provide a disincentive for some people to purchase private long-term care insurance.9 Finally, some argue that if private LTC insurance is to play an increased role in spreading risk, products need to be more heavily regulated to improve consumer protection. While regulatory changes and subsidies could increase the role of private insurance somewhat, underwriting and limited demand constrain its ability to spread remaining uninsured out-of-pocket expenses.

"Public insurance could be enacted to spread the uninsured risk of incurring substantial out-of-pocket expenditures, and many proposals have been suggested to do so (Rivlin and Wiener 1988; Scanlon 1992; Wiener et al. 2001). The principal obstacle to doing so is political. For example, the Social Security Act could be amended to add a LTC benefit to Medicare, but this would require a dramatic change in public policy thinking concerning the role of Medicare, which, as indicated, is intended to insure acute care, not LTC. Public responsibility for insuring acute care of the elderly is accepted, but the extent of public responsibility for insuring LTC continues to be debated.

"Incremental expansion of Medicaid coverage by raising financial eligibility limits or making home and community-based services or personal care mandatory benefits also could be enacted to improve access to LTC services. However, this would not insure against the risk of incurring out-of-pocket expenditures as would private or public insurance. Medicaid is designed to be a safety net for those who run out of money to protect against unmet need for LTC, not to limit out-of-pocket expenditures.10 Indeed, it is not insurance in the usual sense of the term: Medicaid insures the combined risk of needing LTC and being unable to pay for it. For those with moderate financial resources, it is contingent insurance for LTC-contingent on first spending nearly all their financial resources, often on LTC. It does not protect income and assets for other things such as living expenses or bequests, and it only partially protects financial resources for spouses.11 On the contrary, it ensures that private financial resources are exhausted before benefits are provided. We saw that 10% of those who eventually qualify for Medicaid will have more than $100,000 in out-of-pocket expenditures. While Medicaid plays an essential role as a LTC safety net for those with limited financial resources, it is limited as insurance against out-of-pocket spending." (p. 346)

"Policy debate that focuses only on income security and acute care-and the corresponding Social Security and Medicare programs-misses the third risk that retirees face: that of needing LTC. That risk is substantial; under current Medicare and Medicaid policy much of it is the uninsured private responsibility of individuals and families. And the uninsured risk is not easy to spread." (p. 347)