LTC Bullet:  How RCFs and Duals Impact Medicaid and LTCI

Friday, April 20, 2012


LTC Comment:  Vital new information about residential care facilities and Medicaid/Medicare dual eligibles after the ***news.***

*** GOT AN LTC PLAN?  This column on LifeHealthPRO by Center-premium-member Honey Leveen of Houston strongly endorses the national “3in4 Need More” campaign.  Check it out here including the picture of LTCI stalwarts Sally Leimbach, Gail Steingold and “LTC Queen” Honey Leveen with 3in4 spokesperson Dr. Marion Somers. ***

*** THE PATH OF HOME AND COMMUNITY-BASED CARE.  Steve Monroe, editor of the Senior Care Investor does an excellent weekly 1-minute video called “Sixty Seconds With . . .”   Watch last week’s version here or read it here:  “We all know that most elderly want to stay in their homes for as long as possible.  Who wouldn’t?  But sometimes it may not be the best option.  When Medicaid funds were ‘waivered’ for use in assisted living, the intent was to 1) save on costs as assisted rates were much lower than skilled nursing rates, and 2) have a more appropriate setting for many of the elderly.  On the cost front, all that happened was that the pie got bigger, and more people wanted access to care paid for by someone else.  Now, take the case of the current push for home and community-based care, mostly to keep the elderly out of SNFs.  A wonderful concept, but aren’t we going down the same path, funding more people?  For those elderly residing full time in a skilled nursing facility, staying at home is usually not cheaper, nor is it safer or healthier, if they actually need the level of care that is provided in a SNF, but need it every day.  So, just like with assisted living Medicaid waivers, aren’t we setting ourselves up for creating a larger pool of recipients of state and federal aid, at a time when more money just isn’t available?  Do the math, it just doesn’t work.” ***

*** SPOTLIGHT ON:  The Center for Long-Term Care Reform’s “Almanac of Long-Term Care” is a compendium of information on all aspects of long-term care service delivery and financing organized chronologically by subject for quick and easy access.  The “LTC Almanac” conveniently provides information that will give you a competitive advantage in your long-term care profession.  Members can access the “LTC Almanac” by clicking here.  If you need your user name and password, or are not yet a member, contact Damon at 206-283-7036 or for quick access to The Zone and the LTC Almanac. ***



LTC Comment:  When the Medicaid program started paying for most nursing home care in 1966, it had the effect of distorting the market for long-term care in two ways.

First, because of its easy eligibility rules Medicaid made nursing home care virtually free.  The result was to crowd out a market for privately financed home and community-based care and create the “institutional bias” that has plagued America’s service delivery system ever since.

Second, easy access to Medicaid financing after expensive long-term care was needed prevented private financing alternatives like home equity conversion and private LTC insurance from expanding to their full market potential.

(For a more detailed history of Medicaid long-term care financing, see our briefing paper titled “The History of Long-Term Care Financing or How We Got Into This Mess.”)

By the late 1980s, deficient Medicaid funding for nursing home care caused serious quality problems resulting in a major backlash against publicly financed institutional LTC.  Even though people could get Medicaid nursing home care virtually for free, many chose to pay privately for the much more attractive alternative of assisted living.

Assisted living facilities were luxurious in comparison to Medicaid-dependent nursing homes and they cost about half of what private payers had to pay for nursing homes.  Now middle class people in need of LTC faced contradictory government-induced incentives:

  • Qualify easily for Medicaid but die in a nursing home on welfare, or
  • Pay privately for highly desirable assisted living.

The outcome was predictable.  Private payers in nursing homes nearly disappeared because cost shifting forced them to pay half again as much as Medicaid reimburses nursing homes.  If they were going to spend their own money, why not go into assisted living for half the cost of a nursing home?

Over time, academics and the government figured out that home and community-based (HCB) care, including assisted living, costs much less than nursing home care on a short-term per capita basis.  A nationwide push for “rebalancing” from institutional to HCB care ensued for the dual purpose of reducing Medicaid costs and providing the kind of care people preferred.

A strong case can be made, however, that rebalancing doesn’t save Medicaid money, but rather increases public expenditures.  See our briefing paper titled “Rebalancing Long-Term Care” for that argument.  In a nutshell, the more attractive Medicaid makes its free care, the more likely people are to take advantage of Medicaid and the less likely they are to plan early and responsibly to pay privately for LTC.  The total cost of long-term care to Medicaid continues to increase inexorably year after year despite the widely held view that paying for more home and community-based care “saves money.”

Nevertheless, the relentless trend for Medicaid to buy more HCB care and less nursing home care continues.  A new report from the National Center for Health Statistics (NCHS) provides the first reliable data documenting the utilization of “residential care facilities.”  According to “Residents Living in Residential Care Facilities:  United States, 2010,” by Christine Caffrey, Ph.D., et al.:  "Using data from the first nationally representative survey of RCFs with four or more beds, this report presents national estimates of these RCF residents by selected resident characteristics."

Here are the highlights:

  • The majority of residents living in residential care facilities in 2010 were non- Hispanic white and female. More than one-half of all residents were aged 85 and over.
  • Nearly 2 in 10 residents were Medicaid beneficiaries, and almost 6 in 10 residents under age 65 had Medicaid.
  • Almost 4 in 10 residents received assistance with three or more activities of daily living, of which bathing and dressing were the most common.
  • More than three-fourths of residents have had at least 2 of the 10 most common chronic conditions; high blood pressure and Alzheimer's disease and other dementias were the most prevalent.

Further exacerbating Medicaid’s financial problems is the growing dilemma of the “dual eligibles.”  Duals are people who qualify both for Medicare and Medicaid.  Nearly all Americans 65 years of age or older qualify for Medicare.  Roughly nine million also qualify for Medicaid.  Dual eligibles are by far the most expensive Medicare beneficiaries and Medicaid recipients.  Here’s news about the duals:

Three new and updated briefs from the Kaiser Family Foundation’s Commission on Medicaid and the Uninsured examine spending, utilization and policy efforts to align  payment systems and service delivery for the 9 million individuals nationally who are dually eligible for both Medicaid and Medicare. This population has long been of interest to policymakers due to its relatively high health care needs and correspondingly high cost.

Find a broad collection of resources on dual-eligible beneficiaries here:  Read a shorter version of the latest research published in Health Affairs here:  available free of charge to non-subscriber “guests” for two weeks from date of publication (April 18, 2012).

Bottom line, dual eligibles are extremely expensive for both Medicare and Medicaid.  They are growing in number and cost.  The trend to finance their care more and more in the community instead of in nursing homes is likely to increase costs even more and discourage early planning to pay privately for LTC.  The entire academic and public policy focus on duals is toward managing their care under Medicare and Medicaid more efficiently and cost-effectively.

All to the good, but much more emphasis by academics and policy makers should also be aimed at preventing people from becoming dual eligibles in the first place.  That is the focus of our briefing paper titled “Dual Eligibles and Long-Term Care:  How to Save Medicaid LTC $30 Billion Per Year and Pay for the ‘Doc Fix’."  The choice is stark:  

Bottom line, if Medicaid doesn’t tighten up eligibility rules, especially by radically reducing its home equity exemption (currently $525,000 minimum), and if the program continues to pay more and more for the home and community-based care people prefer, it will see census and utilization continue to increase and ultimately collapse financially.  Absent reforms to discourage reliance on Medicaid by the middle class and affluent, the program will be unable to provide a decent LTC safety net for the truly needy.

We are now in the end game of a nearly 50-year history of government interference in the LTC market which has left the public asleep about long-term care risk and cost, but the government unable to continue funding care for the vast majority of Americans.  An inevitable crash is coming.  The poor will be hurt the most.  The middle class and affluent who’ve failed to insure for LTC will lose their savings and home equity if they require expensive long-term care.

Left holding the bag are future generations who will not only lose inheritances to their parents’ LTC expenses but will be taxed interminably to pay for the unfunded liabilities of boomer entitlements that their generations will not receive, at least not in full measure.  What a sad commentary on our government’s past, present and on-going fiscal irresponsibility!