LTC Bullet:  How the Government Ruined LTC (and We’ll Fix It)

Friday, August 17, 2012


LTC Comment:  Government interference in the LTC marketplace since 1965 caused disastrous unintended consequences that only clear analysis and bold action can fix.  More after this:


In response to one of our LTC E-Alerts earlier this summer, we received the following endorsement from Robert Callanan. Mr. Callanan has been a faithful Center supporter for over a decade, supported many of our projects, sponsored speaking events and is even a Center alumnus. We’re proud to have him as a member and we thank him for his hard work, dedication and exceptional contribution to the mission of protecting Americans from the risk and cost of long-term care. Here’s the endorsement:

“I strongly recommend that EVERY LTCi ‘Professional’ SUBSCRIBE to and SUPPORT the CENTER for LONG-TERM CARE REFORM, and receive their own ‘LTC-E-Alerts’... the minimum $150.00 annual membership is one of the best ‘Business Expenses’ a SERIOUS LTCi PROFESSIONAL should gladly incur ... next to being an ACTIVE MEMBER of the AMERICAN ASSOCIATION FOR LONG-TERM CARE INSURANCE (AALTCI) !!!  This latter for only $98.00, annually! Respectfully / bob”

Be like Bob. If you value the content you receive in these LTC Bullets, please consider supporting your Center for Long-Term Care Reform. Your contribution not only gets you all of our LTC Bullets newsletters, it gets you access to our password-protected Members-Only Zone and members-only emails designed to keep you on the forefront of LTC knowledge and supports our extensive program of speaking, publication, education and advocacy in favor of sensible long-term care planning and policy. For further information on membership benefits, please click here. It’s easy to join our mission; just click here. If you have any questions, please contact Damon at 206-283-7036 or ***



LTC Comment:  Long-term care in the United States has serious problems of access, quality, reimbursement, discrimination, institutional bias, loss of independence, and welfare stigma.  How did we reach this sorry state?

A long series of well-intentioned, but perversely counterproductive government actions led directly to the dysfunctional long-term care system we have today.  Here’s a list of those mistakes and their consequences in rough chronological order.

Mistake #1:  Medicaid started paying for most nursing home care shortly after the program was signed into law in 1965.  Unintended Consequence:  Nursing homes became the dominant venue for long-term care crowding out a home care market.

Mistake #2:  Medicaid made nursing home care easy to get with no transfer of assets restrictions and no estate recovery in the beginning.  Unintended Consequence:  People learned Medicaid would pay for a nursing home, but anything else was out of pocket.

Mistake #3:  When unlimited access to the most expensive kind of care exploded in cost, government capped bed supply by demanding “certificates of need” (CONs) before building more nursing homes.  Unintended Consequence:  This created a government-enforced monopoly.  Nursing homes raised rates they charge to compensate for growth restrictions.

Mistake #4:  When nursing homes raised rates, Medicaid capped reimbursement rates.  Unintended Consequence:  This was the origin of the differential between low Medicaid rates and high market-based private-pay rates.

Mistake #5:  By capping supply AND price, Medicaid caused demand to skyrocket filling nursing homes with too many recipients at too low reimbursements.  Unintended Consequence:  Care quality plummeted.

Mistake #6:  Instead of fixing the problem (easy access to free under-financed nursing home care), the government demanded quality care without paying for it (OBRA ’87).  Unintended Consequence:  Caught between the rock of inadequate reimbursement and the hard place of mandatory quality, nursing homes sued and usually won.

Mistake #7:  Again, instead of fixing the problem, government repealed the 1981 Boren Amendment under which the nursing homes were suing in 1997.  Unintended Consequence:  With no floor under Medicaid nursing home reimbursements, quality remained a problem and nursing homes’ reputation disintegrated.

Mistake #8:  Despite some efforts, Medicaid never targeted benefits to the genuinely needy.  Unintended Consequence:  Easy access to Medicaid nursing home care after care was needed discouraged responsible LTC planning, encouraged artificial self-impoverishment through “Medicaid planning,” and crowded out private LTC insurance.

Mistake #9:  Trying to save money, Medicaid encouraged rebalancing from nursing home care to home care.  Unintended Consequence:  LTC costs continue to explode because home care delays but does not replace nursing home care and home care is more desirable so more people apply for Medicaid.

Mistake #10:  Seeing that nothing they do seems to work, the government tried to dupe the public into buying government LTC insurance with the misbegotten CLASS Act.  Unintended Consequence:  Now everyone is cynical about the seeming hopelessness of the situation.

Mistake #11:  Having crowded out a market for private LTC insurance by paying for most expensive LTC, the government added insult to injury by driving interest rates on carrier reserves to near zero.  Unintended Consequence:  Private LTC insurance is nearly ruined as the bloat of government’s unfunded entitlement liabilities expands.

Mistake #12:  The only way to save the LTC safety net is to target Medicaid’s scarce resources to the most needy, but government did the exact opposite with the “maintenance of effort” (MOE) rule in the health reform law.  Unintended Consequence:  States struggle to finance a hopelessly dysfunctional system with no control over hemorrhaging eligibility even as the federal government borrows 40 cents of every dollar spent on Medicaid.

OK, folks, that’s the problem and how, step by step, we got into the mess were in.  So, what do we have to do to fix it?

That’s the easy part.  Unwind the mistakes government made that created the problems we face.  Target Medicaid LTC to the needy.  Eliminate the easy income and asset rules that allow practically anyone to qualify regardless of income and assets.  Most importantly, reduce Medicaid’s home equity exemption from as high as $786,000 to a reasonable level closer to what socialized England allows ($36,000).

Do these simple things and the freer market will correct all the problems.  Once it’s clear to all that long-term care is a personal responsibility, people will plan early and save, invest or insure for long-term care.  With fewer people dependent on Medicaid, the program will be able to afford to pay for quality care across the spectrum from home care to nursing home care.  Nursing homes will remain appropriate venues for short-term post-hospitalization and rehabilitation, but home and community-based care will expand radically and rapidly with an influx of private financing.

LTC isn’t so intractable a problem after all.  Once you understand why things are the way they are and stop doing the things that make the situation worse, guess what?  We have more than enough resources to ensure quality long-term care in the most appropriate settings for all Americans.

Just do it!