LTC Bullet:  Medicare Expansion Could Be Last Straw for Private LTC Financing

Friday, October 26, 2012


LTC Comment:  A decision to expand access to Medicare-financed skilled care will add to unfunded government liabilities and further desensitize the public to LTC risk and cost.  Details after the ***news.***

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LTC Comment:  First, the government funds most expensive long-term care since the inception of Medicaid and Medicare in 1965.  Then, just as the public is beginning to realize it can’t rely in the future on bankrupt entitlement programs to fund LTC, the Federal Reserve pushes interest rates to near zero forcing LTCI carriers to raise premiums or exit the business.  Now . . .

A court decision which the Obama administration has decided to embrace rather than appeal opens Medicare’s financial floodgates to fund more skilled nursing facility care, home care and therapy services.  Although the decision does not expand the number of nursing home days for which Medicare can pay (100), it could definitely increase the average number of such days for which the program does pay now (27).  Probably the larger impact on the public’s access to “free,” i.e. Medicare-financed care, will be in the home care and therapy areas.  Following is an article which explains this major development, with our “LTC Comments” interspersed.

10/24/12, “Industry Likes Medicare Home Care Expansion, But Cost Is Unknown,” by Jay Hancock, Kaiser Health News

“Patient advocacy and industry groups are cheering Medicare’s move to start paying nursing home, home care and physical therapy bills for some patients who were previously denied coverage. But how much extra it will cost the government is far from clear.”

[LTC Comment:  The “industry” that “likes” this development is the LTC provider industry which depends on relatively high Medicare reimbursements to balance measly Medicaid rates and disappearing market-rate private payers.]

The change “is expected to affect the lives of tens of thousands of Americans, perhaps hundreds of thousands” with chronic conditions, Gill Deford, a lawyer with the Center for Medicare Advocacy, told reporters on a conference call. “Far too many American families have had to pay for vital services out of pocket” or forgo care they couldn’t afford, he said.

[LTC Comment:  Actually, out-of-pocket expenditures for all forms of health and long-term care have been dropping steadily for decades.  For details and an explanation of why it matters, see our “LTC Bullet:  So What If the Government Pays for Most LTC?, 2010 Data Update.”]

For decades Medicare’s guidelines cut off coverage of “skilled” nursing and home care services if patients weren’t shown to be improving. The care in question might have been physical therapy for stroke victims, home nurse visits for those with Alzheimer’s or post-hospital nursing home care for diabetics. Once their conditions plateaued or started deteriorating, Medicare would stop paying.

In a case filed in U.S. District Court in Vermont, patient advocates argued that the requirement for improvement was unsupported by law or regulation. This month the Obama administration and the Center for Medicare Advocacy agreed to a settlement that would change the rules. U.S. District Judge Christina C. Reiss must approve the deal, which was first reported by the New York Times.

The change doesn’t affect reimbursement for personal care, physical assistance and other “non-skilled” care that accounts for a large portion of home health and nursing home spending. Even so, industry groups standing to benefit from new spending welcomed the news.

[LTC Comment:  From the standpoint of consumer awareness of LTC risk and cost, and hence the demand for private LTC insurance, the objective fact of what this change does is far less important than the further complacency about LTC it is likely to instill.  Surveys already show half or more of the public think Medicare pays for LTC.  Expect that belief to grow and LTCI demand to constrict as a result.]

“It takes away an unnecessary hurdle from those who need skilled care,” said Greg Crist, a spokesman for the American Health Care Association, a trade group of nursing homes.

[LTC Comment:  Great for nursing homes which make 10% to 15% profits on Medicare patients, revenue they desperately need to offset Medicaid losses equaling $19.55 per bed day according to “A Report on Shortfalls in Medicaid Funding for Nursing Home Care.”]

“Medicare beneficiaries are entitled to home health services that provide them with the skilled care that can improve their condition but also care that prevents or slows a decline in function,” Val J. Halamandaris, president of the National Association for Home Care & Hospice, said in a prepared statement.

[LTC Comment:  This is a bonanza for the home health industry, which also depends heavily on Medicare reimbursements.]

How much new spending the deal will generate at a time of large federal deficits is unknown. In 2010 out-of-pocket spending for home health services came to $5 billion, according to the Centers for Medicare & Medicaid Services (CMS). The change is also expected to bring care to those who didn’t receive it previously because they couldn’t afford it.

[LTC CommentAmerica spent $70.2 billion on home health care in 2010.  Medicare (44.9%) and Medicaid (37.3%) paid 82.2% of this total and private insurance paid 6.4%.  Only 7.1% of home health care costs, the $5 billion mentioned in the previous paragraph, were paid out of pocket.  (Source, Table 4.)  Little wonder the public is already asleep about LTC risk and cost.  Only one out of every 14 dollars spent on home health care comes from patients and a large portion of that is Social Security and other income (not assets) of people already on Medicaid who must contribute most of their income toward their care.]

Medicare spends about $20 billion a year on skilled home care, said Bill Dombi, vice president for law at the home care association. For non-skilled home care, Medicaid and private payers spend roughly $60 billion annually, he said.

“I am confident that over time this will not result in any added cost to Medicare,” Rep. Joe Courtney, D-Conn., told reporters. By paying for people to be treated less expensively at home rather than in high-cost hospitals or nursing homes, the added skilled-care coverage will pay for itself, Courtney suggested.

[LTC Comment:  That statement is totally insupportable.  There is no reason to expect that more Medicare financing of home care will save money overall.  Research shows that home care generally delays but does not replace institutional care and that the two combined cost more across the economy and over time.  That’s another critical reason why we need private financing alternatives for LTC to generate the needed extra funds to make a full continuum of high-quality care possible for everyone.]

The administration took the same line. “This settlement clarifies existing Medicare policy,” said Erin Shields Britt, spokeswoman for the Department of Health and Human Services. “We expect no changes in access to services or costs.”

[LTC Comment:  That statement is whimsically irresponsible, like saying “we’ve dropped a bomb, but we don’t expect it to fall or explode.”  What will they say when reality finally catches up with the vastly underfunded Medicare program?]

The deal also may bring some relief to the state and federal Medicaid program, which pays for large amounts of nursing home care and which has been straining state budgets.

“Medicaid is in most respects the payer of last resort,” said Matt Salo, executive director of the National Association of Medicaid Directors. “Medicaid steps in when Medicare stops. So if Medicare is doing more, Medicaid by definition will probably do a little less.”

LTC Comment:  This statement is correct, but it is faint reassurance for anyone but Medicaid budgeteers.  In balance, adding to Medicare’s $87 trillion unfunded liabilities and further crowding out consumer demand for private LTC insurance leaves the ship of state dragging a bigger fiscal anchor than ever before.]


Our thanks to the AHCA/NCAL Gazette for the following bibliographic essay summarizing the media coverage of this Medicare expansion news through Wednesday, October 24, 2012:

“Proposed Settlement Broadens Medicare Coverage. As the New York Times [NYT] reported on its front page Tuesday, Reuters (10/24, Morgan) reports that the Obama Administration has proposed a settlement to a class-action lawsuit, promising to broaden current Medicare regulations to allow coverage to "maintain the patient's current condition or ... prevent or slow further deterioration." Previously, beneficiaries had to demonstrate improvement to continue to receive coverage, the change will likely benefit thousands of Americans with degenerative conditions like multiple sclerosis, Parkinson's, and cerebral palsy. An HHS spokeswoman said the settlement merely "clarifies" current policy, and continued, "We expect not changes in access to services or costs."
The Kaiser Health News (10/24, Hancock) "Capsules" blog quotes American Health Care Association spokesman Greg Crist, who said of the proposed settlement, "It takes away an unnecessary hurdle from those who need skilled care."
The AP (10/24) reports, "The agreement was filed with Chief Judge Christina Reiss of the US District Court in Vermont. It is expected to affect tens of thousands - maybe hundreds of thousands - of patients nationally."
CQ (10/24, Reichard, Subscription Publication) reports that this "landmark settlement...eases the way for possibly billions of dollars in added Medicare payments for rehab and other services for the chronically ill." The article also notes that the changes "will require a big, long-lasting educational effort," as "patient advocates and lobbyists warned Tuesday."
The Los Angeles Times (10/24, Levey) reports that the "Health and Human Services Department agreed to revise the manual to make it clear that skilled nursing care and therapy will be covered at home, in an outpatient clinic or in a nursing home. The department also promised to undertake a nationwide educational campaign to make the benefits known to medical providers and beneficiaries."
Provider Magazine (10/24, Myers) reports that now CMS "agrees that it won't ever deny a claim because a patient couldn't be expected 'to achieve complete independence' or because he or she can't 'be expected to return to his or her prior level of functioning.'"
McKnight's Long-Term Care News (10/24) adds, "The majority of Medicare beneficiaries have at least two chronic conditions, according to the Center for Medicare Advocacy. The changes would apply to traditional Medicare plans and Medicare Advantage plans."
Also reporting are Modern Healthcare (10/24, Subscription Publication) and the Hartford (CT) Courant (10/24, Lee).
NYTimes Praises Proposed Settlement. In an editorial, the New York Times (10/24, Subscription Publication) commends the Obama Administration's decision to "end a longstanding practice of requiring many beneficiaries to show they are likely to improve before Medicare will pay for skilled nursing or therapy services." The Times asserts that the "proposed settlement will reverse this irrational and unfair approach to medical services."