LTC Bullet: After CLASS and the LTC Commission
Friday, May 10, 2013
LTC Comment: Are you a pessimist or an optimist about long-term care? Take an astute, if mistaken, analyst’s Rorschach test after the ***news.***
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LTC BULLET: AFTER CLASS AND THE LTC COMMISSION
LTC Comment: Josh Wiener, AKA Joshua M. Wiener, Ph.D., Distinguished Fellow and Director for Aging, Disability, and Long-Term Care at RTI International, is the author or editor of eight books and more than 200 articles, most of them on long-term care financing. He does fine work and he writes very well. I nearly always agree with his facts and statistical analysis. I almost never agree with his conclusions or opinions. To watch and hear our ideas clash, check out this debate between us on the question “Long-Term Care: Who Should Pay” as moderated by national political commentator Morton Kondracke.
Dr. Wiener has a short article in the current issue of Health Affairs titled “After CLASS: The Long-Term Care Commission's Search For A Solution.” In three pages, he summarizes the current state of long-term care financing, laments our on-going dependency on Medicaid, predicts the current system will be unable to sustain future costs, eulogizes what he considers the impending demise of private long-term care insurance, opines about how to revive CLASS, concludes (predictably) that mandatory social insurance is the only practical answer, but believes the new LTC Commission isn’t going to get us to that solution. [Health Affairs, 32, no. 5 (2013):831-834. Want to read the article? The journal will sell you 24-hour access to the article for $12.95 or 30-day access to the whole issue for $29.95 or you can subscribe as the Center does for $158 per year.]
This is a good article. I’ll praise some of it before I bury all of it. As usual, Josh musters accurate and interesting facts. For example:
Two intertwined factors will dominate the [LTC] commission’s considerations as it begins its work. First is the rapidly growing need for additional long-term care driven by an aging population. If current use rates are held constant, the number of people needing informal care, home care, and nursing home care will roughly double between 2000 and 2040.
The second factor is a likely substantial increase in public spending on long-term care. It is simply not possible to finance services for twice as many people using the same amount of money. The Organization for Economic Cooperation and Development projects that public long-term care expenditures in the United States, which were about 1 percent of gross domestic product (GDP) in 2005, will climb to 2–3 percent in 2050. (p. 832, footnotes omitted)
Long-term care financing dominated by an already over-stretched welfare program is unsustainable? Granted, agreed, stipulated. But now what? Consider some of the options we’ve tried.
An active market for private long-term care insurance has existed since about 1985, yet only approximately 12 percent of people age sixty-five or older and 5 percent of people age forty-five or older have private long-term care insurance. Despite numerous potential tools to promote private long-term care insurance—for example, making the cost of policies tax deductible—the market for long-term care insurance is in danger of imploding. (p. 833)
To his credit, the author correctly recognizes two of the main reasons for the difficulties confronting private long-term care insurance: lower lapse rates than actuaries predicted and near-zero interest rates imposed by the Fed. But he neglected the most important reason, which I’ll disclose at the end of this review.
Or how about having another go at CLASS: “Although its chances are slim in the current political environment, another path would be to revive the CLASS Act, making changes to ensure its financial viability as a voluntary program.” (p. 833) Sounds crazy, but maybe you could tighten the work requirement and reduce or eliminate premium subsidies. On the other hand, that would just transform—heaven forfend—“a rejuvenated CLASS Act into something more like private insurance, raising questions about the program’s fundamental public policy purpose.” Evidently private insurance serves no legitimate public purpose.
So none of the approaches we’ve taken so far can succeed. Medicaid? Out. Private LTC insurance? Out. CLASS? Just wishful thinking. What’s left besides gloom, doom and despair?
Another option would be to make participation in a public long-term care insurance program mandatory. The obvious benefit of mandatory social insurance is that everyone would be covered and everyone would pay, creating extensive coverage and a broad tax base. But opponents resist new taxes and believe that any public program would be overly rigid. (p. 833)
Yeah, what a shame people aren’t willing to pony up more tax money to finance another program like the social insurance entitlements we already have such as Medicare ($38.6 trillion unfunded liability) and Social Security ($20.5 trillion). Somehow, the collectivists’ dream “that everyone would be covered and everyone would pay, creating extensive coverage and a broad tax base” always turns into an economic nightmare for individuals, threatening everyone’s prosperity and happiness.
Wiener suggests a “Rorschach test for policy makers” (p. 832):
Are you a pessimist? “Pessimists argue strongly for efforts to shift costs to the private sector and imply that America cannot afford to grow old. At the very least, this group sees any expansion of public programs as a formula for disaster.” (p. 832)
Or are you an optimist? “For optimists, the increase of one to two percentage points in public spending is fairly modest, given the large increase in need. After all, they argue, even if long-term care rises to 3 percent of GDP, it will remain a relatively small portion of overall health expenditures, which accounted for 17.9 percent of GDP in 2011.” (p. 832)
A better test is “Are you a realist or are you a dreamer?” How can anyone seriously believe that doubling down on bankrupt social insurance schemes will solve anything?
Now what is the fatal error in this article and in the author’s reasoning? He assumes without evidence and in contradiction of reality that “routine catastrophic out-of-pocket costs . . . often leave people impoverished” (p. 831) and that “catastrophic out-of-pocket costs . . . impoverish many middle-class Americans.” (p. 833) That is conventional wisdom but there is no proof it is true. Medicaid eligibility rules allow virtually unlimited income if medical and LTC expenses are high enough. Assets are unlimited for all practical purposes due to generous exemptions for home equity (up to $802,000) and (all unlimited) for a business, auto, IRAs, term life insurance, prepaid burials, and personal belongings. People who still don’t qualify using the basic rules every eligibility worker tells every applicant, can consult a Medicaid planner and self-impoverish quickly and easily by means of sophisticated legal techniques.
Of course, this does not mean that no one spends down life’s savings to qualify for Medicaid. It only means that unfortunate outcome occurs either voluntarily or due to ignorance. That’s why the data show and Josh Wiener has recently published that most people who “spend down” to Medicaid, i.e. start LTC as private payers and convert to Medicaid, have few assets and little income. The poor are quickly wiped out financially by catastrophic long-term care costs. But the middle class and affluent, who have access to financial planners, accountants and attorneys, routinely learn how Medicaid works when they or loved ones begin to need expensive long-term care. They not only qualify easily, the really affluent ones who do consult elder lawyers nail down the best spots in the nicest facilities by using “key money.” They buy their way into upscale assisted living facilities or nursing homes starved for private payers because of Medicaid’s meager reimbursement rates. After a few months, their lawyer flips the switch and, voila, Medicaid starts picking up the tab.
The Medicaid long-term care system is dysfunctional and corrupt, but it is not unfixable. Stop paying for long-term care publicly after the privately insurable event occurs and stop protecting over three-quarters of a million dollars of home equity from LTC liability, and it won’t take long for critically needed private dollars to flow into the service delivery system improving access and quality for everyone. Those private dollars will come from real asset spend down once the rules require it, from home equity conversion through reverse mortgages which allow people to buy quality home care that enables them to remain in their homes and off Medicaid, and from the private long-term care insurance people will rush to the carriers to buy once they realize they really need it.
That’s not pessimism; it’s realism. Expecting social insurance to solve the long-term care dilemma isn’t optimism; it’s self-delusion.