LTC Bullet:  So What If the Government Pays for Most LTC?, 2012 Data Update

Friday, January 10, 2014


LTC Comment:  Heads up!  We're about to explain why long-term care insurance sales have disappointed, why people don't "use their homes to stay at home" and why LTC providers who depend on public financing are at risk.  After the ***news.***

*** “MILLIONAIRES ON MEDICAID” by Mark Warshawsky, Wall Street Journal, 1/6/14:  We forwarded this article to Center “clippings service” subscribers on the day of its publication.  We’ll feature it in Monday’s LTC E-Alert.  The author, Mark Warshawsky co-chaired last year’s LTC Commission and queried Center president Steve Moses often about why and how the affluent qualify for Medicaid LTC benefits. ***

*** INSTITUTE FOR THE AGES’ Seventh Annual International Conference on Positive Aging (February 9-12, 2014 at Sarasota, Florida's Hyatt Regency) will feature a keynote address by Marc Freedman, founder and CEO of, a non-profit supporting "encore" careers for older Americans.  Susan Stamberg, special correspondent for National Public Radio and former co-host of NPR's award-winning news magazine, All Things Considered, will deliver the closing keynote. The 2014 conference theme is "Positive Aging Transcends:  The Voices of Innovation and Community."  Registration for the conference is open.  Find tickets here.  More information here.  For sponsorship opportunities, email inquiries to, or call Michelle Bauer at 727-510-2524. ***

*** KEN DYCHTWALD, Ph.D., one of the world's foremost visionaries and original thinkers in the field of aging has been nominated Chair-Elect of the American Society on Aging (ASA),  The association's 5,000+ members range from practitioners, educators, administrators, policymakers, business leaders, entrepreneurs, investors, researchers, media and students all working towards improving the lives of older adults. In this important and significant role, Ken will contribute the leadership skills he has honed for nearly 40 years, as well as innovative ideas, with an eye towards further building the largest association of professionals in the field of aging/gerontology.  More here. ***

*** ATTEND AALTCI’s 2014 LTC Solutions Sales Summit for $99 or watch its top sessions online FOR FREE.  Get all the conference details here and register for the online access here.  Jesse Slome expects 5,000 people will watch the live sessions, with special interest in the LTC CEO panel featuring the chiefs of five insurers.  He notes that two insurers, Transamerica and Mutual of Omaha have signed up to be Platinum Sponsors in support of the virtual event.  Kudos to Slome, AALTCI, and the meeting sponsors for this creative, cost-sensitive effort to encourage LTC insurance success during a challenging time for the profession. ***

*** EARLY BIRD REGISTRATION ends next Thursday, January 16th, for the Fourteenth Annual Intercompany Long Term Care Insurance Conference, to be held from March 16-19, 2013 at the Rosen Centre, in Orlando, FL.  On that date the $895 and all early bird registration prices go up $100.  Agents selling long term care (or other insurance) directly to consumers may apply for a scholarship here.  Government employees may register at a special $95 rate here.  New attendees may apply by January 10th (tomorrow) for a special $395 rate here.  If you have any questions, please contact Jim Glickman at 818-867-2223.

Conference highlights include keynoter Chris Gardner, whose life story The Pursuit of Happyness became a best-selling book and movie.  A closing session on “The Future of the Industry,” featuring Marc Cohen, Maria Ferrante-Schepis and other panelists to be named, will focus on the present state of the LTCI industry, provide parallels to other industries that have weathered turbulent times and offer opinions and perspectives about what all can do to re-invigorate this industry. ***


LTC Comment:  Once a year around this time the Centers for Medicare and Medicaid Services (CMS) report health care expenditure data for the latest year of record.  Recently, CMS posted 2012 statistics on its website at

The current issue of Health Affairs (Vol. 33, No. 1, pps. 67-77) contains a summary and analysis of the new data titled “National Health Spending in 2012: Rate of Health Spending Growth Remained Low For The Fourth Consecutive Year."  Registered subscribers to Health Affairs can access the full text of that article online at

Following is our annual analysis of the new nursing home and home health care data.* 


"So What If the Government Pays for Most LTC?, 2012 Data Update"
Stephen A. Moses

Ever wonder why LTC insurance sales and market penetration are so discouraging?  Or why reverse mortgages are rarely used to pay for long-term care?  Or why LTC service providers are always struggling to survive financially and still provide quality care?  Read on.

America spent $151.5 billion on nursing facilities and Continuing Care Retirement Communities in 2012.  The percentage of these costs paid by Medicaid and Medicare has gone up over the past 42 years (from 26.8% in 1970 to 53.3% in 2012, up 26.5 % of the total) while out-of-pocket costs have declined (from 49.5% in 1970 to 28.6% in 2012, down 20.9% of the total).  Source:, Table 15.

SO WHAT?  Consumers' liability for nursing home and CCRC costs has declined by 42.3% in the past four decades, while the share paid by Medicaid and Medicare has nearly doubled, up 98.9%.

No wonder people are not as eager to buy LTC insurance as they would be if they were more at risk for the cost of their care!  No wonder they don't use home equity for LTC when Medicaid exempts at least $543,000 and in some states up to $814,000 of home equity (as of 1/1/14).  No wonder nursing homes are struggling financially--their dependency on parsimonious government reimbursements is increasing while their more profitable private payers are disappearing. 

Unfortunately, these problems are even worse than the preceding data suggest.  Over half of the so-called "out-of-pocket" costs reported by CMS are really just contributions toward their cost of care by people already covered by Medicaid!  These are not out-of-pocket costs in terms of ASSET spend down, but rather only INCOME, most of which comes from Social Security benefits, another financially struggling government program.  Thus, although Medicaid pays less than one-third of the cost of nursing home care (30.6% of the dollars in 2012), it covers two-thirds of all nursing home residents.  Because people in nursing homes on Medicaid tend to be long-stayers, Medicaid pays something toward nearly 80 percent of all patient days. 

SO WHAT?  Medicaid pays in full or subsidizes almost four-fifths of all nursing home patient days.  If it pays even one dollar per month (with the rest contributed from the recipient's income), the nursing home receives Medicaid's dismally low reimbursement rate. 

No wonder the public is not as worried about nursing home costs as they would be if they were more at risk for the cost of their care.  No wonder nursing homes risk insolvency when so much of their revenue comes from Medicaid, often at reimbursement rates less than the cost of providing the care.

Don't be fooled by the 7.9% of nursing home costs that CMS reports as having been paid by "private health insurance" in 2012.  That category does not include private long-term care insurance.  (See category definitions here.)  No one knows how much LTC insurance pays toward nursing home care, because most LTCI policies pay beneficiaries who then pay the nursing homes.  Thus, a large proportion of insurance payments for nursing home care gets reported as if it were "out-of-pocket" payments.  This fact further inflates the out-of-pocket figure artificially.

How does all this affect assisted living facilities?  ALFs are 87% private pay (Source:  AHCA/NCAL Issue Brief) and they cost an average of $42,600 per year (Source:  2012 MetLife survey).  Many people who could afford assisted living by spending down their illiquid wealth, especially home equity, choose instead to take advantage of Medicaid nursing home benefits.  Medicaid exempts one home and all contiguous property (up to $543,000 or $814,000 depending on the state), plus—in unlimited amounts—one business, one automobile, prepaid burials, term life insurance, personal belongings and Individual Retirement Accounts not to mention wealth protected by sophisticated asset sheltering and divestment techniques marketed by Medicaid planning attorneys.  Income rarely interferes with Medicaid nursing home eligibility unless such income exceeds the cost of private nursing home care. 

SO WHAT?  For most people, Medicaid nursing home benefits are easy to obtain without spending down assets significantly and Medicaid's income contribution requirement is usually much less expensive than paying the full cost of assisted living. 

No wonder ALFs are struggling to attract enough private payers to be profitable.  No wonder people are not as eager to buy LTC insurance as they would be if they were more at risk for the cost of their care.  This problem has been radically exacerbated in recent years because more and more state Medicaid programs are paying for assisted living as well as nursing home care, which makes Medicaid eligibility more desirable than ever.

The situation with home health care financing is very similar to nursing home financing.  According to CMS, America spent $77.8 billion on home health care in 2012.  Medicare (43.4%) and Medicaid (37.2%) paid 80.6% of this total and private insurance paid 7.2%.  Only 7.8% of home health care costs were paid out of pocket.  The remainder came from several small public and private financing sources.  Data source:, Table 14.

SO WHAT?  Only one out of every 13 dollars spent on home health care comes out of the pockets of patients and a large portion of that comes from the income (not assets) of people already on Medicaid.

No wonder the public does not feel the sense of urgency about this risk that they would if they were more at risk for the cost of their care

Bottom line, people only buy insurance against real financial risk.  As long as they can ignore the risk, avoid the premiums, and get government to pay for their long-term care when and if such care is needed, they will remain in denial about the need for LTC insurance.  As long as Medicaid and Medicare are paying for a huge proportion of all nursing home and home health care costs while out-of-pocket expenditures remain only nominal, nursing homes and home health agencies will remain starved for financial oxygen. 

The solution is simple.  Target Medicaid financing of long-term care to the needy and use the savings to fund education and tax incentives to encourage the public to plan early to be able to pay privately for long-term care.  For ideas and recommendations on how to implement this solution, see

Note especially:

“How to Fix Long-Term Care,” at;

"Medi-Cal Long-Term Care:  Safety Net or Hammock?" at;  

"The LTC Graduate Seminar Transcript" at (requires password, contact;

"Aging America's Achilles' Heel:  Medicaid Long-Term Care" at; and

"The Realist's Guide to Medicaid and Long-Term Care" at

In the Deficit Reduction Act of 2005, Congress took some small steps toward addressing these problems.  A cap was placed on Medicaid's home equity exemption and several of the more egregious Medicaid planning abuses were ended.  But much more remains to be done.  With the Age Wave starting to crest and threatening to crash over the next two decades, we can only hope it isn't too late already.

* Note that CMS changed the definition of National Health Expenditure Accounts (NHEA) categories in 2011, adding for example Continuing Care Retirement Communities (CCRCs) to Nursing Care Facilities.  This change had the effect of reducing Medicaid's reported contribution to the cost of nursing home care from over 40% in 2008 to under one-third (32.8%) in 2009.  CMS also created a new category called "Other Third Party Payers" (7.1%) which includes "worksite health care, other private revenues, Indian Health Service, workers' compensation, general assistance, maternal and child health, vocational rehabilitation, other federal programs, Substance Abuse and Mental Health Services Administration, other state and local programs, and school health."  For definitions of all NHEA categories, see

Stephen A. Moses is president of the Center for Long-Term Care Reform in Seattle, Washington.  The Center's mission is to ensure quality long-term care for all Americans.  Steve Moses writes, speaks and consults throughout the United States on long-term care policy.  He is the author of the study "Aging America's Achilles' Heel: Medicaid Long-Term Care," published by the Cato Institute (  Learn more at or email