LTC Bullet:  Can Long-Term Care Survive?

Friday, February 21, 2014

Alpine, Texas—

LTC Comment:  How vulnerable is our current and likely future long-term care system to the ravages of aging demographics, unfunded entitlement liabilities, bad economic policies, and a growing entitlement mentality? 

LTC BULLET:  CAN LONG-TERM CARE SURVIVE?

LTC Comment:  We welcome your comments on the following draft article, on the findings it summarizes, and on the reports it references.  My thanks to Bob Helms of the American Enterprise Institute for his helpful suggestions.

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“Can Long-Term Care Survive?”
by
Stephen A. Moses

The question policy makers and analysts usually ask is “How shall we pay for long-term care?”  It stumps them every time.  Last year’s Long-Term Commission punted on the question.  The only hint of consensus is that public and private funding must combine somehow.  But how? 

Maybe it’s time we ask a more basic question:  Can Long-Term Care Survive?  If we don’t find a way to pay for it, what is the likelihood our current non-system of service delivery and financing can endure the coming age wave?  If we can muddle through, all right.  But what if prospects are dim?  Then how to finance LTC takes on far greater urgency.

America’s dominantly Medicaid-financed, nursing-home-based long-term care system is in turmoil.  State Medicaid programs struggle to constrain LTC expenditures by expanding managed care and rebalancing from institutional to home care.  But total Medicaid LTC costs continue to rise and private LTC financing continues to decline.  Few people save, invest or insure to pay for their own long-term care.

What if those trends persist?  Can long-term care survive in its current or likely future form?  The answer depends on how the USA and each state copes with the daunting problems of aging demographics, Medicaid funding, economic growth and social policy.  It bodes poorly that we already have too many sick elderly people dependent on inadequately funded public programs without the means to pay for their own care. 

The Index of Long-Term Care Vulnerability

How can we measure the prospects for future success or failure?  The Center for Long-Term Care Reform developed an “Index of Long-Term Care Vulnerability” as a tool to help answer that question.  The Index incorporates seven key metrics to which the analyst ascribes weights.  The Index, an Excel worksheet, automatically calculates maximum points for each metric out of a total possible of 1000.  The analyst then scores each sub-factor under the metrics using links to data sources provided in the Index instructions.

Here’s how we ranked the key metrics followed by the results we obtained for the United States and three states.

1. How many older people are coming in the next few decades?  (5%, 50 points)
2. How sick will they be?  (5%, 50 points)
3. How viable is Medicaid as a long-term care payer?  (15%, 150 points)
4. How reliable is federal revenue on which Medicaid mostly depends?  (20%, 200 points)
5. How reliable is state revenue on which Medicaid secondarily depends?  (20%, 200 points)
6. How much private-pay revenue is available to relieve LTC financing pressure on
Medicaid?  (15%, 150 points)
7. How strong is dependency on public programs (i.e., the entitlement mentality)?  (20%, 200 points)

You may assign different weights for each metric and different scores for each sub-factor.  Our objective with the Index was not to provide an indisputable conclusion but rather to ask “Can LTC Survive?,” to lay out some key issues that go into answering that question, and to provide links to sources of data that shed light on the crucial factors and sub-factors . 

Results

So far, we have applied the Index of Long-Term Care Vulnerability to the United States and to the states of Virginia, Georgia and New Jersey.  In the following reports, you can find our analysis, a completed Index for each of those states with footnotes to the data sources used, and a blank Index that you can experiment with by filling it out yourself.

“The Index of Long-Term Care Vulnerability:  A Case Study in Virginia” was published in November 2013 by the Thomas Jefferson Institute for Public Policy and the Center for Long-Term Care Reform.  It is posted on their websites here and here, respectively.

“The Index of Long-Term Care Vulnerability:  A Case Study in Georgia” was published in December 2013 by the Georgia Public Policy Foundation and the Center for Long-Term Care Reform.  It is posted on their websites here and here, respectively.

“The Index of Long-Term Care Vulnerability:  A Case Study in New Jersey” was published in January 2014 by the Common Sense Institute of New Jersey and the Center for Long-Term Care Reform.  It is posted on their websites here and here, respectively.

The results are not encouraging.  We concluded that the United States—scoring only 529 out of a possible 1000 points—has little more than a 50/50 chance to sustain its long-term care system through the aging of the baby boom generation.  Virginia’s prospects (501 points) and Georgia’s (455 points) are only slightly worse, but New Jersey’s situation (338 points) is nearly hopeless with a two-thirds probability the state’s LTC system will fail.

How did we reach these conclusions?  You will need to consult the individual state reports and their vulnerability indices for a full explanation.  But in a nutshell, here’s how we scored each of the key metrics:

Factor #1—How many older people are coming in the next few decades?

The key metric for aging demographics is how many people over age 85—the population cohort most likely to need long-term care—there will be in the future.  We applied a weight of 5% for a possible 50 points out of 1000 total.  For the USA, 2% of the population was over 85 in 2012 with an increase of 69% expected by 2032 and 224% by 2050.   Providing long-term care to this rapidly increasing group is a formidable challenge so we assigned only one-third of the possible points, 17 to the USA.  Virginia begins with a smaller proportion over 85 (1.7%) but its old-old (85 plus) cohort grows even faster through 2032 (101%) and 2050 (307%).  We gave Virginia 14 points.  Georgia is comparable to Virginia.  It starts at only 1.4% in 2012, but increases 121% and 375% through 2032 and 2050, respectively.  Georgia got 14 points also.  New Jersey begins with a higher percentage of old-old than the USA (2.2%), but its expected increase is somewhat less, 58% through 2032 and 206% through 2050.  So 14 points for New Jersey too.  All three states face similar vulnerability for aging demographics, just slightly more vulnerable than the USA as a whole.  Hence slightly fewer points.

Factor #2—How sick will they be? 

We applied a weight of 5% (50 points) and ranked the USA and all three states based on their percentage of people age 65-plus with disabilities including self-care difficulty, cognitive difficulty, any disability, and nursing facility residents with dementia.  Consult the state reports for scoring details.  The totals were USA, 22; VA, 27; GA, 14; and NJ, 26.  In other words, Virginia and New Jersey’s aged populations are somewhat healthier than the USA average, but Georgia’s elderly are markedly sicker. 

Factor #3:  How viable is Medicaid as a long-term care payer? 

Medicaid is now and will remain for the foreseeable future the principal payer for long-term care throughout the United States.  The program’s sustainability is critical to long-term care financing.  We applied a weight of 15% to this factor with 150 potential points.  To measure Medicaid’s sustainability in future decades, we considered (1) the percent of budget devoted to Medicaid, (2) the percent of LTC spending for aged and disabled recipients, (3) the increase in nursing home spending over time, (4) the increase in Home and Community-Based Services (HCBS) spending over time, (5) HCBS spending as a percentage of LTC spending, (6) Federal Medical Assistance Percentage (FMAP), (7) Affordable Care Act (ACA) Medicaid expansion or not, (8) LTC eligibility strictness, (9) Skilled Nursing Facility (SNF) reimbursement shortfall, (10) Medicaid SNF reimbursement rate compared to private-pay rate, (11) dual eligibles vulnerability, (12) rebalancing vulnerability, and (13) managed care vulnerability.  Refer to the respective worksheets for detailed scoring.  Totals are USA, 97; VA, 81; GA, 114; NJ, 68. 

Factor #4:  How reliable is federal revenue on which Medicaid mostly depends? 

Without federal matching funds averaging 57% of their total Medicaid expenditures, state Medicaid programs would collapse.  We assigned a weight of 20% to this factor, 200 possible points.  Sub-factors considered were (1) total Medicaid spending, (2) five year increase in spending, (3) federal and state shares of Medicaid costs, (4) dependency on “provider taxes,” (5) Social Security unfunded liability, (6) Medicare unfunded liability, and (7) federal debt.  Refer to the respective worksheets for detailed scoring.  Totals are USA, 89; VA, 70; GA, 71; NJ, 64.

Factor #5:  How reliable is state revenue on which Medicaid secondarily depends? 

States can only draw down federal Medicaid matching funds by putting up revenue of their own.  Therefore a healthy economy is critical to the sustainability of long-term care programs.  We assigned a weight of 20% to this factor, 200 total possible points.  Sub-factors considered were (1) ALEC-Laffer State Economic Competitive Index, (2) Forbes Best States for Business and Careers, (3) Cato’s “Fiscal Policy Report Card,” (4) Mercatus Center’s “Freedom in the 50 States,” (5) Tax Foundation’s “State and Local Tax Burdens,” and (6) State Health Facts State Budget Shortfalls.  Refer to the respective worksheets for detailed scoring.  Totals are USA, 160; VA, 156; GA, 139; NJ, 55.

Factor #6:  How much private-pay revenue is available to relieve LTC financing pressure on Medicaid? 

If public financing falters, long-term care viability will depend on private resources such as savings and home equity.  We assigned a weight of 15 to this factor, 150 possible points.  Sub-factors are (1) asset spend down potential, (2) Medicaid estate recoveries, (3) home equity conversion potential, and (4) private long-term care insurance.  Refer to the respective worksheets for detailed scoring.  Totals are USA, 77; VA, 69; GA, 47; NJ, 49.

Factor #7:  How strong is dependency on public programs (i.e., the entitlement mentality)? 

To the extent citizens have come to expect government to provide their long-term care, service delivery and financing are more vulnerable than when people expect to take personal responsibility for funding their own care.  We assigned a weight of 20% or 200 points to this factor.  Sub-factors include (1) percentage of births financed by Medicaid, (2) Food Stamp participation rate, (3) the degree by which welfare proceeds exceed the minimum wage, (4) the degree to which Social Security Disability Insurance replaces work, (5) unfunded pension liabilities, (6) nursing facility residents dependent on Medicaid, and (7) Medicaid recipients with prepaid burial plans that avoid spend down requirements.  Refer to the respective worksheets for detailed scoring.  Totals are USA, 67; VA, 84; GA, 56; NJ, 62.

What is the bottom line

Be scared.  Be very scared about the future of long-term care financing and services wherever you live in the USA.  By our reckoning, the USA and two of the states we reviewed in detail (Virginia and Georgia) have only one chance in two of surviving the age wave with their LTC programs intact.  New Jersey’s prospects are even worse, about one in three.

What might a long-term care system failure look like?  Exploding public expenditures for long-term services and supports.  Long-term care expenses crowding out other critical government priorities such as education, highways, and law enforcement.  More municipalities and then states declaring bankruptcy.  Nursing homes and home health agencies closing due to cuts in federal and state funding.  Caregiver shortages caused by inadequate wages.  Plummeting quality of paid care.  Excessive strain on family and friends forced to provide even more free care than they do now.  Loss of personal savings and home equity as Medicaid and Medicare spend less on home care and skilled nursing home care.  Concomitant reduction in retirement income and acute health care security as more personal wealth goes into funding long-term care.  Development of a two-tier long-term care system; best for the affluent and worst for the poor.

If you see many of these outcomes starting to happen already, you might want to ask this next question and see if the Index of Long-Term Care Vulnerability can help you answer it.

Can long-term care survive in my state?

How would your state score on the Index of Long-Term Care Vulnerability?  The Center for Long-Term Care Reform can review the key factors, calculate the metrics, and give you an answer.  To discuss that possibility contact Center president Stephen Moses at 425-891-3640 or smoses@centerltc.com.

But feel free to use the Index of Long-Term Care Vulnerability to compute your own estimate of your state’s LTC prospects.  A lot depends of course on how you analyze the current condition of long-term care in your state, what weights you place on each of the major metrics in the Index, and how you score each of the sub-factors.  Those choices will determine the result and your conclusion may be very different from the one we would reach.

So try the Index of Long-Term Care Vulnerability yourself.  See what you conclude.  And please let us know your results.  We’ll use your findings to improve the current beta version of the Index.

Steve Moses is president of the Center for Long-Term Care Reform (
www.centerltc.com). Reach him at smoses@centerltc.com
or 425-891-3640.