LTC Bullet: Will Bipartisan LTC
Policy Be Better?
Friday, April 11, 2014
Seattle—
LTC Comment: Heads up! Consensus is coalescing around a
bipartisan long-term care financing solution. Let’s be hopeful, but
wary after the ***news.*** [omitted]
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LTC BULLET: WILL BIPARTISAN LTC POLICY BE BETTER?
LTC Comment: Long-term care is back on the public policy radar screen.
The CLASS Act fiasco got people thinking. Last year’s LTC Commission
crystalized the issues. Think tanks are doing programs with panels of
long-term care experts. Studies, reports and scholarly monographs emerge
in greater numbers. Articles in the popular media abound warning of
catastrophic long-term care risk. Now, here’s the very latest:
The
Bipartisan Policy Center (BPC) has taken on the challenge of fixing
long-term care services and financing. The BPC launched its “long-term
care initiative” last Monday with an event in Washington, DC and a white
paper titled “America's Long-Term Care Crisis: Challenges in Financing and
Delivery.” Watch the event
here and read the white paper
here. But I’ve already done both so let me save you some time and
effort.
Skip all the introductory remarks by the program’s sponsors, two former
Senators, a former CBO director and a former Governor and HHS Secretary.
You’ve heard it all before and these folks bring little to the
conversation beyond their prestige. Go directly to the panel of experts.
That’s worth watching. Note especially these presentations:
Anne Tumlinson, founder and director of
Avalere, is one of the more thoughtful long-term care analysts. She
observes that 1/3 of all payments for assisted living in this country are
actually made by adult children who are also buying geriatric case
management services, private duty nursing, and home care aides to help
their ailing parents. But none of this spending shows up in the national
health expenditure accounts that most analysts use to estimate the cost of
long-term care. Tumlinson also observes that Medicaid is actually
spending less on LTC as a percent of total expenditures today than in the
past 20 years. Hence, relative to the exploding number of people who will
need long-term care, there will be fewer public dollars to go around. She
concludes that voluntary insurance will not work and that some form of
mandatory social insurance is unavoidable. Her observation that “the
people who would be helped by private LTC insurance are not the people who
spend down to Medicaid” is wrong as we’ll explain.
Marc Cohen of
LifePlans always does a fine job of laying out the statistical
parameters of the long-term care financing issue. He says, for example,
that the expected cost of long-term care would account for about 31% of
the net worth of households aged 65 to 74. Yet most people don’t worry or
plan for long-term care: “If you don’t perceive there is a problem, why
would you do anything about solving it?,” he asks. “What would it take to
move the needle of public awareness and planning? My own sense,” Cohen
says, “is that we can’t fund care for middle class Americans without
expanded public sector support to spur demand and supply. We need to
think through new models that go beyond current Partnerships to combine
public and private funding.” In other words, he agrees with Tumlinson
that it will take more than Medicaid and private insurance to solve the
problem.
Tom McInerney of
Genworth and Diane Rowland of the
Kaiser Family Foundation also presented on this panel. McInerney’s
main points were that the government is broke, can’t fund what’s needed
and private insurance could do much more with a better regulatory
environment. Dr. Rowland made her usual appeal for a bigger government
role in long-term care financing. As always she pooh-poohed the impact of
Medicaid asset transfers but failed to acknowledge the far greater impact
of easy Medicaid eligibility and other forms of Medicaid planning.
Let’s turn now to the Bipartisan Policy Center’s white paper: “America's
Long-Term Care Crisis: Challenges in Financing and Delivery.” It does
a good job of laying out the issues and data, but not without some errors,
omissions and misunderstandings.
First a pet peeve. Throughout, this paper refers to “long-term
services and supports” or LTSS instead of “long-term care.” That awkward
locution is the current politically correct term of art. It evolved to
emphasize the need for home and community-based care to replace nursing
homes, the venue which had become synonymous with long-term care. The
irony is that Medicaid, i.e. public LTC financing, is responsible
for the long-term care system’s nursing home bias. If Medicaid hadn’t
paid for nursing home care after the insurable event occurs for most
Americans, including the middle class, since 1965, we would have had a
healthy private home-care-based service delivery system funded largely by
personal savings, home equity conversion and private long-term care
insurance. So the very people who caused the problem of institutional
bias by demanding more and more government interference in the long-term
care market are the same people corrupting the language with “LTSS” and
denigrating the honorable appellation “LTC.”
Some quotes from the BPC report follow with our “LTC Comments.” We’ve
omitted footnotes in the quotes below, but you can find them in the
published report
here.
Quote: “In this paper, BPC seeks to: (1) identify the most
pressing problems associated with the current system of providing LTSS in
the United States; (2) identify the barriers to finding a sustainable
means of financing and delivering LTSS; and (3) outline some of the more
critical policy questions that will guide BPC's work in the coming
months.” (p. 6)
LTC Comment: Note that the Bipartisan Policy Center’s approach
does not include an attempt to analyze, understand, or explain what caused
long-term care’s problems. That is a fatal omission. If you don’t know
why you have a problem, you run the risk of making it worse by applying
the same remedy that caused the problem in the first place. For example,
if government financing of long-term care through Medicaid caused
institutional bias, crowded out private financing alternatives, and
contributed to poor care by providing inadequate funding, then it is folly
to expect more government financing to fix those problems.
Quote: “While some may believe that a true social insurance option
financed through a broad-based tax, similar to the Medicare program, may
be the most efficient and equitable means of financing LTSS, the current
political and fiscal environment make that solution infeasible for the
foreseeable future.” (p. 9)
LTC Comment: It is easy to discern the ideological bias in this
“bipartisan” report. But it is encouraging to see that even die-hard
advocates of socialized long-term care are finally acknowledging economic
and political reality.
Quote: “No one would argue that the private long-term care
insurance (LTCI) market, as currently structured, is a viable solution to
address the needs of the diverse population in need of LTSS.” (p. 11)
LTC Comment: Whose fault is that? Medicaid crowds out most of the
market for private LTC insurance and the Federal Reserve ruined the
product’s financial viability by artificially forcing interest rates to
nothing. The miracle is that private insurance does as good a job as it
does do protecting consumers and developing new products in spite of the
daunting obstacles imposed by counterproductive public policy.
Quote: “Medicare does not cover long-term services and supports.
Benefits are limited to acute care health services-including, among other
acute services, hospital stays, post-acute care, and physician visits-and
prescription drugs for the elderly and certain individuals with
disabilities.” (p. 18)
LTC Comment: Leaving Medicare out of the computation of long-term
care expenditures is bad reasoning and naïve. Duration of care is not the
key factor. Medicare has a huge impact on long-term care because its
generous reimbursements to nursing homes and home health agencies help to
counterbalance Medicaid’s paying less than the cost of care for the vast
majority of their residents and patients. If and when Medicare cuts back
on its reimbursement to long-term care providers, as the program’s
desperate financial condition suggests it will have to do, the financial
bottom will fall out of the main source of long-term care spending,
i.e., Medicaid. That will devastate state budgets, the nursing home
business, and home care providers who rely on Medicaid.
Quote: “Medicaid is the primary LTSS payer, generating two-thirds
or more of the total payments for LTSS. In 2011, the CMS Office of the
Actuary estimated Medicaid LTSS spending at $114 billion, while an
analysis by Mathematica Policy Research arrived at an estimate of $136
billion. LTSS accounts for at least one-quarter, and possibly almost a
third, of total Medicaid spending ($432 billion in 2011); however, only a
small fraction (6.7 percent or 4.2 million in 2009) of Medicaid
beneficiaries received LTSS and/or post-acute care.” (p. 19)
LTC Comment: Yes, Medicaid is the 800 pound gorilla of long-term
care and, to stick with the animal metaphor, LTC is the elephant in the
room when it comes to Medicaid expenditures. So job number one should be
to understand why Medicaid dominates LTC financing, why the public ignores
LTC risk and cost despite being educated that it will devastate them
financially, and why private LTC financing is so limited and focused on
desirable services that government does not provide, such as most assisted
living. Again, if you don’t know why you have these problems, you run the
risk of applying more of the “remedy” that caused them in the first place.
Quote: “When an individual has too much income to qualify for
Medicaid under the SSI pathway, but faces catastrophic LTSS and health
care costs that he or she cannot meet, it is possible to qualify for
Medicaid through a ‘spend down’ process. Most individuals over the age of
65 who qualify for Medicaid do so by spending down. The details of this
process vary by state, but individuals typically must exhaust almost all
of their savings (an exception allows Medicaid beneficiaries to keep a
home, within certain limits) and spend a substantial portion of their
income on health care and LTSS expenses before they can qualify.” (p.
19)
LTC Comment: The ignorance of most “experts” about Medicaid
financial eligibility rules and policy simply astounds. People do not
have to “exhaust almost all of their savings” to get Medicaid LTC. They
can hide them in exempt assets, including a home, business or car. They
can buy unlimited term life insurance. They can use Medicaid friendly
annuities. Their individual retirement accounts are exempt as long as
they’re generating a regular distribution as is required by tax law after
age 70 and a half. “Mandatory” estate recovery is easy to dodge.
Nor do people have to “spend a substantial portion of their income on
health care and LTSS expenses before they can qualify.” There is no such
requirement. People can spend their income and assets on anything they
want in order to “spend down” to Medicaid eligibility. Elder law journals
have recommended taking a world cruise, throwing a party of “Ziegfield
Follies” proportion or simply purchasing assets that Medicaid does not
count. The only requirement is that you get value for what you spend, not
that you spend on health or long-term care.
Income rarely obstructs Medicaid LTC eligibility because private health
and LTC expenses are deducted before income eligibility is computed in
most states. In the other “income cap” states, Miller income diversion
trusts enable higher income people to qualify. It is true that once
someone is on Medicaid, he or she must contribute most of their income to
offset Medicaid’s cost for their care. But at that point, the damage has
been done. The person is on public assistance, probably in an
underfinanced nursing home, and Medicaid is paying for someone who could,
should and would have paid their own way, at least for a time, if it were
not for the perverse incentives in Medicaid eligibility rules that
discourage responsible LTC planning.
Quote: “Because a small number of people will have substantial
needs that are unlikely to be met solely through personal savings,
insurance would seem to be an ideal mechanism to finance these needs. Yet,
the private LTCI market has struggled in recent years and currently plays
a minor role in the financing of LTSS. After several years of strong
growth in private LTCI coverage in the late 1990s and early 2000s, the
number of insured lives has been virtually unchanged since 2005, and sales
of individual-market policies have dropped by two-thirds from their peak
in 2002. Growth has focused on the group market, while the individual
market (two-thirds of the total) has declined. About 8.2 million lives are
covered by private LTCI, representing fewer than 6 percent of Americans
over the age of 40. Of those over 65 with annual incomes above $20,000,
only 16 percent carry private LTCI. In 2012, LTCI policyholders paid more
than $11 billion in premiums. Cash payments to policyholders (or LTSS
providers) from private LTCI claims totaled about $7 billion in 2012,73
funding less than 5 percent of total spending on LTSS.” (p. 20-21)
LTC Comment: I draw the exact opposite conclusion from these
statistics. It is amazing, approaching miraculous, that private long-term
care insurance has done so much for so many in spite of the terrible
obstacles put in its way by public policy. Try this thought experiment:
if government did not pay for most expensive LTC after care is needed
unless and until people became truly impoverished, having consumed all
their savings, property and home equity, do you really think long-term
care insurance would still play “a minor role in the financing of LTSS?”
And if you dream up yet another government funding source for long-term
care, do you really think consumers will become more responsible about
saving, investing and insuring for long-term care? Think about it and you
will understand why proposals to increase government financing of LTC may,
and likely will, exacerbate rather than ameliorate these problems.
Quote: “Even without adverse selection, it is not clear that
consumer demand for private LTCI would be strong. Most Americans are not
especially interested in or motivated to purchase private LTCI. Many do
not plan for LTSS costs, and, as noted above, 65 percent of Americans over
40 have done little to no planning for any sort of living expenses for
when they are older. Many think that they won't need LTSS (70 percent of
those over 65 will need some LTSS, whether paid or unpaid, but just over
half say that they are at risk of needing LTSS), and most of those who do
realize they are at risk of needing LTSS think that someone else will bear
the cost.” (p. 23)
LTC Comment: Consumers’ denial of LTC risk is rational and
excusable, because most expensive LTC gets paid for by the government in
the end. People don’t know who pays, but they know someone must. You
don’t see Alzheimer’s patients dying in the gutters. On the other hand,
LTC analysts’ evasion of the facts about public financing of long-term
care is neither rational nor excusable. It is grounded in ideological
bias and fact avoidance. “None so blind as those who will not see.”
Quote: “The National Retirement Risk Index, which incorporates
factors other than retirement accounts (such as home equity and Social
Security) into an assessment of national retirement preparedness,
estimates that 53 percent of households are at risk of not being able to
maintain their standard of living when they are no longer working.” (p.
24)
LTC Comment: That means 47 percent of households may be all right
financially if you count home equity. Yet the BPC report barely mentions
home equity as a source of LTC financing. Eliminate or severely reduce
Medicaid’s home equity exemption and a flood of private dollars from
reverse mortgages would revive the home and community based care, assisted
living and nursing home markets making more choices and better care
available to everyone, including those who remain dependent on Medicaid.
Quote: “Private spending on LTSS is even more difficult to
estimate than public spending. The NHPF [National Health Policy Forum]
analysis of NHEA [National Health Expenditure Accounts] data shows a total
of almost $70 billion out-of-pocket and other private (including
insurance) spending on LTSS in 2011 (not including assisted living), but
this figure includes a substantial amount of PAC [post-acute care]
spending. Additionally, some spending that originated from private LTCI is
reported as out-of-pocket because it is common for LTCI to pay
policyholders directly, who then in turn pay LTSS providers. This figure
also leaves out spending on assisted living, and probably does not include
a substantial amount of graymarket home care, but it likely includes all
nursing-home out-of-pocket spending, which is the most expensive form of
LTSS. Because we have no sense of how much of the $70 billion figure is
for out-of-pocket and health insurance payments for PAC, the true
out-of-pocket LTSS spending figure (not including assisted living) is
likely somewhere well above zero and well below $70 billion. Hence, a
precise estimate is not possible; the best we can say is that tens of
billions are likely spent out-of-pocket on LTSS annually, excluding
assisted living.
“The situation is different for private LTCI. While LTCI issuers do not
report the exact amount of cash paid to policyholders and LTSS providers
each year based on claims, the data available can be used to estimate
annual cash payments from claims. At the request of BPC, LifePlans
reviewed data collected by the National Association of Insurance
Commissioners and estimated that private LTCI paid out about $7 billion on
claims in 2012.” (p. 27)
LTC Comment: Two points about these tightly packed paragraphs.
The observation that “some spending that originated from private LTCI is
reported as out-of-pocket because it is common for LTCI to pay
policyholders directly, who then in turn pay LTSS providers” is one we
often make, but I have not seen it in other published work before. It is
critical. Out-of-pocket LTC spending, we call it “oops,” is much lower
than is usually reported. That’s why consumers ignore the “catastrophic
spend down” warnings that permeate media coverage and ostensibly scholarly
publications.
Secondly, a very substantial part of out-of-pocket spending for long-term
care is really the contribution from income to their cost of care that
Medicaid recipients are required to make. That out-of-pocket expenditure
does not come from assets, but rather from income and mostly from Social
Security income. As much as half of all out-of-pocket LTC spending comes
from Social Security income of people already on Medicaid which income is
diverted to reduce Medicaid LTC expenditures. Why does this matter?
Social Security is financially unstable, already collects less in payroll
deductions than it spends, relies on a phony trust fund that the rest of
government has already spent, and will pay 24% less in the future than it
has promised unless fixed, which is unlikely. If and when Social Security
cuts back, Medicaid nursing home recipients won’t care because they have
to contribute nearly all their benefits to offset Medicaid expenses
anyway. But state Medicaid programs, nursing homes and home health
agencies will have to make up the difference and that will devastate them
financially.
Closing LTC Comment: The consensus coalescing around a long-term
care financing solution is that some form of mandatory social insurance
should supplement private LTC insurance. The dangers in that remedy are
myriad. Do we really need another expensive entitlement program? What
happens when Social Security cuts back so that people have less income to
spend on LTC? What happens when Medicare reduces its generous provider
reimbursements that currently enable LTC providers to survive despite
Medicaid’s low payments? Wouldn’t more public financing of LTC only
increase the public’s growing entitlement mentality? Don’t we need to
start weaning people off dependency on government largesse? How long will
it be before economic gravity takes hold again and government has to pay
normal interest rates on its trillions of debt? What happens when the
unfunded entitlement liabilities come due? It is nothing short of bizarre
that serious people claim to study, diagnose, and prescribe about
long-term care without taking these factors into account. It goes to show
we’re not much closer to a real solution and that the new consensus
coalescing is as much a danger as an opportunity. |