LTC Bullet:  Will Bipartisan LTC Policy Be Better?

Friday, April 11, 2014


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]



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.