LTC Bullet: How Does Your State Rank on the Index of Long-Term Care Vulnerability

Friday, September 12, 2014

Seattle—

LTC Comment:  The Center for Long-Term Care Reform has developed a new three-hour workshop.  Details after the ***news.***

*** TO SCHEDULE THE WORKSHOP described in today’s LTC Bullet, contact Steve Moses at smoses@centerltc.com or 425-891-3640. ***

*** ATLAS SHRUGGED:  Many of you know I'm a fan of Ayn Rand, her novel Atlas Shrugged, and her philosophy "Objectivism."  Today is a big day for all three.  The third movie in a trilogy based on Atlas Shrugged premiers in theatres across the country today, Friday, September 12, 2014.  It's subtitled "Who Is John Galt?"  Reason magazine has done a fine job of reporting on the producer John Aglialoro's decades-long struggle to bring this story to the silver screen.  Find their coverage, along with other related links, below.

* The movie's trailer
* A list of 245 theatres showing the film
* An interview with producer Aglialoro
*
Reason's coverage of the story

Whether you've read the novel or not, I predict you'll find its ideas, as conveyed in the film, interesting and provocative, whether you agree with them or not.  The two earlier films in the trilogy are available on DVD.  Enjoy the movie,

Steve Moses

PS  If you're wondering what in the world this has to do with long-term care . . .  check your premises! ***

 

LTC BULLET:  HOW DOES YOUR STATE RANK ON THE INDEX OF LONG-TERM CARE VULNERABILITY

LTC Comment:  How likely is America’s crazy, Rube-Goldberg-inspired LTC services and financing system to survive the aging of the baby boom?  How does your state compare with others in the risk/reward matrix?  Now you can find out.

Center president Steve Moses was proud to present our new three-hour workshop on LTC vulnerability to CEO Paul Forte and his exceptional team at LTC Partners this week.  LTC Partners administers the Federal Long-Term Care Insurance Program.  The company is headquartered in Portsmouth, New Hampshire.  So Steve compared the LTC challenges facing the USA as a whole with the local situation in the “Live Free or Die” state.

Our newly developed workshop is available now for any organization, agency, or company seeking to understand the complex challenges faced by long-term care services and financing systems in the United States today.  By comparing the big national picture with the situation in a specific state, this unique approach to understanding long-term care policy avoids being too abstract or too lost in details.

Following are a brief “Abstract” of the new workshop and the “Summary” and “Conclusion” from a detailed research paper providing documentation for all the data used in the program.  Find the research paper itself, titled “Apply the LTC Vulnerability Index to Your State:  The New Hampshire Example” here.

Read additional examples of our application of the Index of Long-Term Care Vulnerability to the states of Virginia, Georgia and New Jersey, here, here and here, respectively.

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Excerpts from “Apply the LTC Vulnerability Index to Your State:  The New Hampshire Example

Abstract:  Caring for America’s burgeoning older population strains our country’s public health care programs.  Private long-term care insurance can and should relieve more of the financial pressure on Medicaid, Medicare and private savings.  But private LTCI languishes under current market conditions.  How close is long-term care to a breaking point?  How likely is it that today’s LTC service delivery and financing systems can endure and for how long?  What will replace them if they falter?  Will LTCI’s prospects wax or wane?  Steve Moses and workshop attendees will interactively analyze the key social, demographic, and economic factors necessary to answer those questions.  Together, we’ll review, weigh and score each factor toward the end of better understanding the long-term care crisis, its perils, and potential.

Summary

America’s LTC-prone, 85-plus population will more than triple by 2050; New Hampshire’s will nearly quadruple.  Over one-third of the elderly already have a disability; just under one-third in New Hampshire do.  Nearly half of nursing home residents suffer from dementia nationally; well over half do in New Hampshire.  More people are living longer and the longer they live, the more likely they are to get the chronic illness of old age and to require extended care.

Medicaid is the dominant payor for long-term care consuming nearly 16% of state budgets (much more including federal matching funds); 33% in New Hampshire.  Long-term care consumes a disproportionate share of Medicaid expenditures:  the elderly are only one-fourth of Medicaid recipients, but they use up two-thirds of Medicaid funds, mostly for long-term care.  State efforts to rebalance from institutional to home care have increased expenditures and made Medicaid more attractive.  Easy access to Medicaid after people need long-term care has crowded out private LTC financing alternatives such as home equity conversion and private long-term care insurance.  Low Medicaid reimbursement has diminished care access and quality for poor and affluent alike.  Medicaid consumes a larger and larger proportion of state budgets and tends to crowd out other spending priorities.  Expansion of Medicaid eligibility under the Affordable Care Act (aka ObamaCare) will exacerbate all these problems.

To survive as the principal funder of long-term care, Medicaid is heavily dependent on federal (57%) and state (43%) funds.  The ratio is 50/50 for New Hampshire.  But the availability of sufficient federal funds in the future is dubious.  Federal debt is huge and growing, nearly $18 trillion.  Infinite horizon unfunded liabilities of Social Security and Medicare are $68 trillion.  Federal Medicaid lacks even the artifice of a borrowed “trust fund” to obscure its unlimited general fund liability.  Federal reserve policy has expanded the money supply tremendously and forced interest rates to near-zero creating a huge risk of higher, possibly hyper-inflation.  Aging boomers have not saved enough.  Low interest rates reduce their retirement incomes, making them more dependent on safety net programs that threaten to explode in cost.  State funds needed to match the federal funds are also vulnerable.  Each new economic bubble bursting—most recently the dot.com (2000) and housing (2008) busts—has brought worsening recessions that devastate state tax revenues.  Economists worry that the latest bubble, inflated by extremely loose monetary and fiscal (spending) policy, will bring on a much worse downturn than the Great Recession.

If the Age Wave and financing pressures are too great for Medicaid to sustain long-term care financing, where can the country and states like New Hampshire turn?  Unfortunately, potential private sources of LTC financing have been largely crowded out by the relatively easy access to Medicaid in the past.  Medicaid income and asset eligibility rules make it easy for people with substantial wealth to qualify.  Mandatory estate recovery goes largely unenforced.  Medicaid’s outsized home equity exemption eliminates reverse mortgages as a major source of LTC funding.  A main reason so few people purchase private LTC insurance is that for the past 49 years Americans have been able to ignore the risk and cost of LTC, wait to see if they need extended care and, if they do, qualify easily for public financing while protecting most or all of their estates.  This perverse incentive has discouraged responsible LTC planning and impeded the market for private insurance products that could have relieved the financial pressure on Medicaid.

Underscoring all these practical problems is a broader socio-political malaise.  Over the past eight decades more and more Americans have become dependent on government programs.  Arguably, a growing entitlement mentality has substantially impaired the country’s traditional reliance on personal responsibility, self-sufficiency, independence, and freedom, the building blocks of our earlier economic success.  Welfare (Medicaid) pays for nearly half of all births in the U.S., though only 30% in New Hampshire.  Food stamps sustain 15% of Americans; 9% of New Hampshirites.  Welfare pays more than work in 35 states, over $19 per hour in New Hampshire, the ninth most generous state.  The nearly bankrupt Social Security Disability Income (SSDI) program has been found to crowd out work.  SSDI supports 3% of Americans, nearly 4% in New Hampshire.  State and local pensions, on which many depend, are unfunded $3 trillion nationally, $3 billion in New Hampshire.  Fully funding them would require tax increases of $1,385 per household per year for 30 years nationally; $1,010 in New Hampshire, which has pre-funded only 56.2% of its pension liability.  Medicaid is the primary payor for 63% of nursing home residents; 64% in New Hampshire and upwards of 80% of all Medicaid nursing home residents have prepaid burial insurance funded by assets exempted from the program’s resource spend down requirements.  This cradle-to-grave public safety net creates a moral hazard, “a situation in which a party is more likely to take risks because the costs that could result will not be borne by the party taking the risk.”[1]

Conclusion

From the foregoing analysis, it is hard to reach any other conclusion than to expect the current long-term care service delivery and financing system to face severe, possibly fatal challenges as the Age Wave crests and crashes on America.  Absent extraordinary improvements in the national and state economies generating huge new revenues to support large and growing public programs and pensions, it is difficult to see how those programs’ and pensions’ promises will be met.  A sensible conclusion is that long-term care scholarship should angle away from narrow, marginal reforms of specific LTC service and financing problems toward comprehensive analysis and potentially radical restructuring with much heavier reliance on private planning and individual responsibility.

The future prospects for private long-term care insurance are excellent.  When economic conditions compel Medicaid and Medicare to back off from LTC financing, real asset spend down will rapidly increase; spend down of home equity to fund LTC will skyrocket; and as retirement savings and home equity are consumed to pay for long-term care, more and more people will begin to plan early and insure privately for that risk and cost.  LTC insurance will become a mainstream financial planning product, losing its reputation as the “poor relative” of insurance.  Demand will increase.  Distribution will improve.  Innovative marketing ideas, such as Paul Forte’s American Long-Term Care Insurance Program will succeed.  We’ll see a resurgence of traditional LTC insurance products, but new products, especially equity-based hybrid plans will proliferate and grow exponentially.  Good times ahead!


 

[1] Wikipedia definition of “moral hazard,” http://en.wikipedia.org/wiki/Moral_hazard.