LTC Bullet:  The U.S. Economy Needs Long-Term Care

Friday, August 21, 2015


LTC Comment:  U.S. fiscal and monetary policy are ruining long-term care’s prospects.  How and why after the ***news.***

*** GLICKMAN FOR PRESIDENT:  President of the Society of Actuaries, that is.  Jim asks “Although you may not be eligible to vote in the SOA election (only actuaries can vote for the President) it would be very helpful for my campaign if you can contact the actuaries at your company (as well as actuaries at other companies that you may know) and let them know about my candidacy, and how involved and dedicated I am to my volunteer activities in the LTCi industry.”  We say “hear, hear” and gladly support the candidacy of this indefatigable advocate for responsible LTC planning.  Here are a few links he pointed us to in support of his candidacy:  Lt Governor Letter; Supporter List; Jim Glickman’s Candidate Page.  Go Glickman! ***

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LTC Comment:  Let’s begin with a few facts:

  • Medicaid pays for most formal long-term care whether in nursing homes or home care.

  • Medicaid is a counter-cyclical welfare program.  It ramps up caseloads and expenditures, usually with extra help from the federal government, during recessions.

  • The United States has experienced two major recessions in the 21st century, the Great Recession of 2007-2009 being the worst since the Depression.

  • To combat recessions, the federal government employs deficit spending (as when it borrows to boost Medicaid assistance).  This is called “fiscal policy.”

  • Deficit spending (fiscal policy) has created a huge national debt, currently nearing $18.4 trillion according to the US Debt Clock.

  • To combat recessions, the Federal Reserve cuts interest rates and increases the money supply.  This is called “monetary policy.”

  • Artificially low interest rates have discouraged savings, impaired the market for LTC insurance by reducing its profitability and increasing its cost, and diverted capital away from economically productive investments and into “bubbles” of real estate, stocks and bonds, benefiting mostly the affluent.

  • The same monetary policies have hurt the poor and middle class by stifling job creation, repressing wage growth, and practically eliminating income on savings.

  • Low interest rates and a bloated money supply (monetary policy) have failed to revive the U.S. economy fully after the Great Recession, making the Fed very reluctant to allow interest rates to increase.

  • We find ourselves on the cusp of an unprecedented “Age Wave.”  The huge baby-boomer population cohort does not reach the age of heaviest LTC need (85+) until 2031.

  • Social Security and Medicare run out of “trust funds” in the 2030s, but in the meantime the federal government has to make up these gargantuan entitlement programs’ annual revenue shortfalls and pay off their trust funds’ IOUs with interest out of general funds (taxes and borrowing).

  • America’s fiscal and monetary tools are worn out.  We have too much debt to borrow more safely if interest rates increase and too much money supply to print more.

  • Our artificially suppressed interest rates are too low to be lowered further in order to combat the next recession.

  • In a nutshell, the U.S. economy may not be able to generate the revenue needed to support our long-term care safety net in the short-run and definitely cannot over the long-term without major changes in fiscal and monetary policies.

  • Ironically, this state of affairs benefits the elite at the expense of the needy for whom the elite hypocritically profess noblesse oblige.

These were some of the facts running through my mind when I read this article on Monday: 

Jon Hilsenrath and Nick Timiraos, “U.S. Lacks Ammo for Next Economic Crisis:  Policy makers worry fiscal and monetary tools to battle a recession are in short supply,” Wall Street Journal, August 17, 2015;

With the factual context provided above in mind, consider these quotes from that article and draw the logical conclusions regarding long-term care financing:

Quote:  “As the U.S. economic expansion ages and clouds gather overseas, policy makers worry about recession.  Their concern isn’t that a downturn is imminent but whether they will have firepower to fight back when one does arrive.”

LTC Comment:  If Medicaid is the dominant funder of long-term care and the counter-cyclical antidote to help pay for LTC during recessions, what happens if we lack the fiscal and monetary “firepower to fight back” when the next economic downturn arrives?

Quote:  “The U.S. generally injects cash into the economy through interest-rate cuts, tax cuts or ramped-up federal spending.  Those tools could be hard to employ when the next dip comes:  Interest rates are near zero, and fiscal stimulus plans could be hampered by high levels of government debt and the prospect of growing budget deficits to cover entitlement spending on retired baby boomers.”

LTC Comment:  Uh-huh.  So?

Quote:  “With the U.S. expansion entering its seventh year, policy makers are planning how to respond to the next downturn, which history shows is inevitable.  The current expansion is now 16 months longer than the average since World War II, and none has lasted longer than a decade.  ‘The world economy is like an ocean liner without lifeboats,’ economists at HSBC Bank HSBC -2.80 % wrote in a recent research note.”

LTC Comment:  Eek!  Will the Obama Administration save us?

Quote:  “Worries stretch to the White House.  ‘Federal fiscal policy will be a more important tool in addressing future business cycles because monetary policy may be more frequently constrained,’ Jason Furman, the chairman of the White House Council of Economic Advisers, said in an interview.”

LTC Comment:  Oh good, we can just borrow more money from China at artificially low interest rates that make servicing the engorged federal debt manageable for the time being.  No worries.

Quote:  “In the most recent recession, short-term interest rates were pushed to near zero, then the central bank embarked on massive—and controversial—bond-buying programs to drive down long-term interest rates.  The Fed also promised to keep short-term interest rates low for an extended period.  . . .  The next downturn could further expand Fed bond holdings, but with the central bank’s balance sheet already exceeding $4 trillion, there are limits to how much more the Fed can buy.”

LTC Comment:  Oops.

Quote:  “No one knows how much U.S. debt can grow without triggering an increase in inflation and interest rates that would hobble investment and growth.  ‘We don’t have that much experience with countries carrying debt like the level the U.S. has right now,’ said [former CBO director] Mr. Elmendorf, the budget analyst.”

LTC Comment:  Our country’s  customary fiscal and monetary tools to jump start a lagging economy are blunt indeed.

Quote:  “The challenge is that these policies ‘sound simple, but politically, it is really hard,’ said Glenn Hubbard, the dean of the Columbia Business School who advised President George W. Bush through the 2001 recession.  ‘We have very little cushion for whoever the next president is and the next congressional leaders if they had to deal, gosh, with anything.’”

LTC Comment:  The current U.S. economy is like a medical patient who overuses antibiotics, develops a resistance to their beneficial effects, and dies from a newly drug-resistant, previously harmless germ.

Our leaders have over-used fiscal and monetary stimulants.  Now that we’re facing America’s biggest aging demographic challenge ever, we’re virtually helpless to combat future economic downturns.

The financial system has rewarded the affluent with booming equity and real estate values, but punished the poor by diverting capital from job-creating investments and by virtually eliminating returns on safe savings.

The impact on long-term care financing and hence on long-term care service delivery has been, is and will continue to be devastating.  Specifically, we rely too heavily on a means-tested welfare program, Medicaid, which itself relies too heavily on financial support from the federal government, which itself relies too heavily on faulty fiscal and monetary policies that no longer, actually never did, work. 

I titled this LTC Bullet “The U.S. Economy Needs Long-Term Care.”  Now you know why.  Radical long-term changes in counter-productive government fiscal and monetary policy are needed to fix the economy and enable it to generate the prosperity required to preserve and improve LTC services and financing.