LTC Bullet:  How the Government Ruined LTC (and We’ll Fix It)

Friday, June 10, 2016

Seattle—

LTC Comment:  Government interference in the LTC marketplace since 1965 caused harmful unintended consequences that only clear analysis and bold action can fix.  More after the ***news.***[omitted]

 

LTC BULLET:  HOW THE GOVERNMENT RUINED LTC (AND WE’LL FIX IT)

LTC Comment:  Long-term care in the United States has serious problems of access, quality, reimbursement, discrimination, institutional bias, loss of independence, and welfare stigma.  How did we reach this sorry state?

A long series of well-intentioned, but perversely counterproductive government actions led directly to the dysfunctional long-term care system we have today.  Here’s a list of those mistakes and their consequences in rough chronological order.

Mistake #1:  Medicaid started paying for most nursing home care shortly after the program was signed into law in 1965. 

Unintended Consequence:  Nursing homes became the dominant venue for long-term care crowding out a home care market.

Mistake #2:  Medicaid made nursing home care easy to get with no transfer of assets restrictions and no estate recovery in the beginning. 

Unintended Consequence:  People learned Medicaid would pay for a nursing home, but anything else was out of pocket.

Mistake #3:  When unlimited access to the most expensive kind of care exploded in cost, government capped bed supply by demanding “certificates of need” (CONs) before building more nursing homes. 

Unintended Consequence:  This created a government-enforced monopoly.  Nursing homes raised rates they charge to compensate for growth restrictions.

Mistake #4:  When nursing homes raised rates, Medicaid capped reimbursement rates. 

Unintended Consequence:  This was the origin of the differential between low Medicaid rates and high market-based private-pay rates.  [Cost shifting.]

Mistake #5:  By capping supply AND price, Medicaid caused demand to skyrocket filling nursing homes with too many recipients at too low reimbursements. 

Unintended Consequence:  Care quality plummeted.

Mistake #6:  Instead of fixing the problem (easy access to free under-financed nursing home care), the government demanded quality care without paying for it (OBRA ’87).

Unintended Consequence:  Caught between the rock of inadequate reimbursement and the hard place of mandatory quality, nursing homes sued and usually won.

Mistake #7:  Again, instead of fixing the problem, government repealed the 1981 Boren Amendment under which the nursing homes were suing in 1997. 

Unintended Consequence:  With no floor under Medicaid nursing home reimbursements, quality remained a problem and nursing homes’ reputation disintegrated.

Mistake #8:  Despite some efforts, Medicaid never targeted benefits to the genuinely needy. 

Unintended Consequence:  Easy access to Medicaid nursing home care after care was needed discouraged responsible LTC planning, encouraged artificial self-impoverishment through “Medicaid planning,” and crowded out private LTC insurance.

Mistake #9:  Trying to save money, Medicaid encouraged rebalancing from nursing home care to home care. 

Unintended Consequence:  LTC costs continue to explode because home care delays but does not replace nursing home care and home care is more desirable so more people apply for Medicaid.

Mistake #10:  Seeing that nothing they do seems to work, the government tried to dupe the public into buying government LTC insurance with the misbegotten CLASS Act.

Unintended Consequence:  Now everyone is cynical about the seeming hopelessness of the situation.

Mistake #11:  Having crowded out a market for private LTC insurance by paying for most expensive LTC, the government added insult to injury by driving interest rates on carrier reserves to near zero.   

Unintended Consequence:  Private LTC insurance is nearly ruined as the bloat of government’s unfunded entitlement liabilities expands.

Mistake #12:  The only way to save the LTC safety net is to target Medicaid’s scarce resources to the most needy, but government did the exact opposite with the “maintenance of effort” (MOE) rule in the health reform law.  [Since expired.]

Unintended Consequence:  States struggle to finance a hopelessly dysfunctional system with no control over hemorrhaging eligibility even as the federal government borrows 40 cents of every dollar spent on Medicaid.

OK, folks, that’s the problem and how, step by step, we got into the mess were in.  So, what do we have to do to fix it?

That’s the easy part.  Unwind the mistakes government made that created the problems we face.  Target Medicaid LTC to the needy.  Eliminate the easy income and asset rules that allow practically anyone to qualify regardless of income and assets.  Most importantly, reduce Medicaid’s home equity exemption from as high as $786,000 [now $828,000] to a reasonable level closer to what socialized England allows ($36,000).

Do these simple things and the freer market will correct all the problems.  Once it’s clear to all that long-term care is a personal responsibility, people will plan early and save, invest or insure for long-term care.  With fewer people dependent on Medicaid, the program will be able to afford to pay for quality care across the spectrum from home care to nursing home care.  Nursing homes will remain appropriate venues for short-term post-hospitalization and rehabilitation, but home and community-based care will expand radically and rapidly with an influx of private financing.

LTC isn’t so intractable a problem after all.  Once you understand why things are the way they are and stop doing the things that make the situation worse, guess what?  We have more than enough resources to ensure quality long-term care in the most appropriate settings for all Americans.

Just do it!

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LTC Current Update:  Well, that was the lay of the LTC land four years ago, just before the last presidential election and immediately preceding yet another government fiscal crisis in 2013.  What’s happened since?  Nothing to improve the situation and much to make it worse.

Fiscal and Monetary Shenanigans

The biggest change is that government fiscal and monetary policy is worse than ever.  Nobody worries anymore about out-of-control spending and money printing.  The federal debt has grown past $19 trillion and Cato reports that the total federal fiscal imbalance (expected revenue minus promised benefits) is negative $117.9 trillion.  Fed-induced artificially low interest rates continue to misdirect capital into poor investments while inflating an economic bubble of historic proportion.  The only good news is that when this baby pops and the dollar-fiat-currency collapses, we’ll have nowhere else to turn but to freer-market capitalism that made America great in the first place.  OK, call me Pollyanna, but that’s the last, great hope I cling to.

Medicaid Managed LTC

What about long-term care specifically?  The big change there is that Medicaid, the dominant LTC payer, has shirked its responsibility for providing and paying for quality community and institutional care.  How so?  Instead of paying home care and nursing facility providers directly (however inadequately), state Medicaid programs all across the country are shifting to “managed long-term care.”  That means they contract with private companies to (1) find and sign up providers, (2) direct Medicaid recipients to this limited range of locked in providers, and (3) pay the providers after taking a cut for themselves--all for less than it would have cost Medicaid to pay the providers itself.  Traditional direct-care LTC providers wonder how adding an extra payee and a new level of bureaucracy will lower costs and improve quality.  But for now, that’s the Holy Grail of managed long-term care.

LTC Policy Capitulation

From the Pepper Commission in 1990 through the Medicaid Commission of 2007 and from the CLASS Act fiasco of the early 2010s to the most recent fruitless LTC Commission, the gurus of government gimmicks have shot nothing but ideological blanks.  Now they’ve given up on socializing LTC, proposing a hybrid private front-end and mandatory public back-end program, ironically, just as socialism is getting a new lease on American life thanks to the candidacy of Bernie Sanders and its influence on Hillary’s positions.   Will the Medicare Part LTC idea spring back to life?  I don’t think so.  Its advocates are intellectually burned out.  They can barely muster the energy to promote their latest compromise.  Besides, the bottom’s going to fall out of the entitlement programs we already have before a new one for LTC can get traction.

Back to the Future

Here’s a novel idea.  Let’s try something that’s never been tried before.  Everyone says we need a new mandatory government program for long-term care because Medicaid forces people into impoverishment.  But that’s not true and never has been.  So, since nothing else works, why don’t we try the one approach that’s never been tried before.  To wit, make Medicaid available only to the truly needy so that it can provide top-quality home and institutional care at market rates to fewer recipients.  Let everyone else pay for their own top-quality, market-priced care out of savings and home equity.  That huge influx of private funds will improve care quality and access for everyone.  With their inheritances going to pay for their parents’ LTC, everyone else will get the idea they need to save, invest or insure for LTC.  When the next generation needs LTC, they’ll pay privately for it and the free competitive market thus revitalized will generate creative new ways  to provide the kind of home-based care most people prefer.

Problem Solved

LTC providers are no longer starved for adequate revenues.  The poor get better access to higher quality care.  So do the middle class and affluent.  The reverse mortgage and LTC insurance markets boom creating jobs and throwing off big tax revenues.  Tax payers breathe a sigh of relief.  The new system rewards hard work, personal responsibility and early planning instead of punishing them as in today’s system where, as Jane Bryant Quinn once observed,  “only the suckers pay.”

Pipe dream?  Maybe.  But watch what happens when the current economic bubble deflates leaving the government with staggering obligations and interest rates too high even to service the debt.  Entrepreneurs and consumers will respond as they always do by making the most of a bad situation.  Creative destruction and profit motive will prevail.  The economy, including long-term care, will right itself in time.