LTC Bullet: LTC Cause and Effect

Friday, February 9, 2018

Seattle—

LTC Comment: New Bipartisan Policy Center LTC report puts the services cart before the financing horse as usual. We explain after the ***news.***

*** TODAY'S LTC BULLET is sponsored by Claude Thau, whose revolutionary “Range of Exposure” tool projects clients’ likelihood (joint for a couple) of spending $100,000; $250K; $500K or over $1,000,000 on LTC, based on their personal characteristics.  Claude offers ways to educate clients and reduce “Ping-Pong” in the LTCi sales process. Help clients compare Combo vs. Stand-Alone LTCi easily and make informed final LTCi decisions in 15-20 minutes!  Change work-site LTCi from a series of proposal deliveries to a single interactive consultation!  Claude is the lead author of Milliman’s annual Broker World LTCi Survey & a past Chair of the Center for Long-Term Care Financing. For questions or references, reach Claude at 913-403-5824 or claudet@targetins.com. ***

*** IS THIS THE BIG ONE? As I write this (yesterday), the Dow Jones Industrial Average just dropped over 1,000 points after a similar fall last week. Could the reckoning we’ve predicted in these LTC Bullets be about to happen? (Probably not. Probably just a long overdue correction in the equity markets. But what if?)

The U.S. economy has been living on borrowed money … and time. The National Debt Clock shows us $20.6 trillion in the hole not counting $111.9 trillion in unfunded entitlement liabilities and $18.8 trillion in personal debt. The 2-year budget deal President Trump signed this morning spikes the federal budget deficit another $265 billion.

When it becomes obvious that the USA cannot pay back the debt it has already incurred, our lenders—money printers at the Fed, domestic bond buyers, China, etc.—will stop purchasing new debt and demand repayment of existing debt. When that happens, the Federal Reserve will have to make up the difference by printing more money and buying more bonds. That’s the same “Quantitative Easing” they did the last two times the U.S. economic bubble popped: 2000 and 2008.

Only this time, QE4 will have to be levels of magnitude greater than ever before. That means huge new increases in the money supply which is already at historically stratospheric levels. More money chasing the same amount or fewer goods is the definition of inflation. Inflation means the dollar is worth less. The biggest risk right now is that people will lose confidence in the dollar as it loses value. Who wants to loan a destitute Uncle Sam money at historically low interest rates when it looks less and less likely Sam will pay it back? What’s different this time is that we’re so much deeper in debt and interest rates are still so low that the Fed has very little room to lower them to goose the economy. A perfect economic storm is brewing.

If this is the big one, look for the things we’ve been predicting to play out sooner rather than later. Interest rates will continue to increase to the point where the U.S. government cannot meet its obligations even by pumping the debt limit higher and higher. Budgetary austerity will no longer be only a gleam in a few fiscal conservatives’ eyes. Revenue shortfalls will be a stark reality compelling major cutbacks in all federal and state spending programs, including the big three entitlements: Medicare, Social Security and Medicaid.

Medicaid specifically will no longer have the luxury to allow affluent people to shift the cost of long-term care onto taxpayers to the detriment of genuinely needy people. The central planners’ pipe dreams for new entitlements to fund long-term care (see the LTC Bullet below) will go up in smoke. Private markets will survive and prosper with the reduction of government interference. Smart investors know "the time to buy is when there's blood in the streets." (Baron Rothschild) Private money will flow into smarter investments. Entrepreneurs will seek and offer better LTC mousetraps. Consumers spending their own money, including their no-longer-Medicaid-protected home equity, will demand quality LTC in the most appropriate venues. Private long-term care insurance will revive.

Does it sound like I’m wishing for this to happen? Not exactly. It’s more like how you’d feel if a friend with a drug addiction were putting off treatment. The worst is going to happen sooner or later regardless. The longer we delay it with phony economic policies that hide the reality while making the underlying problems worse, the harder the consequences will be when they do occur. So, bring it on. Let’s work on fixing this mess instead of kicking the can even further down the road.

(These are Steve Moses’s opinions and do not necessarily reflect the views of any Center for Long-Term Care Reform members, sponsors or supporters.) ***
 

LTC BULLET: LTC CAUSE AND EFFECT

LTC Comment: Cause and effect are simple, straightforward concepts. When a cue ball hits the rack of fifteen, something happens. You don’t need Newton’s Third Law of Physics to understand that. In reality, causes have effects; not the other way around. So why do analysts studying long-term care always start with effects and never with causes?

The Bipartisan Policy Center’s latest in a string of reports on long-term care is a perfect case in point. “A Policy Roadmap for Caring for Individuals with Complex Care Needs” is paved with good intentions, but fraught with unintended consequences, because it seeks to fix America’s long-term care system without first explaining why it is so dysfunctional.

Following is the crux of the Bipartisan Policy Center’s report extracted from its “Executive Summary.” Let’s deconstruct and examine their “pathway” to improving long-term care. Here are each of the “Roadmap’s” key components followed by our comments explaining how BPC has everything backwards.

BPC’s Roadmap: “The pathway to improving the quality of care and controlling the cost of serving individuals with complex care needs must address the following issues:

“A focus on person- and family-centered care, that places a priority on understanding the care goals of families and delivering the services that support them;”

LTC Comment: Sounds good, but why aren’t person- and family-centered care already central to the long-term care system? Answer: Medicaid and Medicare made care providers, instead of patients, the customers of long-term care spending. Patients and families lack control and choice because public LTC financing removed them from the market. They don’t find and pay for their own care, so they have to take whatever the government offers. The many tweaks to our Rube Goldberg LTC system recommended by BPC in the pages that follow will only make it more complicated and expensive unless and until they address the cause, government interference in the market, ahead of its effects.

BPC’s Roadmap: “An emphasis on coordinating care to ensure that services work across programmatic silos and avoid unnecessary or duplicative care and costs;”

LTC Comment: OK, but why is care uncoordinated in the first place? Where did those programmatic silos that cause unnecessary or duplicative care costs come from? Answer again: Medicaid and Medicare. In a freer long-term care market, with less public financing, consumers would select services they want in venues they prefer. Entrepreneurs would vie to invent and provide services consumers favor. Investors would direct their capital investments toward what the public wants instead of what government spending incentivizes. Starting with the ruinous effects of public LTC financing and trying to fix them with more of the same is folly. Instead, recognize the cause and mitigate the damage it does.

BPC’s Roadmap: “Creating a path from medical-driven models that provide care based on what is reimbursed to person-centered models that provide what people need and want;”

LTC Comment: Again, the first question to ask is why we have medical-driven care models. The answer is the same: government interference in the long-term care financing system. That’s why people can’t get what they need and want. The way to fix the problem is to address the cause, not to tinker with the effects.

BPC’s Roadmap: “Support for family caregivers; and,”

LTC Comment: Why do family caregivers need support in the first place? By paying for most long-term care, Medicare and Medicaid convinced consumers they don’t need to worry about LTC risk and thus crowded out private LTC insurance. Medicaid diverted seniors’ biggest asset, home equity, from long-term care liability thus starving the service delivery system for private financial oxygen from home equity conversion. Decades of Medicaid’s institutional bias impaired development of a private home-care market to meet the public’s care preferences. Should we trust finding more “support for family caregivers” to advocates and defenders of the public financing programs that caused the shortage in the first place?

BPC’s Roadmap: “Efforts to identify financing strategies, both public and private, to support the delivery of LTSS.” (p. 5)

LTC Comment: Before they decreed that America needs a new compulsory, backend, payroll-financed, Medicare-cloned entitlement program to finance long-term care, the Bipartisan Policy Center should have given some thought to why long-term care in the United States is short of financing in the first place. Read “How to Fix Long-Term Care Financing” for the answer to that conundrum. Until you understand that answer clearly, tinkering with current financing models will only exacerbate their dysfunctionalities.

Closing LTC Comment: I encourage LTC Bullets readers to review the Bipartisan Policy Center’s “A Policy Roadmap for Caring for Individuals with Complex Care Needs.” What you’ll find is dozens of complicated recommendations for nips and tucks in America’s defective long-term care service delivery and financing system. What you will not find is any effort whatsoever to understand why the problems they’ve set out to fix exist in the first place. Consequently, the BPC has once again put the services cart in front of the financing horse and placed both on a pathway to further bipartisan political depredation.

Stay tuned for next week’s LTC Bullet. We’re going to explain why turning over any sector of an economy to central planners (like the folks at BPC) inevitably fails. Fundamental, incontrovertible economic principles are at work here. Once you understand them, the problems and the solutions for long-term care light up. Read “LTC Bullet: LTC Calculation” next Friday.