LTC Bullet: The Pre-Medicaid History of Long-Term Care

Friday, March 1, 2019


LTC Comment: How did we end up paying for the WWII generation’s long-term care in poorly financed welfare nursing homes and why is long-term care service delivery and financing still such an awful mess? The answer 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, and estimates how much of their cost in each range would be covered by various traditional or linked insurance designs. He also offers other ways to educate and help clients make informed final decisions in 15-20 minutes! Change work-site LTCi from a series of proposal deliveries to an 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. You can reach him at 913-403-5824 or ***

*** ILTCI RECOGNITION AWARD: Organizers of the 2019 Intercompany Long-Term Care Insurance Conference, which is due to convene on March 24 at the Sheraton Grand in Chicago, inform us that “The ILTCI Recognition Award is back for its second year and we need your help. Now is your chance to nominate a person(s) or organization that has made a significant, long-term contribution towards the attainment of the ILTCI vision.” We confirmed that nominations are open to anyone, not just conference attendees, so click through to the details about the award and submit your nomination. ***

*** MORE LTCI CONFERENCE NEWS: The ILTCI executive planning committee informs us of its partnership with Creighton University Health Sciences Continuing Education to offer continuing education for several break-out sessions at this year’s conference. Nurses, Doctors, and Social Workers can pay a flat $50 reporting fee and earn CEUs for accredited session participation. A complete CEU accredited session list is available online. To sign up for CEU reporting you will need to log into your registration online to add it to your activities and pay the $50 fee. Your password to login is: 35043.

“We still have slots available in our Future Leaders program if you have anyone from your company that would benefit from attending their Sunday noon workshop and attending the conference at a discounted rate!” ***



LTC Comment: I’ve written a lot about the history of long-term care services and financing. But I’ve always begun such accounts with the sea change that occurred when Medicaid became the principal LTC payer in 1965. That revolutionary development increased nursing home bias, stifled the private market for home care, impaired care quality with notoriously low reimbursement rates, relieved Americans from the necessity to plan ahead for long-term care, and hence ruined the potential for non-governmental sources of funding such as home equity conversion and private LTC insurance.

That is still the big news, but Medicaid didn’t just appear out of nowhere. It had roots in decades of earlier government intervention in long-term care services and financing. In fact, long-term care has been a challenging problem from America’s earliest days, long before government assumed a major role. For insights on the pre-Medicaid history of long-term care, I refer you to an interesting website which traces that story from 1776 to 1969. I’ve culled highlights from that source below followed by our “LTC Comments” on each entry, but for all the details, check out You will find that the damage done by Medicaid starting in 1965 has deep historical roots.

1776-1799: America was a young, rural society. Life expectancy was short. "Old age security" meant having children or private wealth. Adult children were expected to care for their parents or pay for their care by surrogate families. The earliest welfare and pension programs developed. Paupers received cash, so-called “outdoor relief,” paid by city or county taxpayers until costs quickly grew too high. Poorhouses, “indoor relief,” became homes for the indigent elderly, which they shared with impoverished miscreants. Government pensions went only to veterans.

LTC Comment: Key principles, inherited from the British “poor laws,” prevailed from the beginning of U.S. history. People were individually responsible both for themselves and their parents. Government’s safety net role was local and made intentionally unattractive. “A common concern of the public at that time was that the opportunity to get free room and board would be so attractive that people would deliberately pretend to be poor so they could live an ‘indolent life’ in the almshouse at the expense of the taxpayers. Consequently, poorhouse life was made as unappealing as possible.” The idea was unheard of that people have a “right” to a living wage, much less to “free” health care or housing.

1800-1899: Families dispersed with the young moving to cities or the west. Single elderly, especially women, lived with adult children. The poorhouse system, with conditions between “barely tolerable to horrific,” came under scrutiny. “Boards of Charities,” precursors to today’s Departments of Welfare, developed in the mid-1800s to oversee local poorhouse operations.

There was a lot of debate about society’s role in caring for the poor, but by the mid-1800’s, many felt that the ‘deserving’ poor, like children, the insane, and the elderly, should get better treatment than the “undeserving” poor, like alcoholics and those who were healthy but shiftless or lazy.

Benevolent societies and fraternal organizations built old age homes to alleviate problems with the poorhouses.

[T]he benevolent societies created one of the earliest organized old-age assistance programs. Members paid monthly dues to the Society while they were young and healthy, then received help when they were elderly, infirm, or in need.

Private and non-profit developers created some approaches that became modern such as planned communities, retirement campuses, and “lifecare” whereby residents “turn over their pensions and any other income or assets they had to the facility, in exchange for a guarantee that they would have a home as long as they needed it.” Private nursing homes began:

A small number of the non-indigent frail elderly people lived in early “proprietary,” privately-owned facilities called “rest houses,” “convalescent homes,” or “medical boardinghouses,” generally just rented rooms in a family home.” Home health care services began to evolve “directed to the poor” and “supported by philanthropy.”

Veterans’ benefits expanded after the Civil War beyond cash assistance. “[T]he federal government started building hospitals and homes to provide long-term care to disabled soldiers and sailors, where many lived into their old age.” By the end of the 19th century some private companies started providing pensions and some states began providing cash assistance to the poor elderly.

LTC Comment: The 1900s saw the United States emerge as a world economic powerhouse with government interfering very little in the free market or to improve conditions for the poor elderly. Voluntary organizations took the lead to provide alternatives to poor houses and insane asylums for the deserving poor. State and federal government roles in support of the elderly and long-term care remained minimal.

1900-1929: Many non-profit old-age homes were built. People were living longer. “The average life expectancy at birth increased by 10 years from 1900 to 1930, and increased by another 15 years from 1930 to 1990.” Urbanization increased care needs. Home health care exploded with the Metropolitan Life Insurance Company providing visiting nurses for a “modest fee per policy.” More cash benefits were available from states and employers. A tuberculosis epidemic spurred “the development of public institutions designed to provide chronic care ….” More states began offering very limited, means-tested cash assistance to the poor. Many elderly were shunted into facilities for the mentally ill.

LTC Comment: In the dawn of the progressive era, little had changed yet, but the stage was being set for huge developments. The mostly voluntary, non-profit, non-governmental approach to old age support and care was about to be uprooted by heavy federal and state government involvement. The coming Depression tipped the balance toward government financing and control.

1930-1939: The Great Depression worsened poverty and destroyed family supports. State assistance was restricted.

All but Arizona and Hawaii refused to make payments to older people who had children or relatives who could support them. … Many required that the beneficiary must transfer to the pension authority any property they possessed before any payment would be made. … Most required that benefits would be denied to anyone who gave away property in order to qualify for public assistance. Most required that a lien be placed on the estate of the beneficiary to be collected upon their death.

In the worst of the Depression, voluntary organizations, local and state governments could not keep up with the need and demand for old age assistance. The 1935 Social Security Act created federal/state old-age assistance.

Title I … created a program, called Old Age Assistance (OAA), which would give cash payments to poor elderly people, regardless of their work record. OAA provided for a federal match of state old-age assistance expenditures. Among other things, OAA is important in the history of long-term care because it later spawned the Medicaid program, which has become the primary funding source for long-term care today.

These new benefits discouraged poorhouses and stimulated for-profit homes for the aging. “OAA recipients were able to pay cash at a time when there was little real money in circulation, making them very attractive customers for proprietary operators, and old age homes were a perfect ‘cottage’ industry.”

State and federal governments began to share welfare costs. “The OAA program established the precedent of splitting welfare expenditures between the federal and state governments while allowing the states to retain a significant amount of authority and autonomy to set standards, eligibility, and payment levels as they desired.” This division invited intergovernmental tension and “gamesmanship.”

LTC Comment: As the federal and state governments began to take a larger role in old age assistance, they required very strong controls. Strict eligibility criteria, transfer of assets restrictions, and mandatory liens were commonplace. These practices largely went by the wayside when Medicaid took over long-term care financing in 1965. Such restrictions only found their way back into the Medicaid program gradually over four decades as Medicaid LTC expenses exploded immediately and kept on a steady upward trend. The practice of splitting state and federal funding presaged the practice and its problems later in Medicaid. For more on this post-Medicaid history, see How to Fix Long-Term Care Financing (2017), especially pages 19-24 and 34-63.

1940-1949: “The size of the elderly and disabled population was growing, and many of them were now eligible for government payments of one kind or another, including veterans benefits, old-age assistance, Social Security, and unemployment assistance. Those payments could be used to pay for nursing home care, further encouraging the development of care facilities.” Both the cap on Old Age Assistance and the proportion paid by the federal government increased. Costs skyrocketed despite efforts to control abuse and overuse. Welfare planning, i.e., self-impoverishment to qualify, was feasible but still unpopular.

The benefit levels had risen so much that by 1948 the average OAA benefit ($38.18 per month) greatly exceeded the average Social Security benefit ($25.13 per month), providing a perverse disincentive for people to provide for their own old age by working and saving.

Government support for hospital construction gradually expanded to include nursing homes. “Hill-Burton financing lead to an explosion in public and non-profit hospital construction, and provided a model for federal and state standards for the design, regulation, and financing of healthcare institutions that was later used for nursing homes.” Many old hospitals replaced by the Hill-Burton program became nursing homes.

LTC Comment: Around the time of WWII we begin to see the perverse incentives created by state and federal government involvement in financial and long-term care support for the elderly. Why work when welfare pays more than Social Security? Why not start a nursing home? Success is guaranteed by direct subsidies and indirect government funding paid to welfare beneficiaries. Why save, invest or insure for the risks and costs of old age? The VA, OAA, SSA and UI will take care of you. The old principles of personal responsibility, self-reliance, and voluntary philanthropy are dying out but the inevitable consequences are not yet felt. So as the country enters a period of post-war prosperity, we’ll see more of the same.

1950-1959: The government is now heavily involved in nursing home care. The first official inventory showed 270,000 people living in 9,000 homes classified as “nursing care home” or “personal care home with nursing.” Of such homes, 86% were for-profit, 10% were voluntary, and only 4% were public.

Social Security and Old Age Assistance made the poorhouses irrelevant so many closed. Consensus grew to consider nursing homes as providing medical care, not just welfare. Social Security expanded in the 1950s “creating millions of additional people who would have a reliable source of income in their old age.” By the end of the decade, “the government was totally enmeshed in the business of providing nursing home care.” Half of private nursing home residents were welfare recipients and government was paying half the cost of nursing home care in the country.

Federal reimbursement, formerly split 50/50 with states, changed to give more to low-income states. With new nursing homes being built, smaller, older ones closed, especially “Mom and Pops.”

Not surprisingly, with government financial spigots open wide and few restrictions on what nursing homes should look like or how they should operate, quality issues started to come to the forefront. … A 1955 study by the Council of State Governments reported that the majority of nursing homes had low standards of service and relatively untrained personnel.

States often failed to enforce quality for fear of worsening the remaining shortage of nursing home beds.

LTC Comment: Government, at the federal, state and local levels, gets increasingly involved in building, funding, encouraging and regulating nursing homes. Federal funds pour into the public’s hands through Social Security and Old Age Assistance, which empowers people to purchase nursing home care, incentivizes investment in large for-profit facilities and contributes to crowding out smaller, family-run homes. Despite the rapid building of nursing homes and the new money pouring into the business, quality becomes a serious problem. Already, with government as the dominant payer and nursing homes as the customers, patients and residents are caught in between with little independence, control or protection.

1960-1969: In 1960, Congress passed the Medical Assistance for the Aged (“MAA”) program which made health care available to people sixty-five and older with low or moderate income and required state matching funds. The same Kerr Mills statute radically changed eligibility for nursing home care by adding people who “were not sufficiently needy to qualify for cash assistance to cover their ordinary expenses, but who were unable to pay their medical expenses.” This critical change found its way into Medicaid.

These programs benefited thousands of older people who were not technically ‘poor’ but whose incomes were inadequate to pay for expensive medical costs like nursing home care. The program also helped nursing home operators, since they now had a source of payment for a whole new group of people who otherwise would not have been able to pay for their care.

Program costs exploded due to these new classes of beneficiaries and elimination of the only effective spending control, the cap on OAA payments.

From this point forward, states could set payments to nursing home providers as high as they wished, and the federal government, which had no control over rates, was mandated to pay its part of the cost.

Nursing home demand remained “unquenchable” because people, who managed somehow before, were coming out of the “woodwork” to take advantage of the new government money and programs. The expansion of Social Security added more people with more money who were able to pay at least a part of the cost for their care.

Medicare passed in 1965 and intentionally excluded most nursing home care as not in keeping with its mission. It was custodial, not curative care. Then Medicaid passed almost as an afterthought, with little consideration for its mission and turning its administration over to the states.

The new Medicaid program contained features that guaranteed high costs: it paid for nursing home care for higher income medically indigent people but not for cheaper home care; it paid for “housing, food, housekeeping, and laundry, services” which would not have been covered for in-home services; federal matching funds incentivized states to move people from state-funded in-home programs to Medicaid nursing homes expanding services at little or no state cost; states could reimburse nursing homes at any rate and never pay more than half the cost; federal fiscal control was virtually impossible because states controlled all of the data.

First year costs for Medicaid, estimated at $250 million, turned out to be that much for New York State alone with 41 percent of its population eligible for Medicaid. “In spite of the looming problems with Medicare reimbursement, publicly-traded nursing home chains became one of the hottest things on Wall Street. Everyone viewed Medicare and Medicaid as a risk-free source of revenue that made this a business where no one could lose money.”

LTC Comment: Adding the medically indigent to nursing home eligibility drove up, and continues to drive up, government expenditures for long-term care. People came, and continue to come, out of the woodwork to take advantage of virtually free care. Demand skyrocketed as Medicaid covered, and continues to cover, housing, food, housekeeping, and laundry, not just “care.” Easy money from federal matching funds invited states, and still invites them, to change programs and pass costs to the federal government which they had shouldered themselves before.

Closing LTC Comment: The history of long-term care since Medicaid is the story of how state governments have tried to make the most of the program and the federal government has struggled to fix the problems inherent in its design. Unfortunately, most of the initiatives taken to improve Medicaid have only made it worse. Instead of recognizing the cause of Medicaid’s problems, perverse incentives that reward over-utilization and abuse, legislators, analysts and advocates have insisted on addressing symptoms only. But that is a story for another LTC Bullet and we’ll tell it soon. Stay tuned.


Selected bibliography: other sources of information on the pre-Medicaid history of long-term care:

No Place Like Home, by Karen Buhler-Wilkerson

Chronic Disease in the Twentieth Century: A History, by George Weisz

Unloving Care by Bruce Vladeck: history of nursing homes and public policy starts on p. 30.

Too Old, Too Sick, Too Bad, by Frank E. Moss, and Val J Halamandaris

Legislating Medicaid: Considering Medicaid and Its Origins,” by Judith D. Moore and David G. Smith, Ph.D.