LTC Bullet: Medicaid and Long-Term Care, the Serial, Part 1

Friday, January 31, 2020


LTC Comment:  The full Medicaid and Long-Term Care monograph is 78 pages, so we’re going to bring it to you in bite-sized pieces. Here’s the first one.


LTC Comment: It is a mystery for many why markets work for autos, groceries, and plastic surgery, but not for health or long-term care. We set out to solve that conundrum in Medicaid and Long-Term Care. But at 78 pages, this monograph is a big chunk for busy professionals to consume at a sitting. So here are the first seven pages. We’ll bring you the next installment in a couple weeks.

Due to email formatting challenges, we’ll leave out the content of the report’s extensive footnotes in this serialized version. But the footnotes are important, and you can find them by clicking through to the unabridged version here. Likewise, citations to sources are given in the form (author, year, page number). To find the full citations for those sources, see the “References” section at the end of the full report.

In this opening section, Steve explains the long-term care financing problem, describes the current method of providing and paying for long-term care, and shows how heavily dependent the existing dysfunctional system is on public, especially Medicaid financing. In the next installment, he’ll explain how and why its problems of access, quality, low reimbursement, institutional bias, caregiver shortages and welfare dependency developed. Later sections address and correct most analysts’ misconceptions of the long-term care problem concluding with a better market-based solution than the compulsory social insurance options those analysts invariably propose.

Steve Moses challenges any scholar whose work is cited and critiqued in Medicaid and Long-Term Care to discuss and publicly debate this analysis. Contact him at or 425-891-3640.

Here’s the first episode of Medicaid and Long-Term Care, by Stephen A. Moses, Center for Long-Term Care Reform, Seattle, Washington, January 17, 2020. This paper was presented to The Libertarian Scholars Conference on September 28, 2019 in New York City and to The Cato Institute’s State Health Policy Summit on January 3, 2020 in Orlando, Florida.


How to provide and finance long-term care for a burgeoning elderly population bedevils scholars and policy makers. The existing service delivery and financing system, dominated by public funding, is highly dysfunctional, fraught with problems of access, quality, reimbursement, discrimination and institutional bias. Most long-term care scholarship analyzes these symptoms, without explaining their cause, and recommends expanding government’s role, usually by means of a new or expanded mandatory, tax-funded social insurance program. This paper takes a different tack, first explaining why the long-term care market has the problems it does and then suggesting how to remove their causes. At the root of all long-term care problems is Medicaid, the dominant payer. By providing only nursing home care—including room, board, and medical care—funded with virtually unlimited federal and state matching funds, Medicaid (1) exploded in cost, (2) created institutional bias, (3) caused access and quality problems by paying providers too little, (4) enriched plaintiff’s attorneys with the resulting tort liability cases, (5) crowded out private markets for home care and long-term care insurance, and (6) kept poor people poor with punishing spend down rules, while (7) letting the affluent save and benefit through eligibility loopholes. The key to fixing the problems that plague long-term care is to make Medicaid a better safety net for the poor while diverting the general public to private financing alternatives. This paper explains how to do that while reducing government funding and regulation, which arguably caused the long-term care problems in the first place.


Like the drunk seeking car keys only under a streetlight, most scholars narrow their search for long-term care solutions to the funding source they know best, government. Countless special commissions (Pepper Commission, 1990) (Medicaid Commission, 2006) (Commission on Long-Term Care, 2013),1 studies, reports and articles have explored the same ground. Most made the same recommendation, more obligatory social insurance. Voluntary private sector solutions receive scant consideration. This paper identifies a missing link in conventional scholarly research, draws the logical inferences, and reaches a different conclusion.

Long-term care, also called long-term services and supports (LTSS2), includes health care and social services to help people with physical or cognitive disabilities to perform activities of daily living over an extended period (Thach and Wiener, 2018, p. 1). The probability of needing long-term care is high. Seventy percent of people who reach age 65 “develop severe LTSS needs before they die and 48 percent receive some paid care over their lifetime (Johnson, 2019, p. 3)” incurring average lifetime expenses of $138,100 (Favreault, Gleckman, and Johnson, 2015, p. 2181). Monthly paid care is expensive whether provided in a nursing home ($7,513 for a semi-private room; $8,517 for a private room), assisted living facility ($4,051), or at home ($4,385) (Genworth, 2019). The need for long-term care increases with age. The U.S. 85+ population with the highest need will triple between 2015 and 2050 (Houser, Fox-Grage and Ujvari, 2018, p. 3). The United States spent $366.0 billion on long-term care in 2016 (Colello, 2018, p. 1), not counting half-a-trillion dollars in unpaid caregiving value provided at enormous financial and emotional distress by family and friends (Chari, Engberg, Ray, and Mehrotra, 2015, p. 871). The strain of providing and financing seniors housing and long-term care is huge already, bodes ill for the future, and attracts increasing scholarly and political attention, nearly all leaning toward a larger government role (Pearson, et al., 2019, p. 8513).

Yet, the current structure of long-term care service delivery and financing, dominated by 70.3 percent government funding (Colello, 2018, p. 1), is dysfunctional. Problems include high and rapidly increasing costs (Eiken, et al., 2018, p. 14); persistent nursing home bias (Gleckman, 20135); limited access to the home care consumers prefer (Johnson and Wang, 2019, p. 10006); provider reimbursements too low to ensure quality care (Hansen Hunter, 2018, p. 27); doubtful quality in nursing homes (Wood, 20198) (Ameriks, 2007, p. 229) and home care (Gorges, Sanghavi, and Konetzka, 2019, p. 111010) and the tort liability that comes with deficient quality (Aon, 201811); worsening shortages among both paid (Bryant, 201912) and unpaid caregivers (Schulz and Eden, 201613); and dwindling private financing sources exemplified by declining private payers in nursing homes (NIC, 2019, September14), the near absence of home equity conversion to fund care (Bell, 201815), and poor long-term care insurance take up (Favreault and Dey, 2016, p. 816). To understand why this market performs so badly, we can follow the money.

Who Pays for Long-Term Care?

Government financing dominates the long-term care market covering $257.4 billion of total $366.0 billion 2016 expenditures. Medicaid, a means-tested public assistance program jointly funded by the federal and state governments, is the largest contributor at $154.4 billion (Colello, 2018, p. 1). But Medicaid’s contribution of only 42.2 percent of long-term care dollars understates its influence. The program covers 62 percent of all nursing home residents (Harrington, Carrillo, Garfield, and Squires, 201817), 19 percent of assisted living residents (AHCA/NCAL18) and makes a rapidly growing contribution to home and community based care (Landers, et al., p. 26519).

How can Medicaid pay only two-fifths of long-term care costs, but cover three-fifths of the most expensive, i.e., nursing home, patients? Three factors principally account for this incongruity. First, cost shifting from private patients makes up part of the difference. Medicaid provider reimbursements are notoriously low, roughly 80 percent of private-pay rates (Liberman, 201820) and often less than the cost of the care (Ibid.21 and Hansen Hunter, 201822). Second, Medicaid long-term care recipients are required to contribute most of their income to offset the program’s cost for their care (Musumeci, Chidambaram and O’Malley Watts, 2019, p. 1523). Third, Medicare, which pays far more generously than Medicaid for nursing home and home care (MedPAC, 2018, p. 20624), enables long-term care providers to survive financially while most of their patients’ care is reimbursed at meager Medicaid rates. (Liberman, 201825).

These facts matter because the impact of public financing on long-term care is substantially greater than the raw numbers suggest in ways almost never acknowledged in the literature. Most of the income Medicaid recipients contribute to offset Medicaid’s cost for their care comes from Social Security. Although Social Security is not usually considered to be a financing source for nursing home care, the fact is that it contributes very significantly, albeit indirectly as “spend-through.” Social Security spend-through refers to income most seniors collect in the form of Social Security benefits which they must contribute toward their cost of care when they receive long-term care services paid for by Medicaid. There is very little in the literature about this source of long-term care financing even though research from 20 to 30 years ago indicated it accounts for nearly half of reported out-of-pocket nursing home costs. The amount is substantial, nearly half of the $57.0 billion (15.6 percent) total otherwise reported as “out-of-pocket” costs in 2016 as inferred based on (Lazenby and Letsch, 1989, p. 826; McCall, 2001, p. 1927).

Thus, in addition to the 70.3 percent of long-term care financing contributed directly by Medicaid, Medicare and other public sources, the public funding role is enhanced by spend-through of Social Security and other private income and by Medicare’s more generous reimbursement rates offsetting providers’ losses from Medicaid. This added dependency on two financially vulnerable social insurance entitlement programs contributes to the fragility of the long-term care financing system. If Social Security and Medicare trust funds expire as expected in 2035 (Board of Trustees [Social Security], 2019, p. 528) and 2026, (Board of Trustees [Medicare], 2019, p. 629) respectively, resulting in substantial cuts to those programs, Medicaid and the long-term care providers dependent upon it will be hard-pressed to make up the loss.

Medicaid Long-Term Care Financing in Perspective

U.S. national health expenditures (NHE) increased 4.6 percent to $3.6 trillion in 2018 or 17.7 percent of Gross Domestic Product (GDP) (Hartman, et al., 2020, p. 8). Medicaid spending grew 3.0 percent to $597.4 billion, 16 percent of total NHE or 2.9 percent of GDP (CMS, 2019). Combined institutional and non-institutional Medicaid long-term care spending was $167 billion in 2016, 30 percent of total Medicaid expenditures (Eiken, et al., 2018, pp. 2, 5). This 4.5 percent increase over the $159 billion spent in 2015 (Ibid., p. 2) was over half again as much as the 2.9 percent increase in GDP for that year (Duffin, 2019).

Medicaid spending is not evenly proportioned among enrollment groups. The program is constantly in the news because of controversy over expanding the program under the Affordable Care Act. But the ACA, or “ObamaCare,” principally addresses acute health care for young mothers, children and working age adults. While these groups comprise 77 percent of Medicaid enrollees (Kaiser Family Foundation [KFF], enrollees), they consume only 38 percent of Medicaid spending (KFF, spending). The aged and disabled who are most likely to use long-term services and supports are 23 percent of enrollees (KFF, enrollees), but they account for 61 percent of Medicaid expenditures (KFF, spending). Likewise, long-term care users, who are 5.9 percent of enrollees, consumed 41.8 percent of total Medicaid benefit spending for both institutional and non-institutional long-term services and supports (Thach and Wiener, 2018, p. 8). Its long-term care tail wags the Medicaid dog.

Medicaid spending on institutional (largely nursing home) care, which most people prefer to avoid (Riley, 201730), has abated in recent years remaining close to the amount spent in 2010 and actually declining two percent in 2016 (Eiken, 2018, p. i). Spending for home and community based care, which people greatly prefer (Lampkin and Barrett, 201531), has accounted for almost all Medicaid long-term care spending growth in recent years, increasing 10 percent in 2016 alone (Ibid.). In fact, Medicaid home care spending for older adults and people with physical disabilities reached 45.2 percent, up from 40.2 percent in 2013 (Eiken, 2018, p. 13 and Table AS).

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