LTC Bullet: So What If the Government Pays for Most LTC, 2020 Data Update

Monday, December 20, 2021

Seattle--

LTC Comment: Heads up! We're about to explain why long-term care insurance sales have disappointed, why people don't "use their homes to stay at home" and why LTC providers who depend on public financing are at risk. But first …

*** THE CENTER FOR LONG-TERM CARE REFORM announces a new in-person or Zoomed program by Stephen Moses covering LTC services and financing. What works, what doesn’t, why, and what to do about it. Including …

  • So What if the Government Pays for Most Long-Term Care?

  • What Happened to WA Cares and Why it Matters

  • How to Square the LTC Circle

  • The Great LTC Compromise

  • The Irony of Long-Term Care Advocacy

  • What works for long-term care and what doesn’t

  • What’s better for senior living and care — the market or government

  • Long-Term Care’s Problems Are Bad, Getting Worse, but Fixable

  • Should Medicaid Protect $8 Trillion from Private Senior Living Costs?

  • “The InLTCgentsia”—How it ruined long-term care

  • And much more

Start the new year off with a motivational long-term care convention-busting program by the fountainhead of creative LTC policy thinking. Zoom Steve’s presentation for $1,500 or bring him to your live program in person for $2,500 plus travel expenses. Steve says “there’s never been a more promising time to reinvent long-term care financing than right now, but we must come together, agree on the plan, and shout it from the electronic rooftops.” Call (425-891-3640)  or email smoses@centerltc.com to schedule this electrifying program for your agents, members, employees and staff. ***

LTC BULLET: SO WHAT IF THE GOVERNMENT PAYS FOR MOST LTC, 2020 DATA UPDATE

LTC Comment: Once a year around this time the Centers for Medicare and Medicaid Services (CMS) report health care expenditure data for the latest year of record. Recently, CMS posted 2020 statistics on its website at NHE Tables (ZIP). Click on that link to download the tables, unzip them, then click on the data tables of interest, Tables 14 and 15 for our purposes.

Health Affairs has published a summary and analysis of the new data titled “National Health Care Spending In 2020: Growth Driven By Federal Spending In Response To The COVID-19 Pandemic." Health Affairs subscribers can access the full text of that article here. Others can purchase it. The “Abstract” is available free. Unfortunately, the Health Affairs summary has little to say about long-term care, so read on to get that story.

Following is our annual analysis of the latest nursing home and home health care data.*

Heads Up: This may be the most important LTC Bullet we have published all year. It is the nineteenth in a row we’ve done annually to analyze the federal government’s enormous, and we argue, often detrimental, impact on long-term care financing. If you'd like to see the earlier versions, go here and search for “So What if the Government Pays for Most LTC.” You’ll find our yearly analyses of the data going all the way back to "So What If the Government Pays for Most LTC, 2002 Data Update."

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"So What If the Government Pays for Most LTC, 2020 Data Update"
by
Stephen A. Moses

Ever wonder why LTC insurance sales and market penetration are so discouraging? Or why reverse mortgages are rarely used to pay for long-term care? Or why LTC service providers are always struggling to survive financially and still provide quality care? Read on.

Nursing Homes

America spent $196.8 billion on nursing facilities and continuing care retirement communities in 2020, a 14.0% increase over 2019. The percentage of these costs paid by Medicaid and Medicare has gone up over the past half century (from 26.8% in 1970 to 47.1% in 2020, up 20.3 % of the total) while out-of-pocket costs have declined in the same period (from 49.2% in 1970 to 23.0% in 2020, down 26.2% of the total). Source: Table 15: Nursing Care Facilities and Continuing Care Retirement Communities Expenditures; Levels, Percent Change, and Percent Distribution, by Source of Funds: Selected Calendar Years 1970-2020.

So What? Consumers' liability for nursing home and CCRC costs has declined by over half, down 53.3% in the past five decades while the share paid by Medicaid and Medicare has increased by three-quarters, up 75.7%.

No wonder people are not as eager to buy LTC insurance as they would be if they were more at risk for the cost of their care! No wonder they don't use home equity for LTC when Medicaid exempts at least $636,000 and in some states up to $955,000 of home equity (as of 1/1/22). No wonder nursing homes are struggling financially--their dependency on parsimonious government reimbursements is increasing while their more profitable private payers are disappearing.

Unfortunately, these problems are even worse than the preceding data suggest. Over half of the so-called "out-of-pocket" costs reported by CMS are really just contributions toward their cost of care by people already covered by Medicaid! These are not out-of-pocket costs in terms of ASSET spend down, but rather only INCOME, most of which comes from Social Security benefits, another financially struggling government program. Thus, although Medicaid pays less than one-third of the cost of nursing home (and CCRC) care (27.0% of the dollars in 2020), it covers two-thirds (66.3%) of all nursing home patient days.

So What? Medicaid pays in full or subsidizes nearly two-thirds of all nursing home patient days. Even if Medicaid pays nothing with the entire amount due contributed from the recipient's income, the nursing home receives Medicaid's dismally low reimbursement rate.

No wonder the public is not as worried about nursing home costs as they would be if they were more at risk for the cost of their care. No wonder nursing homes risk insolvency when so much of their revenue comes from Medicaid, often at reimbursement rates less than the cost of providing the care. “With states setting the Medicaid rates paid to nursing centers, there is a wide variation in the percentage of costs covered by the rates. In 2015, the coverage ranged from a low of 73.5 percent to a high of 100 percent. A similar range exists with the 2017 projected shortfall across the states.” (Latest available data) Source: A Report on Shortfalls in Medicaid Funding for Nursing Center Care.

Private Health Insurance

Don't be fooled by the 8.5% of nursing home costs that CMS reports as having been paid by "private health insurance" in 2020. That category does not include private long-term care insurance. (See category definitions here.) No one knows how much LTC insurance pays toward nursing home care, because many LTCI policies pay beneficiaries who then pay the providers. Thus, a large proportion of insurance payments for nursing home care gets reported as if it were "out-of-pocket" payments. This fact further inflates the out-of-pocket figure artificially.

Assisted Living

How does all this affect assisted living facilities? According to the Genworth Cost of Care Survey for 2020, ALFs cost an average of $51,600 per year, up 6.15% from 2019. Although assisted living facilities remain mostly private pay, “48% of ALFs are Medicaid certified” and only “a small minority of state Medicaid programs do not cover services in assisted living.” Over time assisted living facilities have followed nursing homes down the primrose path of accepting more and more revenue from Medicaid.

Many people who could afford assisted living by spending down their illiquid wealth, especially home equity, choose instead to take advantage of Medicaid nursing home benefits. Medicaid exempts one home and all contiguous property (up to $636,000 or $955,000 depending on the state), plus—in unlimited amounts—one business, one automobile, prepaid burials, term life insurance, personal belongings and Individual Retirement Accounts not to mention wealth protected by sophisticated asset sheltering and divestment techniques marketed by Medicaid planning attorneys. Income rarely interferes with Medicaid nursing home eligibility unless such income exceeds the cost of private nursing home care.

So What? For most people, Medicaid nursing home benefits are easy to obtain without spending down assets significantly and Medicaid's income contribution requirement is usually much less expensive than paying the full cost of assisted living.

No wonder ALFs are struggling to attract enough private payers to be profitable. No wonder people are not as eager to buy LTC insurance as they would be if they were more at risk for the cost of their care. This problem has been radically exacerbated in recent years because more and more state Medicaid programs are paying for assisted living as well as nursing home care, which makes Medicaid eligibility more desirable than ever.

Home Health Care

The situation with home health care financing is very similar to nursing home financing. According to CMS, America spent $123.7 billion on home health care in 2020, up 9.5% since 2019. Medicare (33.6%) and Medicaid (32.5%) paid 66.1% of this total and private health insurance (not LTC insurance) paid 12.7%. Only 10.2% of home health care costs were paid out of pocket. The remainder came from several small public and private financing sources. Data source: Table 14: Home Health Care Services Expenditures; Levels, Percent Change, and Percent Distribution, by Source of Funds: Selected Calendar Years 1970-2020.

So What? Only one out of every ten dollars spent on home health care comes out of the pockets of patients and a large portion of that comes from the income (not assets) of people already on Medicaid.

No wonder the public does not feel the sense of urgency about this risk that they would if they were more at risk for the cost of their care.

Bottom line, people only buy insurance against real financial risk. As long as they can ignore the risk, avoid the premiums, and get government to pay for their long-term care when and if such care is needed, they will remain in denial about the need for LTC insurance. As long as Medicaid and Medicare are paying for a huge proportion of all nursing home and home health care costs while out-of-pocket expenditures remain only nominal, nursing homes and home health agencies will remain starved for financial oxygen.

The solution is simple. Target Medicaid financing of long-term care to the needy and use the savings to fund education and tax incentives to encourage the public to plan early to be able to pay privately for long-term care. For ideas and recommendations on how to implement this solution, see www.centerltc.com.

Note especially:

Medicaid and Long-Term Care (2020) at http://www.centerltc.com/pubs/Medicaid_and_Long-Term_Care.pdf

“How to Fix Long-Term Care Financing” (2017), at http://www.centerltc.com/pubs/How-To-Fix-Long-Term-Care-Financing.pdf

“CASSANDRA’S QUANDARY: The Future of Long-Term Care” (2016), at http://www.centerltc.com/pubs/FIA-Cbassandra-Quandry.pdf.

“How to Fix Long-Term Care,” a series of briefing papers, at http://www.centerltc.com/BriefingPapers/Overview.htm;

"Medi-Cal Long-Term Care: Safety Net or Hammock?" at http://www.centerltc.com/pubs/Medi-Cal_LTC--Safety_Net_or_Hammock.pdf;

"The LTC Graduate Seminar Transcript" at http://www.centerltc.com/members/LTCGraduateSeminarTranscription112712.pdf (requires password, contact smoses@centerltc.com);

"Aging America's Achilles' Heel: Medicaid Long-Term Care" at http://www.centerltc.com/AgingAmericasAchillesHeel.pdf; and

"The Realist's Guide to Medicaid and Long-Term Care" at http://www.centerltc.org/realistsguide.pdf.

In the Deficit Reduction Act of 2005, Congress took some significant steps toward addressing these problems. A cap was placed for the first time on Medicaid's home equity exemption and several of the more egregious Medicaid planning abuses were ended. But much more remains to be done. With the Age Wave cresting and threatening to crash over the next two decades, we can only hope it isn't too late already.

* Note that CMS changed the definition of National Health Expenditure Accounts (NHEA) categories in 2011, adding for example Continuing Care Retirement Communities (CCRCs) to Nursing Care Facilities. This change had the effect of reducing Medicaid's reported contribution to the cost of nursing home care from over 40% in 2008 to under one-third (32.8%) in 2009. CMS also created a new category called "Other Third Party Payers" (7.1%) which includes "worksite health care, other private revenues, Indian Health Service, workers' compensation, general assistance, maternal and child health, vocational rehabilitation, other federal programs, Substance Abuse and Mental Health Services Administration, other state and local programs, and school health." For definitions of all NHEA categories, see http://www.cms.gov/NationalHealthExpendData/downloads/quickref.pdf.

Stephen A. Moses is president of the Center for Long-Term Care Reform in Seattle, Washington. The Center's mission is to ensure quality long-term care for all Americans. Steve Moses writes, speaks and consults throughout the United States on long-term care policy. Learn more at www.centerltc.com or email smoses@centerltc.com.

 
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The Center for Long-Term Care Reform, Inc. is a private institute dedicated to ensuring quality long-term care for all Americans. Please visit our website: WWW.CENTERLTC.COM.

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