LTC Bullet: Medicaid and Long-Term Care, the Serial, Part 2
Friday, February 14, 2020
LTC Comment: The full Medicaid and Long-Term Care monograph is 78 pages, so we’re bringing it to you in bite-sized pieces. Here’s the second one, after the ***news.***
*** ILTCI RECOGNITION AWARD nominations are open. The Intercompany Long-Term Care Insurance Conference is sponsoring a third annual award for a person or organization “that has made a significant, long-term contribution towards the attainment of the ILTCI vision. The ILTCI vision is to create an environment for aging in America that includes thoughtful, informed planning that takes into account the most effective and efficient use of resources in addressing the risks and costs of long-term care for all levels of American society. For details and to submit your nomination, go to https://iltciconf.org/recognition-award/. Past recipients of the award were Marc Cohen and Stephen Moses. ***
LTC BULLET: MEDICAID AND LONG-TERM CARE, THE SERIAL, PART 2
LTC Comment: The one thing everyone agrees about long-term care is that our current system of providing and paying for it is a mess. Unfortunately, most researchers observe the existing system, agonize over its problems, and proceed to recommend solutions without first explaining what caused the problems in the first place and why they persist. These analysts put the proposal cart before the analytical horse.
Our new monograph, Medicaid and Long-Term Care, takes a different approach. Steve Moses first explains historically how long-term care’s major problems--such as institutional bias, inadequate funding, caregiver shortages, access and quality problems, etc.--came to be. Only after explaining the cause of the problems does he turn to ways to correct them, arriving at a much more promising solution than the usual proposals.
But at 78 pages Medicaid and Long-Term Care is a lot to take in as a whole. So we’re serializing the report. Today’s offering is Part 2. 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.
Here’s the second episode of “Medicaid and Long-Term Care,” by Stephen A. Moses, Center for Long-Term Care Reform, Seattle, Washington, published 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 Did Medicaid Become the Dominant Long-Term Care Payer?
Social services and benefit programs in the United States evolved gradually in the country’s first two centuries from a system based on British poor laws—“indoor relief” with many poor houses—toward a system based on cash relief payments (Senior Living: 1776-1799). Cash payments from programs like Old Age Assistance and Social Security gave people funds to spend on residential long-term care enabling the nursing home industry to grow rapidly (Senior Living: 1930-1939). In 1960, the Medical Assistance for the Aged (MAA) program made health care available to people sixty-five and older with low or moderate income and required state matching funds (Senior Living: 1960-1969). 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” (Ibid.). In 1965, the new Medicaid program dropped strict eligibility criteria, transfer of assets restrictions, and mandatory liens which were commonplace previously. For its first 15 years, Medicaid explicitly permitted asset transfers for the purpose of qualifying for long-term care benefits (Carlucci, 1986-87, p. 372-332). Finally, Medicaid paid exclusively for nursing home care, incentivizing its use by covering “housing, food, housekeeping, and laundry, services” which were not covered for in-home services (Senior Living: 1960-1969).
These features of the new Medicaid program—medically needy eligibility exclusively for nursing home care, including normal costs of living as well as health care, funded with virtually unlimited federal and state matching funds and with no limits on asset transfers to qualify—guaranteed Medicaid would explode in cost from the outset, perpetrate a nursing home bias in long-term care services, discourage development of a private home and community-based care market, and crowd out private long-term care financing sources. That is exactly what happened (Bernard and Feingold, 1970, p. 74533) and policymakers have been trying to reverse the damage ever since. But their efforts to tame Medicaid long-term care funding growth by capping supply and price, controlling financial eligibility, rebalancing services from institutional to home care, promoting private insurance, and enforcing federal rules on state programs have failed.
A Litany of Failed Interventions
From the beginning, efforts to fix the problems Medicaid created have addressed the symptoms—exploding costs, nursing home bias, and poor quality—not the causes—strong financial incentives for states to maximize Medicaid spending and perverse incentives for consumers to rely on the safety net program rather than prepare to pay privately for long-term care. Inevitable, if unintended, consequences followed a long series of policy errors.
In the 1970s, central health planners tried to control skyrocketing Medicaid nursing home costs by capping bed supply, requiring “Certificates of Need” (CONs) (NCSL, 201934) before allowing new construction on the premise “they can’t charge us for a bed that doesn’t exist.” Nursing homes gratefully took advantage of this new government-imposed monopoly which excluded new entrants from their market. But to compensate for their impeded growth, the nursing home industry raised the rates they charged Medicaid. In response, Medicaid capped nursing home reimbursement rates, which remain to this day only about four-fifths of private-pay rates (Liberman, 2018). But low Medicaid rates created a strong incentive for higher paying private-payers to convert to Medicaid. Consumers sought more and more creative ways to qualify for assistance, sometimes relying on the advice of specialized Medicaid planning attorneys to divest or shelter otherwise disqualifying resources.
Consequently, private-pay nursing home revenue declined from 49.2 percent in 1970 to 26.7 percent in 2017 while Medicaid funding increased from 23.3 percent to 30.2 percent in the same period (CMS, 2018, Table 15). The problem of declining private-pay and increasing Medicaid nursing home revenue is much worse than these numbers suggest due to a change in the definition of National Health Expenditure Accounts (NHEA) categories CMS made in 2011. CMS added Continuing Care Retirement Communities (CCRCs) to the category Nursing Care Facilities. Because CCRCs are much more likely than nursing homes to involve private payments, this misleading change had the effect of reducing Medicaid's reported contribution to the cost of nursing home care from over 40 percent in 2008 to under one-third (32.8 percent) in 2009.35
The federal government responded to the growing Medicaid dependency with a long series of laws attempting to restrict asset transfers and close other eligibility “loopholes” while requiring recovery of benefits paid from recipients’ estates. In 1996, President Clinton and the Gingrich Republicans even criminalized asset transfers for the purpose of qualifying for Medicaid.36 But this “throw Granny in jail law” was repealed a year later and replaced with a “throw Granny’s lawyer in jail” alternative, which quickly proved unenforceable.37 These efforts to target Medicaid long-term care resources to people most in need largely failed, though for correctable reasons discussed below. But the main failure was that these measures did not address the larger problem, financial eligibility rules that permit people with median and higher assets and income to qualify even without legal assistance.
By capping the supply and price of nursing home care without effectively controlling financial eligibility, Medicaid caused demand to skyrocket, filling nursing homes in the 1980s with too many recipients at too low reimbursements resulting in serious quality problems (Hawes and Phillips, 1986, p. 50838). By accepting Medicaid recipients, nursing homes could fill their beds no matter what quality of care they offered. Instead of addressing this problem’s cause, easy access to under-financed nursing home care, the government simply demanded higher quality care, requiring tougher care standards, extra staff and training in the Nursing Home Reform Act of 1987, but without appropriating extra funds to pay for the new mandates (Klauber and Wright, 200139). So this measure failed to improve care quality (Ibid.40). Caught between the rock of inadequate reimbursement and the hard place of mandatory quality, state nursing home trade associations sued for higher reimbursements under the 1980 Boren Amendment and usually won (MacPAC41). Government responded by repealing the Boren Amendment in 1997 leaving no legal floor under Medicaid nursing home reimbursements, thus exacerbating the quality problem and causing nursing homes’ reputation to disintegrate (Wiener and Stevenson, 1998, p. 142).
Trying to save money and give consumers more of the care they prefer, Medicaid encouraged states to rebalance from providing only nursing home care to supplying mostly home care. The premise of that policy was that home care costs less than institutional care. Unfortunately, combined institutional and home and community-based care expenditures usually exceed institutional costs alone. Medicaid long-term care costs for older adults and people with physical disabilities continued to grow from $36 billion in 1995 to $104 billion in 2016 despite, or because of, aggressive rebalancing (Eiken, et al., 2016, p. 1443). The evidence is overwhelming that changing from institutional care to home and community-based care does not save money in the long run. Home care delays but does not reliably replace nursing home care (Holahan and Cohen, 1986, p. 10644) and home care is more desirable than institutional care so more people come out of the woodwork (Ng, Harrington, and Kitchener, 2010, p. 2745) to seek Medicaid eligibility (Grabowski, 2006, p. 346).
Attempting to divert consumers from Medicaid to private insurance, government encouraged the use of “long-term care partnerships” which enabled consumers who purchased qualified policies to protect extra assets from Medicaid’s spend down and estate recovery rules (McCall, 2001). But the real problem was that Medicaid’s spend down and estate recovery rules are ineffectual and often unenforced. Forgiving a liability that does not exist in the first place did not incentivize many people to purchase private long-term care insurance policies. A federal income tax deduction for private insurance introduced in the Health Insurance Portability and Accountability Act of 1996 also helped little as it applied only to people with medical and long-term care expenditures exceeding 7.5 percent of adjusted gross income. Few people healthy enough to qualify medically for private long-term care insurance had medical expenses high enough to qualify for the tax deduction.
Having largely crowded out a market for private insurance by paying for most expensive long-term care, the government added insult to injury by driving interest rates on carrier reserves to near zero, forcing premium rates up to compensate, upsetting policyholders and potential buyers, and effectively suppressing the market. Seeing that nothing they did seemed to work, Congress and President Obama tried to nudge the public into voluntarily buying government long-term care insurance with the unfunded and misbegotten CLASS Act that was quickly repealed (Kane, 201147).
The latest attempt by Medicaid to mitigate the rising cost of long-term care is to modify the reimbursement system. Huge changes in how the government pays for post-acute and long-term care are underway and about to revolutionize long-term care service delivery. The transformation to "managed care," whereby state Medicaid programs turn over responsibility for providing and paying for long-term care to the highest bidders, has long been sweeping the country. Most long-term care will still be provided by nursing homes and home care companies, but now a new middle-man, the managed care company, is coming between the payer (Medicaid) and the provider, which already stand between the patient and access to quality care.
The newest move toward centralized control of the long-term care market is even more significant. The Centers for Medicare and Medicaid Services (CMS) is changing the focus of long-term care financing in both of the programs for which it is responsible from paying for services (volume) to paying for value (as measured by new, vague and complicated "quality" metrics). "Prospective payment," "bundling," and “value-based” reimbursement are the watchwords of the day. Instead of consumers pursuing value by purchasing care from providers they prefer, bureaucrats and politicians will define value, reward providers who deliver it and punish those who do not. The new system will put care managers and providers at far greater financial risk. Experts worry the end result will be a two-tiered system with poor providers getting worse and becoming more dependent than ever on low Medicaid reimbursements.
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