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The following article was published in National Underwriter's LTC Online Edition in February 2003, http://www.nationalunderwriter.com/LTC/articles/2003_02_elephant.asp

"Opinion: The Elephant, The Blind Men and LTC"

by Stephen A. Moses February 2003

Five blind men approached an elephant. One touched the elephant's trunk and exclaimed, "it's a hose." The second grabbed the elephant's leg and said, "it's a telephone pole." The third reached for the elephant's tail and concluded, "it's a rope." The fourth felt the elephant's side and said, "it's a wall." The fifth felt the elephant's ear and declared, "it's a curtain."

This modernized version of the ancient parable of the blind men and the elephant teaches the folly of making conclusions about any complex thing without comprehending its entirety. Its message rings true when assessing today's long term care scene. LTC is a complex subject comprised of many inter-related parts. When people, even experts, analyze one facet without taking into consideration all of its aspects and inter-relationships, they often reach wrong, incomplete or misleading conclusions.

So, then, who are the "blind men" of LTC? What mistaken suppositions do they tend to make? And what can we learn if we remove our blindfolds and observe LTC in its fullness and complexity? Here's my take:

To the government, LTC is a gigantic fiscal problem. Medicaid and Medicare pay for most formal nursing home and home care services in the United States. The proportion of LTC costs paid by government has increased, while the share paid by consumers has declined, for decades. Medicaid rivals education as a burden on state budgets, and LTC is often a third to half the program's cost. Although government officials recognize the public's preference for home and community-based care, laws and policies still push most beneficiaries into nursing homes, because the public's aversion toward institutionalization discourages utilization and limits cost.

Financing LTC for an aging baby-boom generation is a daunting prospect for state and federal governments that are already facing crisis-level budget deficits. Yet, by treating LTC primarily as a fiscal problem, government solidifies the status quo and impedes progress.

To the public, LTC is usually a non-issue. At any given time, only a small percentage of Americans are giving or receiving such care. These caregivers and their patients suffer emotionally and financially. But their numbers are small and when their situation becomes dire, Medicare home care and Medicaid nursing home benefits mitigate consequences that might otherwise become catastrophic. Medicare has no means test and Medicaid is readily available to anyone unable to afford private nursing home care.

Thus, most Americans, who are not currently in the throes of a crisis, are barely conscious of LTC as a health and financial risk. They are in denial, but their denial is understandable. If they ignore the risk, avoid the premiums for private insurance, but someday need LTC, the government will pay. Most people do not choose this course of action consciously, but that is the point. They have been anesthetized to the risk of LTC so they fail to plan or insure by default.

To senior advocates, LTC is a benefit-seeking enterprise. Groups like AARP and the Alzheimer's Association examine the deficient status quo and conclude we need more government financing for LTC. Among other things, they want tax credits for caregivers and more money for home and community-based services. They miss or ignore the irony that the more money government spends on LTC, especially for desirable benefits like tax credits and home care, the less motivated the public becomes to save, invest or insure against the risk. Consequently, these groups advocate policies and programs that compound the underlying problem (excessive dependency on perpetually inadequate government financing).

Even worse is the impact of Medicaid estate planning attorneys who artificially impoverish affluent clients to qualify them for welfare-financed nursing home benefits without spending down. This practice sends a disastrous message to the next generation that LTC is a second-tier risk that can be safely ignored thanks to an elastic social safety net, which protects the well-to-do, not just the needy. Thus do well-intentioned senior advocates compound the LTC problem by promoting counterproductive public policies that serve their intensely felt, but narrow, short-term interests.

To service providers, LTC is a race for survival. Nursing homes and home health agencies, once flush with cash flow when Medicaid and Medicare were more generous, are now public utilities starved for revenue by stingy and declining government reimbursements. Assisted living facilities, attractive private-pay alternatives to nursing home institutionalization, are filling too slowly to be profitable, because most people cannot afford them, few have insurance, and Medicaid nursing home care is a cheaper alternative for most families.

Thus, America's LTC service delivery system is steadily collapsing with rampant bankruptcies, diminishing revenues, scarce capital, dire staff shortages, deteriorating quality, and skyrocketing liability insurance premiums. Yet, addicted to public financing, the nursing home industry begs hopelessly for higher government reimbursements instead of demanding public policy to encourage private financing of long-term care. Even the assisted living industry looks greedily at Medicaid, tempted by the same false promise of easy money that led nursing homes down a 30-year primrose path of constricting reimbursements and tightening regulations.

To financiers, LTC means, "show me the money." Financiers are the people and companies who provide the debt and equity capital to build and operate LTC facilities. They seek profitable investments. They shun businesses that do not produce adequate financial returns. In the 1990s, financiers over-invested in this area, financing and building myriad LTC facilities in anticipation that aging demographics would make home care, assisted living and nursing homes into hugely profitable growth industries. Wall Street followed suit, pumping up LTC stocks in anticipation of big future gains. When Medicare cut back on reimbursements for home health, skilled nursing facility, and auxiliary services in the Balanced Budget Act of 1997, however, the bottom fell out. LTC stocks collapsed, major nursing home and home health chains went bankrupt, and investors lost interest in the LTC industry.

Capital will always migrate to its highest and best use. When investors cannot safely anticipate a healthy profit, they take their money elsewhere. That is what happened to LTC, which now suffers from a severe dearth of debt or equity capital. At a time when America should be building up its LTC infrastructure, our heavy dependency on inadequate government financing is driving profit-minded investors away from the business.

To insurers, the last group, LTC is a golden opportunity tempered by disappointing results. Many carriers enter the LTC insurance market lured by promising demographics only to depart a few years later discouraged by disappointing sales. Likewise, most insurance agents and brokers attack the LTC insurance market with stars in their eyes only to find the product too difficult to sell profitably. The insurance industry completely missed the point that America already has a national social insurance program for LTC that finances the vast majority of all professional home care and nursing home services. Focused traditionally on selling asset protection to prospects who do not feel, and are not in fact, at risk of asset spend down, LTC insurance companies failed to penetrate the senior or baby-boomer markets significantly.

The primary benefit of LTC insurance is not asset protection, which can be purchased from a Medicaid planning attorney after the insurable event occurs for a fraction of the cost of private insurance premiums. Rather, the major value added by private LTC insurance is to empower consumers to purchase quality care in the private market at the most appropriate level, i.e. home care, assisted living, and when necessary, red-carpet access to top-quality nursing home care.

This overview does not address all viewpoints and perspectives necessary to comprehend LTC in its full intricacy. Nevertheless, "in the land of the blind, the one-eyed man is king." Keeping a few critical facts in view about the elephantine complexity of LTC will make the country far better prepared to plot rational public policy to solve the LTC problems that lie ahead.

In sum, the public has been anesthetized, in my view, to the risk of LTC by decades of easy access to government-financed nursing home care. To awaken Americans to the risk of LTC before it's too late, we must target publicly financed LTC more effectively to the genuinely needy and create strong incentives for everyone else to save, invest or insure for this risk. By reducing government financing and increasing private financing of LTC, America can (1) reduce the fiscal burden on Medicaid and taxpayers, (2) improve access to and quality of care for poor and rich alike, (3) breathe financial oxygen into the service delivery system, (4) build a strong home and community-based services infrastructure, and (5) begin to attract new capital into the field of LTC. All we need is the vision to see LTC in its full complexity and the will to change public policy accordingly.

Stephen A. Moses is president of the Center for Long-Term Care Financing, a Seattle, Wash. nonprofit think tank and public policy organization focused on LTC. His e-mail address is smoses@centerltc.org.

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