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Stephen
Moses, President of the Center for Long-Term Care Financing in Bellevue,
Washington, delivered a prototype of the following speech on Wednesday, July 5,
2000 at the University of British Columbia, Vancouver, BC, Canada to the 11th
Annual Summer Seminar of "The Objectivist Center." Good
morning, ladies and gentlemen: Health
care and aging demographics are two of the most important and dangerous social
and economic challenges in America today. Two
years ago, I addressed you on the theme of acute health care policy in a lecture
entitled "The Health Care Hold-Up: Your Money and Your
Life." Last
year, I spoke to you about aging demographics in "Pigs, Pythons and
Politics: How to Survive the Aging
of the Baby Boomers." [read
this lecture at http://www.centerltc.org/] This
year, I am going to weave those two issues together in a discussion of long-term
care for the frail, infirm and, mostly, the elderly. Long-term
custodial care for the chronically ill may prove to be the most challenging and
expensive of the several demographic time bombs America faces. Certainly,
our long-term care service delivery and financing system is a mess already, ten
years before the big spike in baby-boomer aging even begins.
For example: *
Most people associate long-term care with nursing homes … and yet,
surveys show that a majority of the elderly would rather die than enter a
nursing home permanently. *
Nursing homes all across America are going bankrupt … even though
Medicaid and Medicare outlays for nursing home care are hemorrhaging. *
Home and community-based long-term care is underdeveloped and
underfinanced … although most
people would prefer to receive the care they need at home. * Elder
care is a terrible and growing strain on families and businesses … but fewer
and fewer caregivers are available to meet the need. *
Studies show that people over 65 face a nine percent probability of a
five-year or longer nursing home stay at $35,000 to $85,000 per year … yet few
insure privately against this risk. What
is going on? How
did we get into such a mess? Are we witnessing an example of "market
failure" or were these problems caused somehow by government intervention
in the market place? Do
we need to change public policy and if so, how? Is
there anything we can do as individuals in the meantime to protect our families
and ourselves from the potential indignities and devastating costs of long-term
care? In
a nutshell: "Will you still
need me…Will you still feed me…When I'm…huh?…84?" These
are the questions we'll try to answer today. But
first, let's quickly review the challenge of aging demographics. Aging
Demographics Reviewed Today,
12 or 13 percent of Americans are aged 65 or older, that is to say, elderly. Because
of the aging of the baby boom bulge, born between 1946 and 1964, by the year
2025, 20 percent of us—one in five—will be elderly. But
old age isn't what it used to be … the young-old, people 65 to 75, are
relatively active and fit these days. It's
the old-old, people over age 85, who present the biggest challenge.
They are the fastest growing cohort in American society. By
2035, the old-old will have increased ten-fold to 14.4 million people. What's
more, two-thirds of those over 85 will be women, of whom more than four-fifths
will be single, divorced, or widowed, the groups most likely to receive
extensive government assistance. It
is no co-incidence that most economic projections anticipate the insolvency of
Social Security and Medicare sometime around the baby-boom generation's
senescence. But
retirement security and acute health care for the elderly are not the only …
and perhaps not the biggest challenges we face. The
sleeping giant of all U.S. social problems is long-term care. Long-term
care may be defined as “a wide range of medical and supportive services for
individuals who lack some capacity for self-care, and are expected to need care
for an extended period of time.” Most
long-term care, upwards of 80 percent, is provided informally in the home by
friends and relatives, often older spouses, usually women. The
need for long-term care is directly related to age. The incidence of Alzheimer’s Disease and nursing home
institutionalization, for example, doubles every five years after the age of 65.
Historically,
by the age of 85, half the population already has Alzheimer's Disease and more
than 20 percent reside in a nursing home. Given
the rapidly increasing proportion of elderly Americans, the need for long-term
care is likely to grow exponentially in the decades ahead.
The
cost will be immense and, with no change in current public policy, the
government will have to struggle mightily to pay even as much a proportion, if
not more of it in the future. To
give you a sense of the magnitude of these costs already, consider that in 1998,
Americans spent $88 billion on nursing home care, approximately three-fourths of
which came either directly from Medicare and Medicaid or indirectly from their
Social Security benefits. The
same public financing sources paid well over half of the nation's $29 billion in
home health care expenditures. By
comparison, the total federal budget is around $1,700 billion dollars. What
does this mean to you and your family? If
you have not experienced it already, sooner or later, you will probably confront
the need to care for a frail or infirm loved one. You
may face the physical strain of assisting someone who is no longer able to
handle the common activities of daily living alone (ADLs in the jargon of LTC). ADLs
include dressing, bathing, transferring (from one place to another), eating, and
toileting. You
may face the emotional strain of assisting someone suffering from dementia who
wanders, accuses, threatens, screams or all of the above. Such
a person may still be physically able to take a shower alone, but may not
remember to disrobe first. Cognitive
impairment is a major cause of long-term care dependency. Perhaps,
you will be the extraordinary family member who can bear to change a formerly
brilliant and self-sufficient parent's diaper … Or
you may be one of those siblings who, despite the best of intentions before,
cannot deal with such a challenge and leaves the task to others, creating
resentment and breaking up a formerly close-knit family permanently. Sadly,
the biggest cause of a growing epidemic of elder abuse in the U.S. is caregivers
who crack under these enormous strains and resort to violence or financial
exploitation. When
your time comes to provide long-term care for an aging loved one, you are going
to want help…you're going to want advice, professional assistance, and money. Unfortunately,
neither today's marketplace nor the government's programs do a satisfactory job
of meeting those needs. The
supply of both free and paid caregivers is drying up, as women—the traditional
free care-givers—enter the marketplace and nurse's aides—the traditional
low-cost service providers—find more attractive and remunerative employment in
other areas of our booming economy. America's
home and community-based services infrastructure, including chore services and
home health aides, should help the frail and infirm remain independent and in
their own homes as long as possible. Unfortunately,
this market is under-developed and starved for financing. Assisted
living facilities, the new privately financed alternative to nursing home care
which most people prefer, are filling much more slowly than was originally
anticipated. They are having
trouble making their service affordable to people who want to use it. Despite
everyone's preference for non-institutional settings, most professional
long-term care is still provided in institutions, usually nursing homes.
Yet, eight major nursing home chains have recently declared bankruptcy
and 15 percent of all nursing home beds in the United State are in bankrupt
facilities. Long-term
care stock prices, especially for nursing homes but also for assisted living
chains, are way down and capitalization for the industry, by debt or equity, is
almost completely stymied. Most
Americans cannot afford expensive formal long-term care services, yet Medicaid
and Medicare, the government programs which contribute the lion's share of
long-term care financing, pay too little to assure access to quality care.
Few
seniors (only about seven percent) and almost no baby boomers own private
long-term care insurance to cover these expenses. In
the meantime, the "Age Wave" is about to crest and aging demographics
guarantee an ominous future for long-term care. Why
do disjunctures such as I've just described exist? The
first step to solving America's long-term care service delivery and financing
problem must be to understand it. So
let us apply now the tools of reason and common sense economic analysis to
answer the fundamental question: How
in the world did we get into such a mess in the first place? "The
Nursing Home Sandwich" In
1900, average life expectancy in the U.S. was 47 years; by 1965, the average
American lived to around 70; we had gained a whole new age of life. The
good news was people were living longer; the bad news was, they were dying
slower, often of long-term chronic illnesses like Alzheimer's, Parkinson's or
stroke. Traditional
"old folks' homes" were ill-equiped to handle the growing medical and
custodial care needs of this rapidly aging population. Women,
who traditionally cared for their elderly parents and in-laws, were entering the work force in greater and greater
numbers. This
was the time when, left to its own devices, the market could have produced a
wide range of affordable home and community-based long-term care services and
the investment and insurance products necessary to pay for them. Instead,
however, President Lyndon Baines Johnson showed up at our door and announced:
"I'm from the government and I'm here to help you." In
1965, Congress passed, and the President signed, Title XIX of the Social
Security Act, also known as the Medicaid program. Although
Medicaid's primary mission was to provide acute medical care for the poor, the
program also offered subsidized long-term nursing home care for people over the
age of 65. In the beginning, nobody
thought this service would add much to the cost of the program. Medicare,
Title XX of the Social Security Act, enacted in the same year, also paid for
nursing home care, but only on a very limited basis, so it does not enter our
story until much later. In
essence, the government gave the public a choice: "You can take care of grandma at home, with all the
emotional and financial stress that entails, or, you can put her in a nursing
home and the government will pay." People
aren't stupid. They made the
logical choice. They put grandma in
the nursing home. The
nursing home industry isn't stupid. They
also made the logical choice. They
went after this new government funding source aggressively.
A
binge of bed building followed. As
fast as the industry could build new nursing home beds, the public filled them
at Medicaid’s expense. By the
mid-1970s, the cost was growing out of control. So,
the federal and state governments responded with intensive, centralized
"health planning" initiatives. They
required developers to obtain "Certificates of Need," before they
would be allowed to build any new nursing homes. I
worked for the federal Health Resources Administration in the mid-70s so I saw
this first hand. The principle was
simple; the government figured: "they
can’t charge us for a bed that doesn't exist," so we just won't let them
build any more. You
don’t need to have a Ph.D. in economics to figure out what happens when the
government arbitrarily caps the supply of a good or service.
Obviously, the price skyrocketed. Nursing
homes merely raised their rates to compensate for having fewer beds to fill. In
time, the government figured out that it was losing all the savings from capping
bed supply because of the rising reimbursement rates.
So, next, the government capped the rates Medicaid would pay for nursing
home care. The
nursing homes' response was quite predictable.
They raised the rates they charge to private pay patients in order to
compensate for the reduced Medicaid payments. That
was the origin of the differential between Medicaid and private nursing home
reimbursement rates. To this day,
Medicaid pays only 80 percent of the private pay rate on average and often less
than the cost of providing the care. What
do you suppose happens in an economic system when you cap supply and
price? Right, demand goes through the roof. That is exactly what happened. In
the late 70s to mid 80s, nursing home occupancy in the United States jumped to
95 percent. By comparison,
hospitals were only 55 to 65 percent full.
By
then, nursing homes could fill up their limited supply of beds at their limited
rates of reimbursement no matter what kind of care they offered.
Therefore, by the late-1980s, quality of care in nursing homes was
becoming a huge problem. At
that time, I was a Medicaid State Rep for the Health Care Financing
Administration (HCFA), so this too I saw up close. In fact, I was becoming something of a whistle blower
by then. For my own sanity, I had
to get out of HCFA, so I transitioned to the Office of Inspector General of the
Department of Health and Human Services (OIG) where finding and correcting
problems in the health care bureaucracy was encouraged instead of punished.
In
reaction to the perceived deteriorating quality of care in nursing homes, the
government took strong regulatory action yet again. The Omnibus Budget Reconciliation Act of 1987 mandated that
nursing homes improve the quality of care and provide much more training for
nurse's aides. The
nursing home industry responded: "Wonderful,
we want to provide top quality care and highly trained staff.
How much more money are you going to give us?"
Of course, the government was running deep deficits around that time and
had no extra funding to offer. They
wanted great care without paying for it. Thus,
nursing homes were caught between the rock of inadequate government
reimbursement and the hard place of government quality mandates.
If they tried to attract higher paying private patients, they were
accused of discrimination against Medicaid recipients.
If they tried to cut corners on costs, they were accused of providing
deficient care. Out
of desperation, the nursing homes started suing state Medicaid programs for more
reimbursement. They brought these
suits under the "Boren Amendment," a 1981 law that required Medicaid
to pay at least enough to finance adequate care. The industry had some success for awhile.
So, Congress repealed that law and pulled the rug out from under them. Now,
in the meantime, the government—having capped supply, restricted
reimbursement, and mandated high quality care—went after the problem of
skyrocketing demand. Because
Medicaid nursing home benefits were free to most people and subsidized for all,
and because private pay rates had been driven so high, the public looked for
creative ways to qualify for Medicaid. Technically,
Medicaid is a means-tested public assistance program. It is welfare. You
might ask: "How can middle and
upper-middle class people qualify for it without spending down their assets and
income?" That's
a story I'll save for another, maybe next year's, lecture.
Suffice it to say today, that in the early 1980s "Medicaid estate
planning" exploded. Medicaid
planning is artificial self-impoverishment for the purpose of qualifying for
Medicaid nursing home benefits. It
is often assisted by a growing army of "elder law attorneys," who
specialize in "public benefits planning." Around
this time, I was doing a series of studies, more aptly expose's of Medicaid
planning, for the HCFA and the OIG. We
did get the government's attention. Over
the past two decades, eight Congresses and three Presidents have tried almost
everything we've proposed to discourage the legalized abuse of Medicaid
benefits. In
six major pieces of legislation from 1982 to 1997, the government has mandated
restrictions on Medicaid planning, required recovery from recipients' estates of
benefits that were paid, and authorized liens on real property to discourage the
middle class from taking advantage of Medicaid. In
the Health Insurance Portability and Accountability Act of 1996, they even made
transferring assets to qualify for Medicaid a crime. When public uproar forced them to repeal this so-called
"throw Granny in jail" law, they came back in the Balanced Budget
Amendment of 1997 with the "throw Granny's lawyer in jail" law.
Janet
Reno refused to enforce that one. When
it was legal again for the attorneys' clients to shift assets to qualify for
Medicaid, the Justice Department concluded (probably correctly) that it would be
unconstitutional for them to hold the attorneys criminally liable for advising
their clients to do so something that is once again legal. Thus,
we're right back where we started. The
average person can qualify for Medicaid nursing home benefits without fancy
planning and virtually anyone else, regardless of income or assets, can qualify
quickly by obtaining the right legal advice.
Let
me say parenthetically here that some folks make the argument that Medicaid
planning is acceptable, because, we all paid our taxes and we're entitled to the
benefits even if it takes legal manipulations tantamount to complex tax planning
in order to qualify. Whatever
its merits in other contexts, this argument is fallacious as applied to Medicaid
planning. Artificial impoverishment
to qualify for Medicaid is usually done by an adult child heir to save an
inheritance by placing his or her parents in a welfare home.
Medicaid
has a dismal reputation for problems of access, quality, reimbursement,
discrimination and institutional bias. The
parents' best interest lies in retaining the assets in order to be able to
purchase quality care in the private market place at the most appropriate level,
especially home care or assisted living. Thus,
Medicaid planning is not a legitimate means to recoup one's tax contributions if
it results in impoverishment, welfare dependency and inadequate care for one's
parent. Now,
while all this was going on, some academics proposed, and senior advocates
demanded, so the government tried, another cost-saving approach.
Having pushed everyone into expensive nursing homes by paying only for
that level of care, the Medicaid bureaucrats reckoned they could save money by
moving people out of nursing homes and into less expensive home and
community-based care. Unfortunately,
over time, empirical research showed and practical experience confirmed that
this approach would not save money. People
receiving inexpensive chore and health services at home tended to live longer
and happier lives, but they ended up ultimately in nursing homes anyway, so
overall costs continued to increase. Nevertheless,
the academics and advocates have still not learned. Their latest proposal is to pool Medicaid and Medicare
resources in order to provide home care and assisted living to more people and
thereby keep them out of nursing homes longer.
By now, even the government knows this won't work and is resisting
strongly. There
are three problems: for every
person in a nursing home today (and there are over 1.5 million of them), two or
three people of equal or greater disability remain at home. Half of these are bed-bound, incontinent or both.
Their families strain to keep them at home because they dread going to a
nursing home. As soon as the
government begins paying for home care and assisted living, services they want,
these people are likely to come out of the "wood work" and overwhelm
the public financing program. Second,
as serious as the Medicaid planning problem is, its impact is limited by the
fact that all it gets you is welfare-financed nursing home care.
Once the government starts paying for services people want, however, the
demand for Medicaid planning will explode. Finally,
public financing of nursing home care has impeded the development of a private
long-term care insurance market. Public
financing of the home and community-based long-term care services that people
prefer would destroy that budding market altogether. I
mentioned earlier that Medicare, the government's acute health care program for
the elderly, also had a role to play in the long-term care story.
Lately, it has become the straw that broke the camel's back. From
its enactment in 1965 until the Medicare Catastrophic Coverage Act of 1989,
Medicare had a small role in long-term care paying only one or two percent of
nursing home costs and 23 percent of home health care expenditures. Between,
1989 and 1997, however, Congress opened Medicare's floodgates and the program's
funding grew quickly to 12 percent of total nursing home costs ($10.4 billion)
and to 45 percent of home health costs ($13 billion.) Just
as in the case of Medicaid, the nursing home and home health industries chased
this new government-financed windfall. They
geared up to take maximum advantage of Medicare's lucrative cost-based
reimbursement system. They eagerly
purchased ancillary services companies to add to the range of services for which
they could bill Medicare. For
awhile, they were riding high. Then
Medicare wised up. They changed to
a prospective payment reimbursement system that no longer guarantees providers a
profit. They stopped paying so
liberally for therapy, rehabilitation, massage and other ancillary services.
And, in short order, they drove eight major nursing home chains and
hundreds of home health agencies into bankruptcy.
Obviously, they went too far. So,
as recently as June 20, President Clinton proposed to restore a small portion of
these cuts. Clearly,
the government continues to micro-manage long-term care service delivery by
doling out a starvation diet of financing while demanding a higher quality of
care than they are willing to finance. The
very latest developments in this saga are Al Gore's and George W.'s proposals
for long-term care. Governor
Bush wants to offer a bigger and better tax deduction for the purchase of
private long-term care insurance. Vice
President Gore wants to give all long-term caregivers a $3,000 tax credit to
help them carry this burden. As
usual, the government has one foot on the accelerator and one foot on the
brakes. Bush's proposal encourages
people to plan early and insure fully for the risk of long-term care.
Gore's proposal says the opposite: "don't
worry about long-term care; the government will provide."
How? Somehow. Summary So,
that brings us up to the present. At
the turn of the millennium, what has 35 years of government intervention in the
long-term care market place wrought? Despite
its benevolent intent, Medicaid co-opted long-term care by the late 1960s.
It
impeded the private market for low-cost senior services and housing and
discouraged the development of private long-term care insurance by providing
free or subsidized nursing-home care. It
created a Frankenstein's monster of institutional care by targeting public money
only to nursing homes. Today, 80
percent of all patient days in nursing homes are financed by Medicaid. It
stifled competition, thereby impairing access and quality, by constricting bed
supply and reimbursement rates artificially.
It
drove the middle-income consumer out of the private long-term care marketplace
by creating a ponderous, publicly-financed monopsony.
(By the way, a monopsony is an economic system with a single buyer, as
contrasted with a monopoly, which has a single seller.
The consequences for consumers can be equally bad in either situation.) In
time, Medicaid and Medicare choked the nursing-home industry almost to death
with regulations intended to correct the very problems these programs themselves
engendered. Lawyers
are now administering the coup d' grace by litigating against nursing homes for
providing poor care. Sometimes,
these are the same lawyers who manipulated Medicaid rules to qualify their
well-to-do clients for the welfare program thereby reducing the nursing homes'
cash flow and undercutting their ability to provide quality care. Nevertheless,
in the absence of affordable alternatives and the means to pay for them,
middle-class Americans in the hundreds of thousands are still being directed
into government-financed nursing homes by well-intentioned public administrators
and Medicaid estate planning attorneys. In
other words, government intervention in the long-term care service delivery and
financing market has had exactly the consequences that sound economic analysis
would have predicted in the first place. The Marketplace Responds Fortunately,
government intervention in America's economic system only goes so far.
We do have, after all, a mixed system and we retain some considerable
measure of freedom and individual determination. Thanks
to these facts, empowered by a big baby boomer generation approaching its peak
years of productivity, we currently have a booming economy. Lots
of people have money and they are voting with their dollars for better long-term
care. The
public's growing aversion for nursing homes has led more and more people to
avoid them at considerable personal expense.
Even if free or subsidized nursing home care is easily available from
Medicaid, a growing proportion of the public is willing to spend its own money
to purchase alternative kinds of care. For
example… Adult
day care centers are springing up where middle-aged children can leave their
ailing elderly parents during the work day just as they have left own children
in child care centers in the past. Such
facilities provide meals, snacks, activities and social contact for older people
who can no longer manage alone at home all day long. More
and more employers are realizing that elder care is draining as much time and
productivity from their workforce these days as child care, so they are
beginning to help their employees by implementing flexible work schedules,
providing elder care counseling, and offering private long-term care insurance.
The
profession of geriatric care management is growing. Geriatric care managers assess the needs of elderly people
living alone. They find and
coordinate free and fee community services that can help seniors remain at home
and independent as long as possible. And
they report on the parents' condition and progress to guilt-ridden adult
children who often live too far away to provide help in person. Assisted
living facilities, the preferred private-pay alternative to nursing homes, are
popping up all over. Assisted living facilities are like hotels where you can
call room service for help taking a bath or leave a call at the desk to be
reminded to take your prescription meds. They're
very popular among people who can afford them, although they are filling much
more slowly that originally anticipated. After
25 years of struggling, private long-term care insurance that pays for home
care, assisted living, and nursing home care, is finally starting to gain a
foothold. Sales of these policies
are lately increasing by 20 percent per year, but still only seven percent of
the elderly and virtually none of the baby boomers have purchased this
protection. So,
in summary, here's how things stand today.
We
have a mostly welfare-based, government-financed long-term care system that
requires real or artificial impoverishment to qualify for notoriously poor
nursing home care that most people would rather die than receive. Simultaneously,
we have a budding market-based, private-pay congeries of long-term care services
that is struggling to attract financing from a stunted private insurance market
and a sandwich generation of baby boomers who are juggling the costs of college
for their kids and custodial care for their parents. These
two forces—Medicaid vs. the market—are in counterpoise.
Change is exasperatingly slow because so many interest groups have a
stake in the status quo. The
public wants long-term care services provided by the government without having
to pay for them. Politicians
want to promise constituents a "right" to long-term care without
angering taxpayers by forcing them to pay the cost. Bureaucrats
want to expand their programs and budgets without managing expenses as private
companies must do. Senior
advocates want red-carpet access to top-quality care provided by loving
personnel without explaining how to pay these workers more than the minimum
wage. Medicaid
planning attorneys want six-figure incomes from artificially impoverishing
middle class clients without the opprobrium this practice has earned them. Nursing
home companies want higher reimbursement rates from Medicaid and Medicare
without aggressively promoting private financing sources like insurance. In
other words, all these "stakeholders" want to have their cake and eat
it too. But that just won't work.
No amount of wishful thinking will change the facts of reality. So,
the question becomes: how can we
break this log-jam of counter-balanced private interests that is being held
together and perpetuated by perverse incentives in counterproductive public
policy? The
Lesson and The Solution Some
philosophers believe that justice and
the best practical results are achieved when government leaves the marketplace
alone (except for enforcing laws against fraud) and allows free economic actors
to pursue their own interests without interference. They
could argue that a "hands-off" government policy would be the best way
to fix the long-term care marketplace. For
example, what might happen if the government suddenly stopped paying for home
care and nursing home care through Medicare and Medicaid? Dire
consequences would probably follow almost immediately.
Families with parents receiving care subsidized by the government would
suddenly have to come up with their own funds to pay for the care.
Or they would have to take care of their elderly loved ones themselves. More
people, mostly women, would have to quit their jobs to provide care.
Many
college careers would come to an abrupt end as family finances were redirected
from children's education to parents' elder care. Eagerly
anticipated inheritances would be drawn down to pay for expensive long-term care
services. When
the parents' savings were gone, families' own retirement savings would begin to
be depleted. Before
long, however, people would begin to take the risk of long-term care very
seriously indeed. They would
investigate private insurance as a means to protect against the high risk and
cost of long-term care. Aging
boomers, especially, would want to protect their savings—and their children's
inheritances—from suffering the same consequences they were experiencing. In
the meantime, they would seek out low-cost home and community-based services,
which would become more available as demand for them increased.
They would use low-cost congregate care homes and assisted living
facilities whenever possible thereby empowering the seniors' housing industry to
prosper and expand. Nursing
homes, on the other hand—denied the financial support of government
programs—would recede in importance and ultimately care only for a small
number of the highest acuity patients for whom less institutional, non-medical
settings are not appropriate, but hospitalization is unnecessary. In
other words, the long-term care service delivery market would gradually adapt to
provide the relatively low-cost long-term care services that people prefer.
Simultaneously, faced with the responsibility to pay for their own
long-term care, most people would start to save, invest, and insure against that
risk. Of
course, some people would be irresponsible and continue to do nothing to prepare
for long-term care. In the absence
of a government safety net, they would face severe consequences ameliorated only
by private charity. Because of
these consequences, however, more people would plan ahead and fewer would end up
dependent on charity. Now,
what is wrong with this picture? Obviously,
given the current and likely future state of American politics, we will not see
government withdraw from the long-term care marketplace anytime soon.
A combination of social responsibility and interest-group politics
guarantees that government involvement will continue indefinitely. The
proximate question, therefore, is "How can we minimize the damage done by
the status quo?" That's
where the Center for Long-Term Care Financing, the organization I head, is
trying to make a difference. We
believe it is possible to achieve universal access to top-quality long-term care
for all Americans. But we also
believe that to make progress toward this objective we must deal with the
reality of present-day politics and economics. Here's
what we've come up with at the Center. We
call our approach LTC Choice. (See
the Center's white paper "LTC Choice:
A Simple, Cost-Free Solution to the Long-Term Care Financing Puzzle"
at www.centerltc.org) We
identify the fundamental problem of long-term care in this way:
the government has anesthetized the public to the risk of long-term care
by providing free and subsidized nursing home care for the past 35 years. The
public is only now awakening to the rapidly worsening access and quality
problems associated with government-financed long-term care.
By the time they face these problems, however, they are usually in the
middle of a family crisis. After
Mom gets Alzheimer's or Dad has a stroke, it is too late to save or insure.
(You can't buy fire insurance either when your house is in flames.) Consequently,
families turn in their distress to Medicaid nursing home care and to Medicaid
estate planning attorneys to qualify them for these welfare benefits.
Thus the cycle is encouraged and prolonged. We
propose to break this cycle by a series of public policy changes: First,
let the government focus on educating the public about the risk and cost of
long-term care. Let it encourage
the public to save, invest and insure against this risk. Second,
make sure the government offers a long-term care safety net and not a hammock.
Make it abundantly clear to people in their 40s and 50s, while they still
have time to prepare, that long-term care is a personal responsibility and will
not be subsidized by the government until personal income and assets are totally
depleted. If this were a reality,
most people should, could, and would buy private long-term care insurance.
(See the Center's white paper "The Myth of Unaffordability:
How Most Americans Should, Could and Would Buy Private Long-Term Care
Insurance" at www.centerltc.org) Third,
for those who don't take this hint, fail to insure for long-term care, and
someday need help, stop pushing them into poverty as a means to get
government-financed nursing home care. Instead,
make available lines of credit, privately administered and fully collateralized
by their estates to subsidize seniors' income so they can purchase quality care
in the private marketplace at the most appropriate level. Fourth,
upon the death of the surviving spouse, the private lending institutions should
recover the cost of these long-term care lines of credit from the estates of
deceased borrowers. This will send
a stronger-than-ever message to heirs who lose a portion of their anticipated
inheritances that they should take action to protect themselves and their own
estates from the same eventuality. Fifth,
for those relatively few people who fail to save or insure for long-term care
and who lack the income and assets to collateralize a long-term care
line-of-credit, the government can retain a welfare-based system to pay for
care. If Medicaid only has to pay
for 20 percent of patient days instead of 80 percent as now, however, it should
be able to provide better access to higher quality care across a broader range
of services than it does now. Thus,
when LTC Choice is in place, the risk of long-term care will be much clearer to
aging Americans. Most will insure
privately. Those who do not, will
get a government-backed but privately administered line of credit on their
estates to help them buy services in the private marketplace. This
influx of private revenue will breathe financial oxygen into the home and
community based services infrastructure, improve access to home care and
assisted living facilities, and help many Americans stay out of nursing homes.
With
most people paying privately and fewer dependent on public assistance, everyone
will command easier access to a broader range of better care.
As the pressure on welfare-based long-term care declines, taxpayers will
also get relief. Everybody
wins…except of course the Medicaid planning attorneys and anyone else who
profits from the current, dysfunctional status quo. So,
is Congress leaping at the opportunity to solve the long-term care financing
crisis by implementing LTC Choice? Not
exactly. Tax
rolls are up and welfare rolls are down. The
federal government and most states are fiscally comfortable and complacent these
days. They can afford in the short
term to sweep politically sensitive problems like these under the rug. The
last time we made any real progress in this area was in the early 1990s when
Medicaid spending was doubling every three or four years, federal deficits were
out of control, and politicians were scared to death. I
predict that we will not make significant progress again until those conditions
return. As I explained in my
lecture last year on "How to Survive the Aging of the Baby Boomers,"
those conditions are very likely indeed to return by the end of the current
decade when boomers begin to retire. We'll
sell our equities and buy fixed income investments thereby driving the stock
market down. We'll sell our big
city houses and buy resort condos thereby driving down urban real estate.
We'll retire, stop paying big taxes, and start drawing down the Social
Security and Medicare trust funds, which contain nothing but IOUs anyway.
Before long, we'll begin to need long-term care services also. Yes
indeed, sometime in the coming decade, we are very likely to get the
politicians' attention on the long-term care financing problem.
They will be desperate for a way to reduce public expenditures without
enraging younger taxpayers or older public benefits recipients.
That's when LTC Choice will get a receptive hearing. In
the meantime, our job at the Center is to get ready for this opportunity.
We have the public policy proposal—LTC Choice—designed and published.
We have the evidence marshaled and published in The Myth of
Unaffordability. Now, we are
building a whole new economic and political force to advocate for rational
public policy through a project called the LTC Triathlon. (See
the Center's newest white paper "The LTC Triathlon:
Long-Term Care's Race for Survival" at www.centerltc.org) The
LTC Triathlon metaphor conveys the reality that we are in a race for survival to
build a long-term care service delivery and financing system that works before
the baby boomer generation needs it. The
Center interviewed leading players in each of the three major interest groups
that stand to gain economically from public policy that encourages private
financing of long-term care and discourages welfare dependency. These
groups are (1) the financiers who provide the debt and equity capital to finance
the construction and operation of long-term care facilities, (2) the providers,
including home care agencies, assisted living facilities and nursing homes, and
(3) the insurers, including agents, brokers and the insurance carriers
themselves. Traditionally,
these groups have not communicated, much less co-operated.
We asked them why this is in 119 interviews and we published the results
in The LTC Triathlon report. In
2001, we'll bring all the key parties together in an "LTC Summit"
conference. Out of that conference will come an action plan to get each
of the three industries' trade associations working together toward common
objectives and a rational public policy. That's
what we're doing to prepare for the long-term care crisis that is coming
sometime in the next decade or two. You
should not wait to protect yourself and your family, however, to see whether we
succeed or not. My
advice is that by age 40, you begin to consider seriously the risk and cost of
long-term care. By age 50, you
should own private long-term care insurance. If
you have aging parents, consider advising them to obtain this insurance, and
help them finance the premiums if possible.
I've paid the premiums for my own parents' long-term care insurance for
over 10 years. Why should they pay
to protect my inheritance? At
the Center for Long-Term Care Financing, we don't sell long-term care insurance
and I rarely give presentations on its details. Thousands of sales agents and dozens of reputable companies
provide that service. The
Center for Long-Term Care Financing does provide a list of companies and phone
numbers, however, in case you want to investigate. On the same handout, you'll also find references to some
consumer guides on how to select a long-term care insurance policy. I'll
be glad to talk with anyone during the remainder of the week about the
techniques we've used at the Center for Long-Term Care Financing to achieve our
objectives. For
now, I hope you have a better understanding of the challenges of long-term care
service delivery and financing. And,
I hope you will take the message to heart and protect yourselves and your own
families. In
the meantime, we'll do what we can at the Center to effectuate the necessary
changes in public policy. Thank
you for your attention. I'll take
questions now. |
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