Long-Term Care's Race for Survival
Stephen A. Moses
The First Annual Society of Actuaries Intercompany LTCI Conference
January 23, 2001: Hyatt Regency, Miami, Florida
Introduction and Motivation
America's 77-million-strong baby-boom generation is moving relentlessly toward senescence.
We desperately need a long-term care service delivery and financing system that works before the boomers need it.
Yet, the "system" we have today is a tragic mess.
Eight nursing home chains have declared bankruptcy.
New assisted living facilities are filling too slowly.
Our home and community-based-services infrastructure is under-developed and starved for financing.
Long-term care stock prices are in the tank and capitalization by debt or equity is virtually stymied.
The supply of both free and paid caregivers is drying up.
Both quality of care and providers' reputations are down, whereas litigation and liability insurance premiums are way up.
Most Americans cannot afford expensive formal long-term care services.
But government programs like Medicaid and Medicare pay too little to assure access to quality care at the most appropriate level.
Few seniors and almost no baby boomers own long-term care insurance.
And, in the midst of all this chaos, aging demographics guarantee an ominous future for long-term care.
Why? What is wrong? What should we do about it?
Those are the big questions we addressed in the Center for Long-Term Care Financing's "LTC Triathlon" study.
You'll hear some answers to those questions today.
You can get all the details from the report, which is available for free in .pdf format at www.centerltc.org. Or you can buy a hard copy for $49.95 from the Center.
Working closely for many years with long-term care providers and insurers, I've often been frustrated by the mistrust, lack of communication and misunderstanding between these groups.
Many providers have had bad experiences with Medi-Gap and/or LTC insurance policies in the past.
Often, they don't think private insurance has much to offer them even in the distant future either.
Certainly, providers have long been heavily co-dependent on government financing on which they rely primarily.
Insurers, on the other hand, are frequently dubious of providers' intentions. They think nursing homes and assisted living facilities are just looking for a new deep pocket to pick now that the government treasure chest has been emptied.
If the Fall of 1999, I attended the National Investment Center annual conference in Washington, DC.
This was my first exposure to the financiers of long-term care, the lenders and investors who provide the debt and equity capital needed to build and operate all kinds of long-term care facilities.
That meeting was a fascinating experience. I was stunned to learn that these high-powered money-men and -women were very naïve about long-term care financing.
As a group, they rather liked Medicaid and Medicare despite the government's low reimbursement levels, because those programs were relatively reliable payers on which lenders and investors could depend, at least historically, for the cash flow to cover their investments.
On the other hand, these same financiers knew almost nothing about private long-term care insurance. What they thought they knew was often wrong. And they showed very little interest in learning more.
So, with the walls of America's derelict LTC service delivery and financing system teetering and falling down all around them, the private sector powerhouses of the system—the financiers, providers and insurers of long-term care—seemed largely unaware or at best mistrustful of each other.
All three of them, in their own way, and mostly independent of each other, were looking for the government to help them out with higher reimbursement levels and tax-favored treatment of various kinds.
Unfortunately, the government has not been especially forthcoming with such extra help and remains reluctant to open the spigots of financial relief to any part of the long-term care industry.
In the meantime, our long-term care system is racing toward demographic Armageddon not too many years in the future.
The LTC Triathlon Study
Now, we at the Center for Long-Term Care Financing have our own ideas about the causes of this problem and what needs to be done to solve it. We've published frequently on that subject. But we wanted to see what others think.
We decided to conduct a survey that we call "The LTC Triathlon" project. The metaphor refers to long-term care's race for survival in preparation for the baby-boomer onslaught.
Just as triathletes must compete in three sports, the long-term care profession requires three integrated components: capital, services, and financing.
No amount of wishful thinking, political mandates, or government enforcement will provide those components if regular people cannot make an honest living and a decent profit supplying them.
We thought it was critical to know what the business people who supply the capital, services and financing for long-term care think about the system in which they labor.
Therefore, we interviewed 119 of the leading financiers, providers, and insurers of LTC in the U.S. ranging from small independent LTCI agents to the CEOs of large national corporations.
We asked them four questions, which I'll now recount along with their answers.
You should note not only their answers to the questions, but also who knows what about which issues.
We found, for the most part, that insurers knew relatively little about the service delivery business, much less how it is capitalized, and that financiers and providers were not very knowledgeable about the long-term care insurance market and its products.
There was a definite disconnect! I think you will see what I mean from a brief summary of the questions and answers.
Question 1: Why do you think the long-term care system is having so much trouble these days?
Most respondents replied that each type of service—nursing homes, assisted living, and home care—have had very different problems and challenges.
Time permits me to give you the briefest flavor of their responses only on nursing homes today.
Furthermore, I won't bog us down in tables and statistics; you can get those from the report.
Here are some indicative quotes from the report:
According to the editor of a highly regarded long-term care investment newsletter, "Medicaid does not cover costs and Medicare changed the rules of the game…so that nursing home revenues took a nose dive."
The Chairman and CEO of a large, bankrupt, multi-facility [nursing home] company said: "The government is not willing to own up to the fact that it has a budget policy only and no health policy. It has taken out the regulatory club to find bad providers instead of dealing with the true issue of inadequate payment. Inadequate payment, inconsistent payment, and government deceit are the three key issues. This holds true for Medicare and Medicaid."
Many respondents used terms like "hostility," "harassment," and "penalties" to describe the approach of politicians and bureaucrats to the nursing homes' problems, which the respondents believe the public officials themselves exacerbated. "It’s been an unprecedented regulatory jihad," said the Executive Director of a state nursing home association.
Although several respondents acknowledged that some players in the nursing home industry deserve a portion of the blame for greedily pursuing government financing, most agreed that the fundamental underlying problem is what I've come to call the "Charlie Brown" factor.
The government offers seemingly lucrative public financing programs to lure private industry into the game and then, when private investment in staff and infrastructure is heavily committed, the government begins a long, relentless process of cutting back resources and reimbursement.
As a former U.S. Senator currently active in long-term care policy pointed out, the lure of easy money to be made by accommodating business practices to maximize rich public reimbursement is an open invitation to overreach. "It looks profitable and then it is not. People make long-term business decisions and then get caught with their buildings up and their pants down."
In a nutshell, according to the preponderance of our interviewees' responses, the public wants government to provide long-term care, but the government has been unable to do so in a manner that permits the business of long-term care to prosper and survive. The direct consequence is the dysfunction we find in America's long-term care system today.
On this question, the financiers and providers gave by far the most detailed and comprehensive answers. The insurers' responses paled substantively in comparison.
Question 2: What is your opinion of public financing sources for long-term care, e.g., Medicaid, Medicare or a possible new government-financing source?
This question elicited a gusher of anger and frustration from all three groups of respondents. 84% of our interviewees rated government programs at the lower end of the opinion scale. Virtually none expected a new government-financing source for LTC to come along in the foreseeable future.
The respondents' comments on the adequacy of government financing for long-term care were especially colorful and evocative. For example:
The President of a national long-term care trade association called Medicaid and Medicare a "Ponzi scheme" that is "not viable as we go from the current pyramid [many young supporting few old] to a stack [fewer young supporting many old]."
The CEO of a long-term care company complained that the government and the public "expect Ritz-Carlton care for Motel 6 rates."
The Executive Director of a research organization opined that government is "moving [long-term care] toward becoming a regulated utility."
The President of a long-term care insurance company said "There's not a snowball's chance in hell for a new long-term care entitlement."
In summary, according to the Senior Vice President of a major long-term care lender, 'The government needs to decide whether they want to have socialized medicine or private enterprise. They can't have it half way and that is what they've tried to do."
Question 3: How about private long-term care insurance? What do you think about that? Why has long-term care insurance been so slow to take off?
All three groups of respondents had a relatively high opinion of private LTCI. They were hopeful the LTCI market would grow and prosper. For example:
"I love it. Great concept. Exactly the right vehicle because it creates a larger private pay pool," said the Chairman and CEO of a prominent assisted living chain.
According to the former President of a national nursing home association, long-term care insurance is "absolutely essential for the survival, not just of the provider industry but of the people who need our services. Access to quality care cannot be attained without it."
Several Financiers not only praised long-term care insurance, they own it. The President of a consulting firm that conducts long-term care market studies effused "I own it. It's a very good, attractive, and expanding product. I was surprised at how remarkably affordable it was. Sophisticated people are buying long-term care insurance because it helps with home health, assisted living or skilled nursing home [expenses]."
Just as insurers seemed to know much less about LTC service delivery and capitalization than providers and financiers, however, the providers and financiers knew far less about LTCI than the insurers.
Providers especially could not seem to understand why insurers were not eager to design inexpensive products that would pay for all levels of long-term care with few restrictions on benefits.
At least some of the financiers' and providers' criticism of LTCI is attributable to a lack of understanding of the complexity and difficulty of this market and the product.
The President of a nursing home chain offered the judgment that "insurance companies have done a horrible job designing and marketing the product. It infuriates me."
A nurse, lawyer, and provider industry analyst opined: "I don't think they are selling it to the right people. The people most vulnerable to needing services are the ones interested, but they are not the people insurers want to sell to. Premiums are outrageous for those people."
The President of a large non-profit nursing home expressed fundamental doubt: "I'm not convinced that aging and chronic disease are insurable events."
With regard to the reasons for slow market penetration of LTCI, the leading cause suggested by our respondents was, of course, "denial"--won't happen to me--followed by the perception that government pays for long-term care, and thirdly, by all kinds of misinformation the public receives and the need for more and better education on LTC risks and costs.
On page 21 of the report, you can find a list of the obstacles to market growth mentioned by our interviewees in rough order of their importance.
Question 4: Among the three main players in long-term care—the financiers, the providers, and the insurers—do you think there should be more communication and cooperation? How? What are the obstacles?
Nearly every respondent answered this "Mom and Apple Pie" question in the affirmative.
Our objective with the question was to draw them out on the reasons why these three groups know so little about each other's businesses and do so little together to pursue mutually beneficial public policy. Here is what they said about each other:
Financiers, providers and insurers have no clear common interest. They serve different, non-intersecting stakeholders. They have separate profit centers.
None of the groups has a long-term vision for the future. They are constantly responding to crisis and change in their own arenas of interest.
There is no incentive, no mechanism, no leadership, no driving force to bring them together.
They are afflicted by professional myopia. Financiers and providers especially do not look beyond the initial deal. None of the groups have been challenged to think 'outside the box.'
While communication is feasible, cooperation will be difficult. Especially providers and insurers tend to come together at the most difficult possible time, that is, at the point of claim.
Each group feels the other does not understand its business. They lack, and desperately need, 'translators' to help them communicate.
Substantively, there is a real need to get everyone's focus off bricks and mortar (real estate) and onto the needs of clients and provision of care.
That gives you a pretty good idea of the feedback we received on these questions from a wide sampling of leading LTC financiers, providers and insurers.
Conclusions and Recommendations
We can now try to answer the questions that this study set out to address.
First: How do the private sector stakeholders (Financiers, Providers and Insurers) account for the country's problems of long-term care service delivery and financing?
With very few exceptions, our respondents laid the primary responsibility for nursing home bankruptcies and quality of care deficiencies upon Medicaid and Medicare.
These programs pay too little and expect too much, our respondents said. Furthermore, public financing has forced providers to serve the government first instead of consumers to the detriment of all three.
All three groups agree, however, that more private financing and less dependency on Medicaid, Medicare or other public financing sources would be a boon to consumers and providers.
The question remains, how can the goal of increased private financing be achieved when the tendency to depend on public financing remains so strong?
Second: What do the Triathlon stakeholders know about each other's businesses?
The answer is "very little." Specifically, most Insurers had little knowledge of the Providers' travails and practically no understanding of the causes.
Conversely, Financiers and Providers knew little about private long-term care insurance or the conditions that restrict its design and inhibit its sale.
Many representatives of each of the three groups acknowledged the value and importance of understanding each other's businesses better.
Unfortunately, the unique exigencies and competitive interests of each business tend to pull them apart into separate "silos."
The lack of communication between these silos solidifies and exacerbates ignorance and misunderstanding, which in turn discourage further attempts at communication.
This cycle is hard to break, because the three groups perceive their interests so differently.
Third: How do the Financiers, Providers and Insurers perceive their interests and what kinds of misunderstanding or distrust pull them apart?
The common evaluation of financiers is that they care about little besides short-term profitability and "running the numbers," so they have abandoned long-term care in spite of the demographic imperative to repair that market.
Similarly, providers are seen to be under such immediate financial duress that they remain focused on the past—fighting for more Medicaid and Medicare reimbursement—instead of looking to the future by finding new sources of full-pay private financing for a huge, new, on-coming generation of residents and patients.
Insurers, who should be showing the others why and how long-term care insurance can answer their needs now and in the future, show little interest in or understanding of the service delivery system, offer little more than "pie in sky by and by," and remain on "cruise control."
That is how the three private sector groups see each other. Consequently, mistrust and distrust abound.
Fourth: Are their basic interests primarily and fundamentally in conflict or is there really an underlying basis for agreement?
The differences and tensions between these groups that I've already described are real and deep. Nevertheless, most of our respondents shared numerous common opinions and interests.
They tend to see government as the problem, not the solution.
They favor private financing, including long-term care insurance, if properly designed and marketed.
They would like to see scarce public resources targeted more narrowly to the needy through effective means testing.
They would like to see quality of care ensured by competitive market pressures instead of heavy government regulation.
They believe that conditions in the long-term care financial markets and the service delivery system have reached an unprecedented nadir.
They sense, however, that because of the current crisis, the stage is set for creative, or even radical, new approaches to long-term care to be seriously considered.
Thus, despite their differences, the Financiers, Providers and Insurers we interviewed recognized that they share even more basic common interests.
Fifth: Could these groups benefit from more communication and how might cooperation among them occur?
Most respondents thought more communication was a very good idea and that cooperation, although extremely challenging and difficult, was a highly worthy goal.
They suggested that each group support more conferences, publications, and speeches that bridge between all three sectors.
They said they all need to develop and support more "translators" who understand both the conflicting superficial interests and the underlying common interests of all three groups and can therefore foster more understanding and cooperation between them.
Many warned, however, against pollyannaish expectations. They urged the need to keep the focus of any initiative always on the self-interest of each individual industry, company, and consumer.
Only if every sector of the long-term care market stands to win from change will change be able to overcome the inertia of entrenched interests that thrive on the status quo.
Finally: Is it possible for long-term care financiers, providers and insurers to work together more effectively toward their common interests and the interests of their common clients?
That is the big question that remains to be answered and that cries out to be addressed. This study only identified and elucidated the problem; it does not contain a solution.
To find a solution, the financiers, providers and insurers of long-term care will have to confer, compromise, plan, and mobilize.
They should …
· Come together in meetings that cross-cut their areas of specialization,
· Pursue a better understanding of each other's businesses and challenges,
· Formally identify and promulgate their common perspective on long-term care problems,
· Develop a compelling public policy proposal that would enhance their business interests and improve long-term care for everyone, and
· Join forces and mobilize to encourage private financing of long-term care as a means to save scarce public resources for the needy.
Center for Long-Term Care Financing
The Center supports all of these goals.
The Center for Long-Term Care Financing is a 501(c)(3) non-profit charitable organization dedicated to ensuring quality long-term care for all Americans
We have begun to reach out to Providers and Financiers by attending and exhibiting at their conferences.
We're signing up hundreds of them to receive LTC Bullets.
We're writing articles for their trade journals.
We're giving speeches at their events.
We sent copies of the LTC Triathlon report to the state executives of AHCA, AAHSA, and ALFA as well as to all of the study respondents and the Governors.
We hope to sponsor an "LTC Summit" conference in 2001 at which leading financiers, providers and insurers can communicate with each other and recommend coalition-building efforts to be led by their respective trade associations.
If you want to be a part of this effort: be sure to visit our web site at www.centerltc.org, read the reports including the Triathlon, and sign up for our free online newsletter "LTC Bullets."
I do hope you see the value of building bridges of understanding between the three major private sector players in long-term care.
The potential benefits for these groups and for the consumers they struggle to serve are unlimited.
People who can pay privately for LTC command red-carpet access to top-quality care at the most appropriate level of care—home care, assisted living, or nursing home care.
When LTC providers receive the full, private-pay, market value for their services, they are financially able to offer better wages, attract better staff, and hence provide better care—not just to private payers, but to those who depend on Medicaid and Medicare as well.
When more Americans are able to pay privately for their own care, fewer will be dependent on the public programs and the government will be better able to provide access to quality care across a wider range of services for those who must depend on public assistance.
There is much to be gained from mobilizing the private sector to reduce the burden on the public sector for LTC.
The "age wave" is starting to crest. Soon it will crash. The time to act is now.