Long-Term
Care's Race for Survival
by
Stephen A. Moses
for
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.
The Problem
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.
Thank
you.