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Ladies and Gentlemen:
You have been sold a bill of goods. My topic today is "What's Really
Happening to Long-Term Care?" I could sub-title it:
"How Ideological Bias and Special Interest Politics Are Ruining
Long-Term Care for Everyone." Do I have your attention? What is the "bill of goods" you've
been sold? It goes something like this: Long-term care is expensive.
People are spending down catastrophically all across the country because
of it. A growing elderly population
will need more and more LTC in the future. Yet, people don't buy insurance against the
risk. They're in denial and,
besides, the coverage is way too expensive and (whisper) not very good.
People don't even use their home equity for long-term care.
What a mystery! So, given these circumstances, we have
nowhere to turn but to government programs.
But the ones we have, Medicaid and Medicare, they're no good either. They trap people in nursing homes
unnecessarily, provide questionable quality at best, and they're still breaking
the bank. Conclusion?
Our best hope is social insurance: universal
publicly financed health care on the European or Canadian model, but including
long-term care, unlike most of those countries. Failing that, we should
"re-balance" Medicaid to pay for less expensive home and
community-based long-term care (which people want) instead of nursing home care
(which they dread). Like any slick sales pitch, some of this is
true. Most of it isn't. Is long-term care expensive?
Of course, but there is only a small risk of a catastrophic loss, which
means long-term care lends itself perfectly to a private insurance solution. Are people spending down catastrophically
for long-term care? Of course not.
If they were, LTC insurance policies would be flying off the shelves.
Three-dozen "spend-down studies" proved long ago that asset
spend down for long-term care is inconsequential. Do people fail to buy long-term care
insurance because it is too expensive, too complicated, poor in quality?
No!!! They don't buy
insurance for long-term care because the government has been giving it away for
40 years. But wait a minute, you say.
That can't be true. Everyone
knows Medicaid requires impoverishment and Medicare LTC financing is severely
limited. Will Rogers said:
"It isn't what we don't know that gives us trouble, it's what we
know that ain't so." Income is almost never an obstacle to
Medicaid long-term care eligibility. Anybody
who can't afford private nursing home care--and that’s almost everybody--can
qualify easily based on income. Cash assets ARE severely restricted, but
exempt assets have no hard limits. Home equity was capped at $750,000 by the
Deficit Reduction Act, but Medicaid LTC recipients can still keep a business,
automobile, home furnishings, personal belongings, term life insurance, and
pre-paid burial plans for everyone in the family--of unlimited value. And that's before we even consider the
unlimited asset transfers five years in advance or the sophisticated
"Medicaid planning" techniques marketed widely by elder law attorneys. Well, OK, you say.
Virtually anybody CAN get Medicaid to pay for long-term care even after
the insurable event has occurred. But, Medicaid has a terrible reputation for
poor access, quality, low reimbursement, discrimination and institutional bias.
No one in his right mind would plan intentionally for that. True, but the real problem is almost
nobody's planning intentionally for anything regarding LTC. Few people think about long-term care until
it's too late for insurance. Why?
Simple. The government has
funded most formal, paid LTC for so long that the risk and cost isn't on
anyone's radar screen. That's why 80% of the potential market for
LTCI never rises to a level of concern sufficient to speak with an insurance
agent. And it's why only 1/3 to 1/2
of the remaining 20% actually buy the product. Rational people in possession of all the
facts would buy LTCI to avoid Medicaid dependency and to mitigate their biggest
risk: the impending insolvency of
Social Security ($15 trillion unfunded liability), Medicare ($71 trillion), and
Medicaid (bankrupt already.) But that's not what rational people are
being told. The government (and its minions in the
rent-seeking domain of consultants and others who profit from the status quo)
are talking out of both sides of their mouths:
out loud they say, "beware long-term care; buy LTCI." But in practice they strive to make Medicaid
LTC ever more attractive by providing more HCBS that are easier to get with more
and more generous eligibility rules. That's a disastrous path.
Why? Because HCBS do not save money, but they do
leave the public thinking Medicaid is OK and getting better all the time. That leads to a "woodwork factor,"
i.e. induced demand, increased artificial impoverishment, and a reduced market
for private insurance. That's the same path that has led us to the
current brink of fiscal disaster. There IS an easy solution.
More on that in a moment. But first, how'd we get into this mess where
the Bush Administration, most states, and all the academics and for-profit
consultants are pushing policy that can only make things worse? First and foremost, the problem is that
there is a lot of money to be made by milking the status quo for all its worth. But let's give the advocates of government
financing the benefit of the doubt and assume they're not just greedy,
self-serving, and taking advantage of the easy money. Let's say they're just honestly confused.
How could that be? They look at the status quo and assume
there's no solution but more government money. They fail to ask the critical question:
how'd long-term care get so screwed up in the first place? If they asked that question, they'd see that
when government made long-term care free in 1965, it choked off a private market
for HCBS and LTCI to pay for them, it generated a deadly entitlement mentality,
and it created the deficient welfare-financed, nursing-home-based system we're
struggling so hard to fix now. When you understand that today's LTC system
is the way it is because of excessive and misguided government intervention in
the marketplace, the last thing in the world you'd recommend is MORE government
funding for MORE attractive publicly financed services. That would be like trying to put out a fire
by dousing it with gasoline! What's going to happen if we follow the
course recommended by most "experts," that is, expand public financing
of LTC and make it ever more attractive and easier to get? To find the answer, look no further than the
experience of the private LTC insurance industry over the past decade. When LTCi was mostly nursing home insurance,
policy holders were loath to file claims. Who
wants to go to a nursing home unless you really need to be there? As LTCi expanded to include among its
benefits home care, assisted living, adult day care, respite care, case
management, etc., etc., the whole claims dynamic changed. Now everyone with a policy wants to collect
all the LTC benefits they can legitimately claim and more if they can get away
with it. Result?
More claims from more insureds, higher costs, rising premiums, tougher
sales, lower profits, a flat or declining market, and companies exiting the
business. Sound familiar? What makes the advocates of
government-financed long-term care think their experience will be any different?
Certainly, it won't. As Medicaid converts from funding primarily
nursing home care to primarily home and community-based care, the welfare
program--already a huge drain on state and federal budgets--will undergo the
same consequences as did the private LTCi industry. To wit, demand for Medicaid will increase
when the program offers services people want instead of nursing home care. Medicaid estate planning will grow if it
gets people home and community-based care, and even in some states, Medicaid
payments for relatives to provide the care. Demand for private LTC insurance and reverse
mortgages--the two major private financing alternatives for long-term care--will
decline even more than already. Why
pay premiums or use your home equity if government will provide the services
previously only available to private payers? Either Medicaid program costs will explode
or long lines will form of eligibles waiting for access to services.
Neither eventuality will please consumers or voters. Clearly, both public and private financing
of long-term care are heading toward a total meltdown if we stay on the current
course. And it's all so completely unnecessary.
The solution is obvious and easy. Well,
it's easy practically speaking if not politically. The solution is to target Medicaid-financed
long-term care to people truly in need. Stop
using Medicaid as inheritance insurance for baby-boomer heirs.
Tighten up the eligibility rules; shut down Medicaid estate planning;
enforce liens and estate recoveries. Then take some of the savings from these
measures and use them to educate and incentivize people to purchase long-term
care insurance and to use home equity conversion. Do these things and, within a decade, the
long-term care financing crisis will be resolved.
Extra private financing will save the public safety net. The elderly will get better care in the most
appropriate settings whether they pay privately or depend on public assistance. LTC providers will thrive with more private
financing and less dependency on inadequate revenues from fiscally strapped
public programs. If they can make a profit, Wall Street firms
will again offer the debt and equity capital to build, operate and maintain the
huge infrastructure we will need someday to care for aging boomers. In a nutshell, folks, this isn't
"rocket science" as they say in Washington, DC.
But it does require some clarity and objectivity:
a willingness to confront the facts, to understand how and why we got
into this mess, and to follow the medical profession's timeless admonition: "First, do no harm." Then, give Medicaid back to the people it
was originally intended to serve. Do those two basic things, and savvy
consumers in a free market will do the rest. Thank you. |
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