An earlier version of this article was first published electronically
under the title "How to Save Medicaid LTC" on 24Oct02 by the Center for
Long-Term Care Financing, since renamed the Center for Long-Term Care
Reform. Information regarding the Center for LTC Reform can be found at
http://www.centerltc.com.
Medicaid Reform Suggestion, by Claude Thau
Through Medicaid, we do two wonderful things for people
who need long-term care (LTC). First of all, we all pay taxes so that
indigent people can get commercial LTC that they otherwise would not be
able to afford. We should all feel proud to contribute to that cause.
Secondly, we provide support to people who are NOT
indigent. If people were to sell their homes in order to pay for LTC, and
then were to recover, they could no longer return home. To avoid such an
undesirable result, we give them advances ("loans") through Medicaid to
cover their LTC costs, with the intention of recovering when their estate
is settled.
Not only do we pool our money to provide a loan to such
people, we provide that loan on an interest-free basis! And it is a
long-term loan as it does not require repayment until the
care recipient dies. And if the recipient’s spouse is living in the house,
the loan does not have to be repaid until the spouse dies. If disabled or
minor children live in the house or if adult children who were care-givers
for a couple of years live in the house, the loan continues until they die
or sell the house. Is siblings were living in the house for at least a
year before the care recipient entered a nursing home, the loan extends
until their death.
It is wonderful that we provide such loans, but such
loans should be provided OUTSIDE the Medicaid program. When we do it
through Medicaid:
- Loan recipients feel uncomfortable being "on
welfare". These people have been independent since their youth and have
saved in order to maintain their independence. Why should they be placed
on a welfare program when they are not indigent?
- On Medicaid, they are restricted to
Medicaid-certified LTC providers. They cannot select the facility of
their choice; nor can they have a private room; nor can they select an
assisted living facility, commercial home care or reward relatives or
friends for providing care. Why should their use of their money be
restricted?
- LTC providers, such as nursing homes, are paid the
government Medicaid reimbursement, which is inadequate. Why should they
not receive full cost for clients who are not indigent?
Medicaid reimbursements pay LTC providers less than the
cost of LTC. When state budgets are tight, as they are now, legislators
and governors often propose slashing such payments even further. Meanwhile
government pushes provider costs upward with a variety of mandates, such
as quality controls, mandatory staff training, etc.
Because of low reimbursements, LTC providers cannot
afford a competitive salary. So when they train staff, the newly-trained
person secures a higher-paying job in a hospital or elsewhere. The vacancy
not only reduces the quality of care in the facility, but the facility
incurs cost seeking and hiring a new employee, who typically is less
experienced than the person who left.
The best staff leave, as they are most in demand, but
providers get stuck with their hiring mistakes. Surely, good managers
would fire weak performers, right? Unfortunately, it is not easy to fire
anyone when you are understaffed. Of course, as time goes on and they
suffer 100% annual turn-over (some jobs turn over more than once; others
not at all), the labor pool quality, as regards care-givers, likely
deteriorates. Even outstanding nursing home managers have an extremely
difficult time providing excellent care in such an environment.
Private-pay LTC recipients
in Medicaid-certified facilities get "taxed" in three ways to support this
system: 1) they pay income taxes to support Medicaid; 2) they pay higher
fees to LTC providers (subsidizing the costs of Medicaid recipients); 3)
they suffer from inferior care in facilities which have many clients "on
Medicaid".
Therefore, some savvy private payors now avoid
Medicaid-certified facilities. Instead of being seen as a badge of honor,
Medicaid "certification" may be viewed by some people as a public
announcement that cost transfer will occur and that care might be
inferior.
Another problem occurs when we, the tax-payers, try to
recoup our loan. Various parties bewail the plight of "poor Sarah" who
wanted to leave her house to her children, but whose estate had to sell
the house because it was partially encumbered by a government lien.
Of course, recouping payments from indigent welfare
recipients sounds harsh. However, Sarah and other home-owners were
not indigent. The critics never mention that we all gave
Sarah a 20-year interest-free loan and all we are trying to do is to
recover the principal (no interest) so that we can lend the money to
someone else.
So, how can we get out of this mess? One key tactic
would be to stop putting people on Medicaid if they have assets which
could fund their LTC. Instead, such loans could be government-backed, but
financed privately. This simple change would have dramatic
impact:
a) Such care recipients would no longer be upset
that they are "on welfare".
b) Care recipients would have flexibility to
purchase the kind of care they want, from whomever they want
(instead of being limited to nursing homes and at risk of being
assigned to a facility far from their family).
c) Many more care recipients would remain "private
payors" rather than being on Medicaid. Providers would benefit from
the resultant higher fees.
d) Because fewer people will go on Medicaid,
tax-payer money will be saved. For the same cost, we could pay
higher reimbursements for Medicaid patient care or expand the
eligible services.
e) People’s buying decisions would encourage
consumer-driven efficiency in the marketplace. Consumer choice and
increased profitability (due to fewer low-margin Medicaid clients)
would encourage more private investment in LTC, creating more jobs
and better services.
f) The additional provider revenue would lead to
reduced cost transfer (less need for private-pay clients to make up
for the low revenue generated by Medicaid LTC recipients) and/or
improved care.
g) We avoid the problems of "repaying Medicaid"
and "government liens". Everyone expects to have to repay a loan.
From a State Budget point-of-view, this proposal has
several positive aspects to it:
- There will be many fewer people on Medicaid, so
Medicaid payments for LTC will decrease substantially (recoveries will
disappear, but recoveries do not offset the up-front payments and come
many years later).
- Significant savings can occur in determining Medicaid
eligibility and processing Medicaid payments.
- The entire administrative effort for recoveries can
be dropped.
- In addition to the substantial savings in expenses
mentioned above, there is an increase in revenue! The additional income
of LTC providers will be taxable, either directly or through their staff
if their staff’s salaries are increased. To the degree that people opt
to buy LTC insurance, insurers will pay premium taxes and insurance
agents and brokers will pay income taxes on their commissions.
Furthermore, residents who use insurance money (rather than personal
income or assets) to pay for LTC will enjoy greater invested assets
which will generate local state income taxes as well. And local
commercial lenders who participate in the resultant increase in reverse
mortgages will also pay income taxes. All of the above, except the
investment income, involve an additional circulation of money through
our nation’s economy which produces additional government income with no
offset. Such revenue is significant.
The State also benefits because there will be more
investment in LTC services and more consumer control of the selection of
their LTC provider. Furthermore, there will be more incentive for family
care-giving. These changes should increase choice, improve care and reduce
cost.
An alternative loan program already exists, although it
does not provide government-backed loans and is limited to $50,000.
Formerly known as "Grannie Mae", the program is now called ElderLife
Financial (www.elderlifefinancial.com).
Unfortunately, I found the following quote on the Grannie Mae web-site:
"Currently, Grannie Mae's Passports primarily accommodate families seeking
Assisted Living Community or Continuing Care Retirement Community, needs
respectively." Why is that? Apparently because CMS and the states are
treading on its responsibilities, ElderCare is only effective making loans
for providers not covered by Medicaid.
We need to continue to provide LTC to the indigent, but
we should attempt to improve the quality of that care. This can be
accomplished indirectly if we continue to provide loans to people who need
LTC but lack liquid assets, but do so through a private lending,
government-backed program rather than through Medicaid.
The author can be reached as follows:
Claude Thau, President, Thau, Inc.,
cthau@targetins.com
Ph: 913-403-LTCi (-5824); 800-999-3026, x2241; Fax:
913-384-3781
Thau Inc. was established to help create a sound
long-term care insurance industry in the U.S.A. It works in 3 areas:
- Consulting for LTCi companies, providers of services,
employers, associations, insurance agencies, etc.
- Wholesaling LTCi by training and servicing insurance
brokers across the country.
- Advocacy work.
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