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“The Future of Long-Term Care Seen Through the Prism of
History”
by
Stephen A. Moses
for
Omega Healthcare Investors, Inc.
2015 Operator Investor Conference
Dallas, Texas: November 10, 2015
If value-based payment is good enough
for Medicare, it should be good enough for McDonald’s too.
A monopsonistic, government-based
nutrient payer could ensure quality food distribution by paying for value
instead of quantity.
We could reimburse prospectively for
dietary-related groups of alimentary consumption episodes rewarding lower
food poisoning levels with five-star ratings.
“What if I want a Big Mac,” you ask?
Tough luck. Too many calories for too little nutrition. The
re-hospitalization risk is off the chart.
Why do we have prospective payment
systems, bundling, managed care, and value-based payment in health care
but not in food distribution?
Why is government micro-management of
long-term care service delivery and financing the wave of the future?
Well, it’s been a slippery slope for
50 years. Santayana said: Remember history or you’ll repeat it. We’re
not just repeating the mistakes of the past, we’re doubling down.
So, how did we get into this mess?
Once upon a time, long-term care was a
Mom and Pop arrangement. Mom and Pop took care of Grandpa and Grandma,
usually as a family, sometimes as a business.
Then, in 1965, government stepped in
to help. At first, Medicare and Medicaid paid generously on a
fee-for-service basis--initially to win passage of those programs and
later to sustain support for them from business and political interests.
Medicare was to be “social insurance”
for acute health care with premiums paid and benefits received by all.
Medicaid was to be a safety-net for
long-term care, a means-tested public welfare program.
Remember that distinction between
social insurance and welfare. We’ll return to it.
In the beginning, Medicaid offered
only nursing home care. This was the origin of the welfare-program’s
infamous “institutional bias.”
And in the beginning, Medicaid had no
asset transfer restrictions nor any estate recovery requirement. Access
to publicly funded nursing home care was easy and practically universal.
Now, people aren’t stupid. They saw
that Medicaid would pay for Grandma in a nursing home, but they’d be
burdened by personal caregiving or face cash out of pocket for any other
kind of care.
Why pay for home care, adult day care,
respite care or assisted living, when the government provides nursing home
care?
Unsurprisingly, a private market for
home and community-based services did not develop in those early years.
There was no financial incentive for entrepreneurs to build a better
long-term care mouse trap.
The same generous nursing home
policies also stunted a budding private long-term care insurance market in
the mid-1970s. Why insure privately for a risk and cost the government
already pays for?
The nursing home profession was pretty
savvy also. They saw a huge new funding source in Medicaid and Medicare.
Naturally, nursing homes adapted to take full advantage of the
opportunity. They formed powerful interest groups to influence public LTC
policy.
So what do you think happened by the
early 1970s? P.J. O'Rourke, the political satirist, likes to say "If you
think health care is expensive now, just wait until it's free." Of
course, the cost of Medicaid financed long-term care exploded.
Did the government respond by
addressing the cause of this cost inflation—easily available free
long-term care paid for by Medicaid?
No. Government attacked the symptom
of bulging budgets instead.
Figuring nursing homes couldn’t charge
for beds that don’t exist, the public pontiffs of health policy imposed
“certificate of need” requirements severely limiting new construction.
But you don’t need a Ph.D. in
economics to understand what happens in any market when you artificially
cap supply. Prices tend to increase and that’s exactly what happened.
Nursing homes said: “We can’t build
more beds? Fine, we’ll charge you more for the ones we already have.
Thanks, by the way, for protecting us from new entrants into our
business.”
So, government finally got the message
and curtailed the cause of the problem, free Medicaid-financed nursing
home care, right? Wrong. The Medicaid monarchs capped nursing home
reimbursement instead.
This was the origin of the
differential between low Medicaid reimbursements (often less than the cost
of providing the care) and market-based rates half again higher but
dwindling in total as private-payers followed public policy incentives and
migrated to Medicaid.
Now, put your economists’ hats back
on. With supply and price capped, what do you think happened to demand?
Correct, it went through the roof! Nursing home occupancy in the
mid-1980s jumped to 95 percent at a time when hospitals were little more
than half full.
If a nursing home was willing to
accept Medicaid's low reimbursement rates, it could fill all of its beds .
. . no matter what kind of care it provided. Consequently, quality of
care collapsed in principally Medicaid-financed nursing homes. Or so the
public powers-that-be concluded.
True to form, government attacked the
symptom (poor quality) instead of the cause (public financing). As if
wishing could make it so, Congress simply mandated higher quality, more
nurses’ aides, better training and so on in the Omnibus Budget
Reconciliation Act of 1987.
Thankfully, this time federal command
and control worked. Expenditure growth abated and quality improved—NOT.
Now caught between the rock of
inadequate reimbursement and the hard place of mandatory quality, the
nursing home profession had no place to turn but to the courts.
Suing under the 1981 “Boren Amendment”
which required state Medicaid programs to reimburse nursing homes
adequately so they could provide good care--lo and behold--state nursing
home associations won most of those lawsuits.
Who says you can’t fight city hall?
But then, what do you think the
government did next? You guessed it. Congress repealed the Boren
Amendment in the Balanced Budget Act of 1997. Since then, there has been
no legal floor under Medicaid reimbursement for nursing home care, yet
costs continued to grow insupportably.
Now, while all this was going on
another situation developed. Private payers in nursing homes, paying half
again as much as Medicaid for the same semi-private room, began to wise
up.
They rebelled against this “cost
shifting” toward them by seeking ways to qualify for Medicaid themselves.
After all, state and federal laws require the same quality of care
regardless of payment source. So why not?
Some Medicaid eligibility workers were
only too eager to help families who faced a long-term care crisis by
stretching Medicaid’s already elastic financial eligibility rules in their
favor.
Other workers tried to solve the
national debt by strictly enforcing the most draconian rules keeping even
the poorest families off Medicaid.
A special practice of elder law
evolved to impoverish wealthier clients artificially in order to qualify
them for LTC benefits.
In other words, Medicaid long-term
care eligibility became a crap shoot with the lucrative benefit passing to
people lucky enough to get a lenient eligibility worker or wealthy enough
to consult a Medicaid planning attorney.
Not that it was ever very hard to
qualify for Medicaid long-term care benefits. Despite the common
misconception that you must be “low income” to get Medicaid, the fact is
that anyone with income below the cost of a nursing home, upwards of
$80,000 per year on average, is eligible based on income.
Consequently, two out of five people
receiving Medicaid LTC benefits have incomes between $51,000 and $217,000
per year or more. More than two-thirds getting Medicaid LTC have incomes
between $30,000 and infinity. Only for the low income? Hardly.
What about assets? The usual limit of
$2,000 in cash or equivalents is unquestionably poor. But to get to that
level, you can spend down on anything, not just care. Lawyers advise
world cruises, big parties, better cars and larger houses to dispose or
shelter excess assets.
Furthermore, virtually unlimited
exempt resources don’t even count toward the asset limit. These include .
. .
At least $552,000 in home equity
and--with no dollar limit at all--one business including the capital and
cash flow, Individual Retirement Accounts, one automobile, term life
insurance, prepaid burial plans, home furnishings, and personal
belongings.
If you still have too much money, your
friendly local Medicaid planner will wave a magic legal wand and reduce
the surplus to a level below the welfare program’s income and asset
limits.
Cost in attorneys’ fees to become
eligible for Medicaid after you already need care? About the same as one
month in a nursing home private pay, maybe $6,000 or $7,000.
In the early ‘80s, Congress began to
attack the problem of Medicaid eligibility abuse with a long series of
statutes:
TEFRA (the Tax Equity and Fiscal
Responsibility Act of 1982) for the first time authorized state Medicaid
programs to impose asset transfer penalties, liens on real property and
estate recoveries. But these measures were only voluntary.
MeCCA (the Medicare Catastrophic
Coverage Act of 1988) required state Medicaid programs to penalize asset
transfers made for the purpose of qualifying for public benefits within 30
months of application.
OBRA ’93 (the Omnibus Budget
Reconciliation Act of that year) made estate recoveries mandatory,
expanded the asset transfer look-back period to 36 months, and eliminated
the previous 30-month cap on the asset transfer penalty.
When none of these measures worked as
hoped, Congress and President Clinton stepped in with HIPAA (the Health
Insurance Portability and Accountability Act of 1996) which made it a
crime to transfer assets for less than fair market value for the purpose
of qualifying for Medicaid.
Senior advocates and the elder law bar
called this the “Throw Granny in Jail Law,” so Congress repealed that
provision in the Balanced Budget Act of 1997 and replaced it with the
“Throw Granny’s Lawyer in Jail Law” making it a crime to advise a client
in exchange for a fee to transfer assets to get Medicaid.
When that law was deemed
unconstitutional because it held lawyers culpable for recommending a
practice made legal again when Congress repealed “Throw Granny in Jail,”
public policy intended to save Medicaid for the needy was dead in the
water again.
Nothing more happened until the
Deficit Reduction Act of 2005 put the first cap ever on Medicaid’s home
equity exemption. It started at $500,000 or $750,000 at state
legislatures’ discretion and has increased with inflation to range today
from $552,000 to $828,000, from four to seven times the average senior’s
home equity.
The DRA ’05 also extended the transfer
of assets look-back to five years and closed several loopholes such as the
“half-a-loaf” strategy, but it left other gimmicks used to qualify
millionaires for Medicaid in effect such as the “Medicaid-compliant
annuity.”
Now, let’s pause for a moment and
review. Government intervened in the long-term care marketplace 50 years
ago by providing nursing home care to infirm seniors with most of their
assets exempt from spend down and most of their income (largely Social
Security benefits) as co-insurance.
This caused Medicaid LTC expenditures
to skyrocket leading to federal and state initiatives to control costs by
capping supply and price which drove up demand, undercut quality, reduced
private-pay census, and crowded out private markets for long-term care
insurance or home equity conversion (to fund LTC) and for home and
community-based services (to provide care).
Meanwhile, from the early 1980s
forward, another theme developed which was aimed at addressing the problem
of escalating Medicaid LTC costs without confronting their real cause.
Academics and government officials
became enamored of the idea that Medicaid's long-term care financing
crisis could be relieved by paying less for expensive nursing home care
and more for lower-priced home and community-based services.
The idea is that taking care of people
in their own homes or in the community must be cheaper than maintaining
them in a nursing home. Data often cited at the individual level seem to
show that home care is less expensive than nursing home care.
But this reasoning commits the fallacy
of composition, inferring that potential savings for specific individuals
are additive to the society as a whole.
In fact, available research does not
show that home and community-based services save money compared to nursing
home care overall.
Community-based care usually only
delays institutional services. Between them, expanded home care plus
eventual nursing home care end up costing more in the long run than
nursing home care alone.
That fact is borne out by historical data showing continued
growth in total Medicaid long-term care expenditures. While nursing home
costs have leveled out considerably, the home care side of Medicaid
continues to grow rapidly.
Here’s the point: providing long-term care in the most
appropriate and desirable setting is a worthy goal to pursue. But it does
not save money.
For every person in a nursing home or assisted living
facility in America, there are two or three of equal or greater
disability, half of whom are bedbound, incontinent or both, who remain at
home. They are able to stay home because their families, mostly daughters
and daughters-in-law, struggle heroically to keep them out of an
institution.
When government starts providing long-term care that they
want (home care) instead of long-term care that they’d prefer to avoid
(nursing home care), people come out of the woodwork to take advantage of
it. That too drives up overall Medicaid LTC expenditures.
Finally, Medicaid financed home and community-based care is
deadly to the marketability of private long-term care financing
alternatives, such as reverse mortgages or long-term care insurance.
The big benefit of being able to pay privately for
long-term care is the ability to command red-carpet access to top-quality
long-term care at the most appropriate level and in the private
marketplace.
To the extent the government conveys to the American public
that consumers can obtain the same benefits financed by Medicaid, Medicaid
will continue to explode in costs and reverse mortgages to fund long-term
care in the short-term and LTC insurance to fund it in the long run will
remain stunted.
What a mess! Here it is in a
nutshell.
Easy access to Medicaid-financed
nursing home care prevented the development of a private market for home
and community-based services.
Explosive cost growth led to
ultimately unsuccessful government efforts to control the supply, price,
quality, type and access to Medicaid funded care.
Notoriously low Medicaid reimbursement
rates for two-thirds of nursing home residents were partially
counterbalanced by relatively generous Medicare reimbursement levels for
post-acute and home health care.
As good business people, the nursing
home profession pursued the incentives in public policy by reaching out
for higher paying Medicare post-acute patients and by seeking fewer
lower-paying long-term Medicaid custodial care residents.
That caused the balance of Medicare
financing to shift significantly from nearly all acute care toward much
more post-acute and long-term care.
Between 1990 and 2013, long-term
care—defined as nursing home and home health care—remained roughly eight
percent of total National Health Expenditures.
During the same period, however, the
proportion of long-term care expenditures funded by Medicare more than
tripled from 9 percent in 1990 to 29 percent in 2013. Long-term care
increased from 4.5 percent of total Medicare expenditures to 11.7 percent
in those 23 years. (CMS-NHE Data)
$Billions
1990 2013
Home Health
3.3 34.4
Nursing Home 1.7 34.6
Total Medicare 5.0 (8.7%) 69.0
(29.3%)
Total All Funders 57.5
235.6
$110.2 in 1990 total
Medicare 5.0 Medicare LTC or 4.5%
$585.7 in 2013 total Medicare 69.0 Medicare LTC 2013
or 11.7%
Consider what this means. Our current
long-term care financing system depends, and has depended for decades, on
generous and growing Medicare reimbursements for home care and nursing
home care balancing meager Medicaid reimbursements for the majority of
people dependent on either or both programs.
As worries about Medicare’s solvency
grew throughout the 2000s, federal policy makers looked for new ways to
control public LTC expenditures. CMS hit upon the idea of
driving reimbursement toward “quality”
instead of “quantity” as a way to reduce long-term care cost growth in
Medicare and Medicaid.
In other words, this latest push by
government to manage the LTC service delivery and financing system is
designed to fix or at least mitigate problems that were actually caused by
earlier government market interventions.
As always before, these new
interventions address symptoms—high costs, low quality and
public-policy-induced market dysfunction—instead of the real causes,
perverse incentives created by earlier government intercessions.
The risk is that further interference
in an already fragile LTC market will turn everything topsy-turvy just as
the age wave begins to crest and the entitlement programs’ unfunded
liabilities begin to come due.
Remember what I said at the beginning
of this talk about how Medicare began as “social insurance” and Medicaid
as welfare?
Ironically, political pressure is
building now to means-test, that is to say welfarize, Medicare.
I’ve already shown how Medicaid has become a de facto entitlement,
the dominant LTC funding source for all economic levels of Americans.
The net effect of this long historical
process is that public financing of long-term care has expanded beyond
government’s ability to pay while private LTC financing has dwindled
almost to disappearance.
The public does not know who pays for
long-term care, but they know someone must pay. You don’t see Alzheimer’s
patients dying in the gutter.
The result is a public asleep about
the risk and cost of long-term care and dependent by default on a mostly
publicly financed LTC service delivery system that may be on its last
legs, unable to squeeze more and better care out of more and more
intrusive regulations and mandates.
In a free market consumers rule. They
demand quality and volume. If they don’t like what they get, they vote
with their pocket books and move on to products and providers they prefer.
Competition to provide the best care
at the lowest price in the most appropriate settings could and would solve
the LTC service delivery and financing problems that have been created by
government’s interventions, however well-intentioned those interventions
may have been.
Do you have any doubt that long-term
care services and financing in the United States would be better if
government had left the market alone and allowed competition and the
profit motive to make the best possible care available at affordable
levels?
Would the poor suffer? More than they
do now? Hardly. There would be room for a real safety net paying market
rates for the full continuum of care. Such a safety net might even be
possible without public funds, relying entirely on charity and
philanthropy.
But, that is not the course we’re on.
Let’s get back to reality. I fear we’re headed toward a perfect economic
storm when interest rates finally increase making service of our massive
public debt unsustainable and leading to a severe retrenchment in Medicaid
and Medicare long-term care financing.
Such an outcome is very nearly
inevitable. The Federal Reserve and the U.S. Government cannot ignore
economic gravity forever. Sooner or later debt and unfunded promises come
due.
But to end on a more positive note, if
the worst does happen, we’ll be forced to get back to methods and
strategies that are more in keeping with the traditional American values
of independence, personal responsibility, self-sufficiency and hard work.
I predict that as government is
compelled to withdraw from LTC financing dominance:
Medicaid will have to become a real
welfare program. Its home equity exemption will disappear or be radically
reduced. Consumers will use their home equity to pay privately for
long-term care. They’ll employ reverse mortgages for that purpose.
That new source of private financial
oxygen will reinvigorate all providers across the whole continuum of
long-term care.
Over time, after watching their own
inheritances consumed by their parents’ long-term care costs, the next
generation will finally see the merit of private LTC insurance and begin
to buy it.
Medicare will stop being “social
insurance” paid for by and available to all. It will be means-tested and
become a program for the poor, and hence, as the saying goes, “a poor
program,” like Medicaid.
Acute health care will drift away from
mostly public funding toward mostly private financing through health
savings accounts and high-deductible insurance.
After 50 years of consuming our
economic seed corn by moving ever more fully away from private and toward
public financing of long-term care, demographic and economic reality will
force us back to the kind of freer market that made the country great in
the first place.
Now, before I conclude and turn to
your questions, let me anticipate your first query. You might ask:
“Well Steve, you’ve painted a pretty
dismal picture. Why are you so worried that this whole publicly financed
long-term care house of cards may soon come crashing down?”
I’m glad you asked.
My organization, the Center for
Long-Term Care Reform, has developed a tool to measure and analyze that
risk.
We call it the “Index of Long-Term
Care Vulnerability.” We’ve applied the Index to the LTC service delivery
and financing systems in four states so far: Virginia, New Jersey,
Georgia, and most recently, New Hampshire.
You can find our reports on each of
those projects by opening the link on my handout which will take you to an
online version of the handout where all the links in it are live.
Our Index of LTC Vulnerability
analyzes the sustainability of current long-term care systems by examining
published data in each of seven key issue areas. These are:
-
Aging demographics:
how many 85 year olds are in the pipeline? Answer: Too many; more than
triple what we’re dealing with now by 2050.
-
Morbidity: how sick
will they be? Answer: Too sick. Recent optimistic compression of
morbidity predictions are not bearing out due to the obesity epidemic.
-
Medicaid: how viable
is the welfare program as a source of future LTC financing? Answer:
Not very based on expenditure trends, ObamaCare expansion, easy income
and asset eligibility, inadequate reimbursement and cost shifting, dual
eligibles, rebalancing and managed care challenges.
-
Federal revenue: can
revenue from taxation and borrowing sustain the federal share of
Medicaid? Answer: Almost impossible when interest rates increase
because of elevated debt and entitlement liabilities and high state
matching rates exacerbated by provider taxes and recessions.
-
State revenue: can
state economies generate enough revenue to fund their share of
Medicaid? Answer: Very doubtful based on rankings of states’ fiscal
policies by Cato, Forbes, Mercatus, the Pew Charitable Trust, and the
Urban Institute.
-
Private financing
alternatives: could genuine asset spend down, higher estate recoveries,
reverse mortgages and private LTC insurance relieve the financial
pressure on Medicaid and, if so, how much? Answer: Plenty if Medicaid
financial eligibility rules were tightened and enforced.
Finally,
-
Entitlement
mentality: to what extent has easy access to all forms of public
assistance undercut the willingness and ability of the American people
to fend for themselves? Answer: A lot based on metrics like dependency
on Medicaid, food stamps, welfare, and disability, but we won’t know how
much until we see what happens when people do have to fend for
themselves.
The Index of Long-Term Care
Vulnerability comes with an interactive score sheet which allows the user
to apply weights and scores for each factor of analysis in order to
estimate, albeit subjectively, the potential vulnerability of the national
and each state’s long-term care service delivery and financing system.
Check it out and let me know what you
think.
Well, that’s my take on where we are,
how we got here, and what’s likely to happen next. Thanks for your
attention. I’ll be glad to answer questions. |
