"The Fall and Rise of Long-Term Care"
Stephen A. Moses
Stephen Moses, President of the Center for Long-Term Care Financing in Bellevue, Washington, delivered a prototype of the following speech on Wednesday, July 5, 2000 at the University of British Columbia, Vancouver, BC, Canada to the 11th Annual Summer Seminar of "The Objectivist Center."
Good morning, ladies and gentlemen:
Health care and aging demographics are two of the most important and dangerous social and economic challenges in America today.
Two years ago, I addressed you on the theme of acute health care policy in a lecture entitled "The Health Care Hold-Up: Your Money and Your Life."
Last year, I spoke to you about aging demographics in "Pigs, Pythons and Politics: How to Survive the Aging of the Baby Boomers." [read this lecture at http://www.centerltc.org/]
This year, I am going to weave those two issues together in a discussion of long-term care for the frail, infirm and, mostly, the elderly.
Long-term custodial care for the chronically ill may prove to be the most challenging and expensive of the several demographic time bombs America faces.
Certainly, our long-term care service delivery and financing system is a mess already, ten years before the big spike in baby-boomer aging even begins. For example:
* Most people associate long-term care with nursing homes … and yet, surveys show that a majority of the elderly would rather die than enter a nursing home permanently.
* Nursing homes all across America are going bankrupt … even though Medicaid and Medicare outlays for nursing home care are hemorrhaging.
* Home and community-based long-term care is underdeveloped and underfinanced … although most people would prefer to receive the care they need at home.
* Elder care is a terrible and growing strain on families and businesses … but fewer and fewer caregivers are available to meet the need.
* Studies show that people over 65 face a nine percent probability of a five-year or longer nursing home stay at $35,000 to $85,000 per year … yet few insure privately against this risk.
What is going on?
How did we get into such a mess?
Are we witnessing an example of "market failure" or were these problems caused somehow by government intervention in the market place?
Do we need to change public policy and if so, how?
Is there anything we can do as individuals in the meantime to protect our families and ourselves from the potential indignities and devastating costs of long-term care?
In a nutshell: "Will you still need me…Will you still feed me…When I'm…huh?…84?"
These are the questions we'll try to answer today.
But first, let's quickly review the challenge of aging demographics.
Aging Demographics Reviewed
Today, 12 or 13 percent of Americans are aged 65 or older, that is to say, elderly.
Because of the aging of the baby boom bulge, born between 1946 and 1964, by the year 2025, 20 percent of us—one in five—will be elderly.
But old age isn't what it used to be … the young-old, people 65 to 75, are relatively active and fit these days.
It's the old-old, people over age 85, who present the biggest challenge. They are the fastest growing cohort in American society.
By 2035, the old-old will have increased ten-fold to 14.4 million people.
What's more, two-thirds of those over 85 will be women, of whom more than four-fifths will be single, divorced, or widowed, the groups most likely to receive extensive government assistance.
It is no co-incidence that most economic projections anticipate the insolvency of Social Security and Medicare sometime around the baby-boom generation's senescence.
But retirement security and acute health care for the elderly are not the only … and perhaps not the biggest challenges we face.
The sleeping giant of all U.S. social problems is long-term care.
Long-term care may be defined as “a wide range of medical and supportive services for individuals who lack some capacity for self-care, and are expected to need care for an extended period of time.”
Most long-term care, upwards of 80 percent, is provided informally in the home by friends and relatives, often older spouses, usually women.
The need for long-term care is directly related to age. The incidence of Alzheimer’s Disease and nursing home institutionalization, for example, doubles every five years after the age of 65.
Historically, by the age of 85, half the population already has Alzheimer's Disease and more than 20 percent reside in a nursing home.
Given the rapidly increasing proportion of elderly Americans, the need for long-term care is likely to grow exponentially in the decades ahead.
The cost will be immense and, with no change in current public policy, the government will have to struggle mightily to pay even as much a proportion, if not more of it in the future.
To give you a sense of the magnitude of these costs already, consider that in 1998, Americans spent $88 billion on nursing home care, approximately three-fourths of which came either directly from Medicare and Medicaid or indirectly from their Social Security benefits.
The same public financing sources paid well over half of the nation's $29 billion in home health care expenditures.
By comparison, the total federal budget is around $1,700 billion dollars.
What does this mean to you and your family?
If you have not experienced it already, sooner or later, you will probably confront the need to care for a frail or infirm loved one.
You may face the physical strain of assisting someone who is no longer able to handle the common activities of daily living alone (ADLs in the jargon of LTC).
ADLs include dressing, bathing, transferring (from one place to another), eating, and toileting.
You may face the emotional strain of assisting someone suffering from dementia who wanders, accuses, threatens, screams or all of the above.
Such a person may still be physically able to take a shower alone, but may not remember to disrobe first. Cognitive impairment is a major cause of long-term care dependency.
Perhaps, you will be the extraordinary family member who can bear to change a formerly brilliant and self-sufficient parent's diaper …
Or you may be one of those siblings who, despite the best of intentions before, cannot deal with such a challenge and leaves the task to others, creating resentment and breaking up a formerly close-knit family permanently.
Sadly, the biggest cause of a growing epidemic of elder abuse in the U.S. is caregivers who crack under these enormous strains and resort to violence or financial exploitation.
When your time comes to provide long-term care for an aging loved one, you are going to want help…you're going to want advice, professional assistance, and money.
Unfortunately, neither today's marketplace nor the government's programs do a satisfactory job of meeting those needs.
The supply of both free and paid caregivers is drying up, as women—the traditional free care-givers—enter the marketplace and nurse's aides—the traditional low-cost service providers—find more attractive and remunerative employment in other areas of our booming economy.
America's home and community-based services infrastructure, including chore services and home health aides, should help the frail and infirm remain independent and in their own homes as long as possible. Unfortunately, this market is under-developed and starved for financing.
Assisted living facilities, the new privately financed alternative to nursing home care which most people prefer, are filling much more slowly than was originally anticipated. They are having trouble making their service affordable to people who want to use it.
Despite everyone's preference for non-institutional settings, most professional long-term care is still provided in institutions, usually nursing homes. Yet, eight major nursing home chains have recently declared bankruptcy and 15 percent of all nursing home beds in the United State are in bankrupt facilities.
Long-term care stock prices, especially for nursing homes but also for assisted living chains, are way down and capitalization for the industry, by debt or equity, is almost completely stymied.
Most Americans cannot afford expensive formal long-term care services, yet Medicaid and Medicare, the government programs which contribute the lion's share of long-term care financing, pay too little to assure access to quality care.
Few seniors (only about seven percent) and almost no baby boomers own private long-term care insurance to cover these expenses.
In the meantime, the "Age Wave" is about to crest and aging demographics guarantee an ominous future for long-term care.
Why do disjunctures such as I've just described exist?
The first step to solving America's long-term care service delivery and financing problem must be to understand it.
So let us apply now the tools of reason and common sense economic analysis to answer the fundamental question:
How in the world did we get into such a mess in the first place?
"The Nursing Home Sandwich"
In 1900, average life expectancy in the U.S. was 47 years; by 1965, the average American lived to around 70; we had gained a whole new age of life.
The good news was people were living longer; the bad news was, they were dying slower, often of long-term chronic illnesses like Alzheimer's, Parkinson's or stroke.
Traditional "old folks' homes" were ill-equiped to handle the growing medical and custodial care needs of this rapidly aging population.
Women, who traditionally cared for their elderly parents and in-laws, were entering the work force in greater and greater numbers.
This was the time when, left to its own devices, the market could have produced a wide range of affordable home and community-based long-term care services and the investment and insurance products necessary to pay for them.
Instead, however, President Lyndon Baines Johnson showed up at our door and announced: "I'm from the government and I'm here to help you."
In 1965, Congress passed, and the President signed, Title XIX of the Social Security Act, also known as the Medicaid program.
Although Medicaid's primary mission was to provide acute medical care for the poor, the program also offered subsidized long-term nursing home care for people over the age of 65. In the beginning, nobody thought this service would add much to the cost of the program.
Medicare, Title XX of the Social Security Act, enacted in the same year, also paid for nursing home care, but only on a very limited basis, so it does not enter our story until much later.
In essence, the government gave the public a choice: "You can take care of grandma at home, with all the emotional and financial stress that entails, or, you can put her in a nursing home and the government will pay."
People aren't stupid. They made the logical choice. They put grandma in the nursing home.
The nursing home industry isn't stupid. They also made the logical choice. They went after this new government funding source aggressively.
A binge of bed building followed. As fast as the industry could build new nursing home beds, the public filled them at Medicaid’s expense. By the mid-1970s, the cost was growing out of control.
So, the federal and state governments responded with intensive, centralized "health planning" initiatives. They required developers to obtain "Certificates of Need," before they would be allowed to build any new nursing homes.
I worked for the federal Health Resources Administration in the mid-70s so I saw this first hand. The principle was simple; the government figured: "they can’t charge us for a bed that doesn't exist," so we just won't let them build any more.
You don’t need to have a Ph.D. in economics to figure out what happens when the government arbitrarily caps the supply of a good or service. Obviously, the price skyrocketed. Nursing homes merely raised their rates to compensate for having fewer beds to fill.
In time, the government figured out that it was losing all the savings from capping bed supply because of the rising reimbursement rates. So, next, the government capped the rates Medicaid would pay for nursing home care.
The nursing homes' response was quite predictable. They raised the rates they charge to private pay patients in order to compensate for the reduced Medicaid payments.
That was the origin of the differential between Medicaid and private nursing home reimbursement rates. To this day, Medicaid pays only 80 percent of the private pay rate on average and often less than the cost of providing the care.
What do you suppose happens in an economic system when you cap supply and price? Right, demand goes through the roof. That is exactly what happened.
In the late 70s to mid 80s, nursing home occupancy in the United States jumped to 95 percent. By comparison, hospitals were only 55 to 65 percent full.
By then, nursing homes could fill up their limited supply of beds at their limited rates of reimbursement no matter what kind of care they offered. Therefore, by the late-1980s, quality of care in nursing homes was becoming a huge problem.
At that time, I was a Medicaid State Rep for the Health Care Financing Administration (HCFA), so this too I saw up close. In fact, I was becoming something of a whistle blower by then. For my own sanity, I had to get out of HCFA, so I transitioned to the Office of Inspector General of the Department of Health and Human Services (OIG) where finding and correcting problems in the health care bureaucracy was encouraged instead of punished.
In reaction to the perceived deteriorating quality of care in nursing homes, the government took strong regulatory action yet again. The Omnibus Budget Reconciliation Act of 1987 mandated that nursing homes improve the quality of care and provide much more training for nurse's aides.
The nursing home industry responded: "Wonderful, we want to provide top quality care and highly trained staff. How much more money are you going to give us?" Of course, the government was running deep deficits around that time and had no extra funding to offer. They wanted great care without paying for it.
Thus, nursing homes were caught between the rock of inadequate government reimbursement and the hard place of government quality mandates. If they tried to attract higher paying private patients, they were accused of discrimination against Medicaid recipients. If they tried to cut corners on costs, they were accused of providing deficient care.
Out of desperation, the nursing homes started suing state Medicaid programs for more reimbursement. They brought these suits under the "Boren Amendment," a 1981 law that required Medicaid to pay at least enough to finance adequate care. The industry had some success for awhile. So, Congress repealed that law and pulled the rug out from under them.
Now, in the meantime, the government—having capped supply, restricted reimbursement, and mandated high quality care—went after the problem of skyrocketing demand.
Because Medicaid nursing home benefits were free to most people and subsidized for all, and because private pay rates had been driven so high, the public looked for creative ways to qualify for Medicaid.
Technically, Medicaid is a means-tested public assistance program. It is welfare. You might ask: "How can middle and upper-middle class people qualify for it without spending down their assets and income?"
That's a story I'll save for another, maybe next year's, lecture. Suffice it to say today, that in the early 1980s "Medicaid estate planning" exploded.
Medicaid planning is artificial self-impoverishment for the purpose of qualifying for Medicaid nursing home benefits. It is often assisted by a growing army of "elder law attorneys," who specialize in "public benefits planning."
Around this time, I was doing a series of studies, more aptly expose's of Medicaid planning, for the HCFA and the OIG. We did get the government's attention.
Over the past two decades, eight Congresses and three Presidents have tried almost everything we've proposed to discourage the legalized abuse of Medicaid benefits.
In six major pieces of legislation from 1982 to 1997, the government has mandated restrictions on Medicaid planning, required recovery from recipients' estates of benefits that were paid, and authorized liens on real property to discourage the middle class from taking advantage of Medicaid.
In the Health Insurance Portability and Accountability Act of 1996, they even made transferring assets to qualify for Medicaid a crime. When public uproar forced them to repeal this so-called "throw Granny in jail" law, they came back in the Balanced Budget Amendment of 1997 with the "throw Granny's lawyer in jail" law.
Janet Reno refused to enforce that one. When it was legal again for the attorneys' clients to shift assets to qualify for Medicaid, the Justice Department concluded (probably correctly) that it would be unconstitutional for them to hold the attorneys criminally liable for advising their clients to do so something that is once again legal.
Thus, we're right back where we started. The average person can qualify for Medicaid nursing home benefits without fancy planning and virtually anyone else, regardless of income or assets, can qualify quickly by obtaining the right legal advice.
Let me say parenthetically here that some folks make the argument that Medicaid planning is acceptable, because, we all paid our taxes and we're entitled to the benefits even if it takes legal manipulations tantamount to complex tax planning in order to qualify.
Whatever its merits in other contexts, this argument is fallacious as applied to Medicaid planning. Artificial impoverishment to qualify for Medicaid is usually done by an adult child heir to save an inheritance by placing his or her parents in a welfare home.
Medicaid has a dismal reputation for problems of access, quality, reimbursement, discrimination and institutional bias.
The parents' best interest lies in retaining the assets in order to be able to purchase quality care in the private market place at the most appropriate level, especially home care or assisted living.
Thus, Medicaid planning is not a legitimate means to recoup one's tax contributions if it results in impoverishment, welfare dependency and inadequate care for one's parent.
Now, while all this was going on, some academics proposed, and senior advocates demanded, so the government tried, another cost-saving approach. Having pushed everyone into expensive nursing homes by paying only for that level of care, the Medicaid bureaucrats reckoned they could save money by moving people out of nursing homes and into less expensive home and community-based care.
Unfortunately, over time, empirical research showed and practical experience confirmed that this approach would not save money. People receiving inexpensive chore and health services at home tended to live longer and happier lives, but they ended up ultimately in nursing homes anyway, so overall costs continued to increase.
Nevertheless, the academics and advocates have still not learned. Their latest proposal is to pool Medicaid and Medicare resources in order to provide home care and assisted living to more people and thereby keep them out of nursing homes longer. By now, even the government knows this won't work and is resisting strongly.
There are three problems: for every person in a nursing home today (and there are over 1.5 million of them), two or three people of equal or greater disability remain at home. Half of these are bed-bound, incontinent or both. Their families strain to keep them at home because they dread going to a nursing home. As soon as the government begins paying for home care and assisted living, services they want, these people are likely to come out of the "wood work" and overwhelm the public financing program.
Second, as serious as the Medicaid planning problem is, its impact is limited by the fact that all it gets you is welfare-financed nursing home care. Once the government starts paying for services people want, however, the demand for Medicaid planning will explode.
Finally, public financing of nursing home care has impeded the development of a private long-term care insurance market. Public financing of the home and community-based long-term care services that people prefer would destroy that budding market altogether.
I mentioned earlier that Medicare, the government's acute health care program for the elderly, also had a role to play in the long-term care story. Lately, it has become the straw that broke the camel's back.
From its enactment in 1965 until the Medicare Catastrophic Coverage Act of 1989, Medicare had a small role in long-term care paying only one or two percent of nursing home costs and 23 percent of home health care expenditures.
Between, 1989 and 1997, however, Congress opened Medicare's floodgates and the program's funding grew quickly to 12 percent of total nursing home costs ($10.4 billion) and to 45 percent of home health costs ($13 billion.)
Just as in the case of Medicaid, the nursing home and home health industries chased this new government-financed windfall. They geared up to take maximum advantage of Medicare's lucrative cost-based reimbursement system. They eagerly purchased ancillary services companies to add to the range of services for which they could bill Medicare. For awhile, they were riding high.
Then Medicare wised up. They changed to a prospective payment reimbursement system that no longer guarantees providers a profit. They stopped paying so liberally for therapy, rehabilitation, massage and other ancillary services. And, in short order, they drove eight major nursing home chains and hundreds of home health agencies into bankruptcy. Obviously, they went too far.
So, as recently as June 20, President Clinton proposed to restore a small portion of these cuts.
Clearly, the government continues to micro-manage long-term care service delivery by doling out a starvation diet of financing while demanding a higher quality of care than they are willing to finance.
The very latest developments in this saga are Al Gore's and George W.'s proposals for long-term care.
Governor Bush wants to offer a bigger and better tax deduction for the purchase of private long-term care insurance.
Vice President Gore wants to give all long-term caregivers a $3,000 tax credit to help them carry this burden.
As usual, the government has one foot on the accelerator and one foot on the brakes. Bush's proposal encourages people to plan early and insure fully for the risk of long-term care. Gore's proposal says the opposite: "don't worry about long-term care; the government will provide." How? Somehow.
So, that brings us up to the present. At the turn of the millennium, what has 35 years of government intervention in the long-term care market place wrought?
Despite its benevolent intent, Medicaid co-opted long-term care by the late 1960s.
It impeded the private market for low-cost senior services and housing and discouraged the development of private long-term care insurance by providing free or subsidized nursing-home care.
It created a Frankenstein's monster of institutional care by targeting public money only to nursing homes. Today, 80 percent of all patient days in nursing homes are financed by Medicaid.
It stifled competition, thereby impairing access and quality, by constricting bed supply and reimbursement rates artificially.
It drove the middle-income consumer out of the private long-term care marketplace by creating a ponderous, publicly-financed monopsony. (By the way, a monopsony is an economic system with a single buyer, as contrasted with a monopoly, which has a single seller. The consequences for consumers can be equally bad in either situation.)
In time, Medicaid and Medicare choked the nursing-home industry almost to death with regulations intended to correct the very problems these programs themselves engendered.
Lawyers are now administering the coup d' grace by litigating against nursing homes for providing poor care. Sometimes, these are the same lawyers who manipulated Medicaid rules to qualify their well-to-do clients for the welfare program thereby reducing the nursing homes' cash flow and undercutting their ability to provide quality care.
Nevertheless, in the absence of affordable alternatives and the means to pay for them, middle-class Americans in the hundreds of thousands are still being directed into government-financed nursing homes by well-intentioned public administrators and Medicaid estate planning attorneys.
In other words, government intervention in the long-term care service delivery and financing market has had exactly the consequences that sound economic analysis would have predicted in the first place.
The Marketplace Responds
Fortunately, government intervention in America's economic system only goes so far. We do have, after all, a mixed system and we retain some considerable measure of freedom and individual determination.
Thanks to these facts, empowered by a big baby boomer generation approaching its peak years of productivity, we currently have a booming economy. Lots of people have money and they are voting with their dollars for better long-term care.
The public's growing aversion for nursing homes has led more and more people to avoid them at considerable personal expense. Even if free or subsidized nursing home care is easily available from Medicaid, a growing proportion of the public is willing to spend its own money to purchase alternative kinds of care.
Adult day care centers are springing up where middle-aged children can leave their ailing elderly parents during the work day just as they have left own children in child care centers in the past. Such facilities provide meals, snacks, activities and social contact for older people who can no longer manage alone at home all day long.
More and more employers are realizing that elder care is draining as much time and productivity from their workforce these days as child care, so they are beginning to help their employees by implementing flexible work schedules, providing elder care counseling, and offering private long-term care insurance.
The profession of geriatric care management is growing. Geriatric care managers assess the needs of elderly people living alone. They find and coordinate free and fee community services that can help seniors remain at home and independent as long as possible. And they report on the parents' condition and progress to guilt-ridden adult children who often live too far away to provide help in person.
Assisted living facilities, the preferred private-pay alternative to nursing homes, are popping up all over. Assisted living facilities are like hotels where you can call room service for help taking a bath or leave a call at the desk to be reminded to take your prescription meds. They're very popular among people who can afford them, although they are filling much more slowly that originally anticipated.
After 25 years of struggling, private long-term care insurance that pays for home care, assisted living, and nursing home care, is finally starting to gain a foothold. Sales of these policies are lately increasing by 20 percent per year, but still only seven percent of the elderly and virtually none of the baby boomers have purchased this protection.
So, in summary, here's how things stand today.
We have a mostly welfare-based, government-financed long-term care system that requires real or artificial impoverishment to qualify for notoriously poor nursing home care that most people would rather die than receive.
Simultaneously, we have a budding market-based, private-pay congeries of long-term care services that is struggling to attract financing from a stunted private insurance market and a sandwich generation of baby boomers who are juggling the costs of college for their kids and custodial care for their parents.
These two forces—Medicaid vs. the market—are in counterpoise. Change is exasperatingly slow because so many interest groups have a stake in the status quo.
The public wants long-term care services provided by the government without having to pay for them.
Politicians want to promise constituents a "right" to long-term care without angering taxpayers by forcing them to pay the cost.
Bureaucrats want to expand their programs and budgets without managing expenses as private companies must do.
Senior advocates want red-carpet access to top-quality care provided by loving personnel without explaining how to pay these workers more than the minimum wage.
Medicaid planning attorneys want six-figure incomes from artificially impoverishing middle class clients without the opprobrium this practice has earned them.
Nursing home companies want higher reimbursement rates from Medicaid and Medicare without aggressively promoting private financing sources like insurance.
In other words, all these "stakeholders" want to have their cake and eat it too. But that just won't work. No amount of wishful thinking will change the facts of reality.
So, the question becomes: how can we break this log-jam of counter-balanced private interests that is being held together and perpetuated by perverse incentives in counterproductive public policy?
The Lesson and The Solution
Some philosophers believe that justice and the best practical results are achieved when government leaves the marketplace alone (except for enforcing laws against fraud) and allows free economic actors to pursue their own interests without interference.
They could argue that a "hands-off" government policy would be the best way to fix the long-term care marketplace. For example, what might happen if the government suddenly stopped paying for home care and nursing home care through Medicare and Medicaid?
Dire consequences would probably follow almost immediately. Families with parents receiving care subsidized by the government would suddenly have to come up with their own funds to pay for the care. Or they would have to take care of their elderly loved ones themselves.
More people, mostly women, would have to quit their jobs to provide care.
Many college careers would come to an abrupt end as family finances were redirected from children's education to parents' elder care.
Eagerly anticipated inheritances would be drawn down to pay for expensive long-term care services.
When the parents' savings were gone, families' own retirement savings would begin to be depleted.
Before long, however, people would begin to take the risk of long-term care very seriously indeed. They would investigate private insurance as a means to protect against the high risk and cost of long-term care. Aging boomers, especially, would want to protect their savings—and their children's inheritances—from suffering the same consequences they were experiencing.
In the meantime, they would seek out low-cost home and community-based services, which would become more available as demand for them increased. They would use low-cost congregate care homes and assisted living facilities whenever possible thereby empowering the seniors' housing industry to prosper and expand.
Nursing homes, on the other hand—denied the financial support of government programs—would recede in importance and ultimately care only for a small number of the highest acuity patients for whom less institutional, non-medical settings are not appropriate, but hospitalization is unnecessary.
In other words, the long-term care service delivery market would gradually adapt to provide the relatively low-cost long-term care services that people prefer. Simultaneously, faced with the responsibility to pay for their own long-term care, most people would start to save, invest, and insure against that risk.
Of course, some people would be irresponsible and continue to do nothing to prepare for long-term care. In the absence of a government safety net, they would face severe consequences ameliorated only by private charity. Because of these consequences, however, more people would plan ahead and fewer would end up dependent on charity.
Now, what is wrong with this picture? Obviously, given the current and likely future state of American politics, we will not see government withdraw from the long-term care marketplace anytime soon. A combination of social responsibility and interest-group politics guarantees that government involvement will continue indefinitely.
The proximate question, therefore, is "How can we minimize the damage done by the status quo?"
That's where the Center for Long-Term Care Financing, the organization I head, is trying to make a difference. We believe it is possible to achieve universal access to top-quality long-term care for all Americans. But we also believe that to make progress toward this objective we must deal with the reality of present-day politics and economics.
Here's what we've come up with at the Center. We call our approach LTC Choice. (See the Center's white paper "LTC Choice: A Simple, Cost-Free Solution to the Long-Term Care Financing Puzzle" at www.centerltc.org)
We identify the fundamental problem of long-term care in this way: the government has anesthetized the public to the risk of long-term care by providing free and subsidized nursing home care for the past 35 years.
The public is only now awakening to the rapidly worsening access and quality problems associated with government-financed long-term care. By the time they face these problems, however, they are usually in the middle of a family crisis. After Mom gets Alzheimer's or Dad has a stroke, it is too late to save or insure. (You can't buy fire insurance either when your house is in flames.)
Consequently, families turn in their distress to Medicaid nursing home care and to Medicaid estate planning attorneys to qualify them for these welfare benefits. Thus the cycle is encouraged and prolonged.
We propose to break this cycle by a series of public policy changes:
First, let the government focus on educating the public about the risk and cost of long-term care. Let it encourage the public to save, invest and insure against this risk.
Second, make sure the government offers a long-term care safety net and not a hammock. Make it abundantly clear to people in their 40s and 50s, while they still have time to prepare, that long-term care is a personal responsibility and will not be subsidized by the government until personal income and assets are totally depleted. If this were a reality, most people should, could, and would buy private long-term care insurance. (See the Center's white paper "The Myth of Unaffordability: How Most Americans Should, Could and Would Buy Private Long-Term Care Insurance" at www.centerltc.org)
Third, for those who don't take this hint, fail to insure for long-term care, and someday need help, stop pushing them into poverty as a means to get government-financed nursing home care. Instead, make available lines of credit, privately administered and fully collateralized by their estates to subsidize seniors' income so they can purchase quality care in the private marketplace at the most appropriate level.
Fourth, upon the death of the surviving spouse, the private lending institutions should recover the cost of these long-term care lines of credit from the estates of deceased borrowers. This will send a stronger-than-ever message to heirs who lose a portion of their anticipated inheritances that they should take action to protect themselves and their own estates from the same eventuality.
Fifth, for those relatively few people who fail to save or insure for long-term care and who lack the income and assets to collateralize a long-term care line-of-credit, the government can retain a welfare-based system to pay for care. If Medicaid only has to pay for 20 percent of patient days instead of 80 percent as now, however, it should be able to provide better access to higher quality care across a broader range of services than it does now.
Thus, when LTC Choice is in place, the risk of long-term care will be much clearer to aging Americans. Most will insure privately. Those who do not, will get a government-backed but privately administered line of credit on their estates to help them buy services in the private marketplace.
This influx of private revenue will breathe financial oxygen into the home and community based services infrastructure, improve access to home care and assisted living facilities, and help many Americans stay out of nursing homes.
With most people paying privately and fewer dependent on public assistance, everyone will command easier access to a broader range of better care. As the pressure on welfare-based long-term care declines, taxpayers will also get relief.
Everybody wins…except of course the Medicaid planning attorneys and anyone else who profits from the current, dysfunctional status quo.
So, is Congress leaping at the opportunity to solve the long-term care financing crisis by implementing LTC Choice? Not exactly.
Tax rolls are up and welfare rolls are down. The federal government and most states are fiscally comfortable and complacent these days. They can afford in the short term to sweep politically sensitive problems like these under the rug.
The last time we made any real progress in this area was in the early 1990s when Medicaid spending was doubling every three or four years, federal deficits were out of control, and politicians were scared to death.
I predict that we will not make significant progress again until those conditions return. As I explained in my lecture last year on "How to Survive the Aging of the Baby Boomers," those conditions are very likely indeed to return by the end of the current decade when boomers begin to retire.
We'll sell our equities and buy fixed income investments thereby driving the stock market down. We'll sell our big city houses and buy resort condos thereby driving down urban real estate. We'll retire, stop paying big taxes, and start drawing down the Social Security and Medicare trust funds, which contain nothing but IOUs anyway. Before long, we'll begin to need long-term care services also.
Yes indeed, sometime in the coming decade, we are very likely to get the politicians' attention on the long-term care financing problem. They will be desperate for a way to reduce public expenditures without enraging younger taxpayers or older public benefits recipients. That's when LTC Choice will get a receptive hearing.
In the meantime, our job at the Center is to get ready for this opportunity. We have the public policy proposal—LTC Choice—designed and published. We have the evidence marshaled and published in The Myth of Unaffordability. Now, we are building a whole new economic and political force to advocate for rational public policy through a project called the LTC Triathlon.
(See the Center's newest white paper "The LTC Triathlon: Long-Term Care's Race for Survival" at www.centerltc.org)
The LTC Triathlon metaphor conveys the reality that we are in a race for survival to build a long-term care service delivery and financing system that works before the baby boomer generation needs it.
The Center interviewed leading players in each of the three major interest groups that stand to gain economically from public policy that encourages private financing of long-term care and discourages welfare dependency.
These groups are (1) the financiers who provide the debt and equity capital to finance the construction and operation of long-term care facilities, (2) the providers, including home care agencies, assisted living facilities and nursing homes, and (3) the insurers, including agents, brokers and the insurance carriers themselves.
Traditionally, these groups have not communicated, much less co-operated. We asked them why this is in 119 interviews and we published the results in The LTC Triathlon report. In 2001, we'll bring all the key parties together in an "LTC Summit" conference. Out of that conference will come an action plan to get each of the three industries' trade associations working together toward common objectives and a rational public policy.
That's what we're doing to prepare for the long-term care crisis that is coming sometime in the next decade or two. You should not wait to protect yourself and your family, however, to see whether we succeed or not.
My advice is that by age 40, you begin to consider seriously the risk and cost of long-term care. By age 50, you should own private long-term care insurance.
If you have aging parents, consider advising them to obtain this insurance, and help them finance the premiums if possible. I've paid the premiums for my own parents' long-term care insurance for over 10 years. Why should they pay to protect my inheritance?
At the Center for Long-Term Care Financing, we don't sell long-term care insurance and I rarely give presentations on its details. Thousands of sales agents and dozens of reputable companies provide that service.
The Center for Long-Term Care Financing does provide a list of companies and phone numbers, however, in case you want to investigate. On the same handout, you'll also find references to some consumer guides on how to select a long-term care insurance policy.
I'll be glad to talk with anyone during the remainder of the week about the techniques we've used at the Center for Long-Term Care Financing to achieve our objectives.
For now, I hope you have a better understanding of the challenges of long-term care service delivery and financing.
And, I hope you will take the message to heart and protect yourselves and your own families.
In the meantime, we'll do what we can at the Center to effectuate the necessary changes in public policy.
Thank you for your attention. I'll take questions now.