 LTC Bullet: The History of Long-Term Care Financing in a Single Chart Friday, February 4, 2022 Seattle— LTC Comment: Long-term care financing is complicated. Here’s a key to help decipher it, after the ***news.*** *** ILTCI CONFERENCE NEWS: “The Intercompany Long Term Care Insurance Conference is excited to announce that Plug and Play Tech Center will sponsor and produce our closing Shark Tank session and an Innovation Alley section of our exhibit hall! Both will feature ten aging-in-place innovators! Join us March 20-23 for our in-person conference at the Raleigh Convention Center. With just under two months until it starts, we already have nearly 600 attendees and 70 exhibitors and sponsors. We have three days of events to help you reconnect with colleagues, reach out to decision makers, and attend our many educational sessions within our 7 different tracks.” *** *** JOIN US. Since 1998, the Center for Long-Term Care Reform has conducted and published dozens of national and state-level studies and published 1327 LTC Bullets. We’ve helped to win crucial federal Medicaid statutory changes in 1993 (mandatory estate recovery) and 2005 (capping the home equity exemption). We’ve analyzed and refuted virtually every study and article advocating a government takeover of long-term care. Now we’re proposing a simple, cost-saving solution to the long-term care mess government created. Won’t you join us and support these achievements, goals, and future potential? Become a regular or premium member. Or ask your company or organization to become a corporate member, with benefits accruing to you at no extra expense. Contact Damon at 206-283-7036 or damon@centerltc.com for details. Review our Membership Levels and Benefits schedule here. Let’s get this done! Thanks for your consideration. ***
LTC BULLET: THE HISTORY OF LONG-TERM CARE FINANCING IN A SINGLE CHART LTC Comment: The following chart shows percentages of total expenditures for nursing home and home care by source at the start of each new decade. The figures come from the Centers for Medicare and Medicaid Services (CMS) here. Just unzip the “NHE Tables” and refer to Table 15: Nursing Care Facilities and Continuing Care Retirement Communities Expenditures; Levels, Percent Change, and Percent Distribution, by Source of Funds: Selected Calendar Years 1970-2020 and Table 14: Home Health Care Services Expenditures; Levels, Percent Change, and Percent Distribution, by Source of Funds: Selected Calendar Years 1970-2020. After you review the chart, consider the comments that follow it. OOP stands for “Out of Pocket”; PHI is “Private Health Insurance”; “Other” is a grab bag of smaller third party payers that are listed in a footnote to the CMS tables. A second, very small “other” category is also defined in the CMS tables but omitted here.
President Lyndon Baines Johnson and Congress created Medicaid and Medicare in 1965. So began the Great Society’s impact on long-term care financing. Here’s what happened next. Nursing Home and CCRC Early Years By 1970, even though Medicaid had been paying for nursing home care for five years, it accounted for less than a quarter of the cost. Out-of-pocket expenditures were still high at nearly half but falling. From 1965 until 1980, Medicaid had no restriction on asset transfers to qualify. Anyone could give away everything and become eligible immediately. The Omnibus Budget Reconciliation Act of 1980 permitted states to impose penalties for asset transfers done for the purpose of qualifying for Medicaid within two years of applying. But OBRA ’80 excluded exempt assets so it didn’t apply to seniors’ biggest financial resource, their homes. The Tax Equity and Fiscal Responsibility Act of 1982 corrected that omission by including exempt assets in the transfer penalty. TEFRA ’82 also allowed states to place liens under certain limited circumstances and to recover benefits correctly paid from recipients’ estates. From 1970 on, out-of-pocket expenditures for nursing home care steadily declined, dropping from almost half to less than one-quarter in 2020. But don’t interpret that statistic to mean Americans still have to spend down their assets into impoverishment to pay for private nursing home care. Half of what CMS reports as out-of-pocket nursing home expenditures is actually spend-through of Social Security and other income that Medicaid recipients are required to contribute toward their cost of care. Analysts often assume that people routinely spend down their life’s savings on long-term care before becoming eligible for Medicaid. There is no evidence for that conclusion and they never cite any. It is very important to understand that Medicaid’s predominant role as a long-term care funder is heavily dependent on financing from Social Security and Medicare (as explained below), two highly vulnerable entitlement programs with trillions of dollars of unfunded liabilities between them. Confusing Numbers Medicaid’s share of nursing home expenditures is misleading. It doubled from 1970 to 1980, leveled out for three decades and then plummeted six percent in 2020. Medicaid is a much bigger factor in nursing home financing than those numbers imply. It covers almost two-thirds of all nursing home residents and nearly all of the most expensive long stayers. It pays about 80 percent of private pay rates, often less than the cost of providing the care. Thus Medicaid’s relatively small contribution to nursing home costs has a disproportionately large damaging impact on the program’s ability to pay for quality care. Furthermore, CMS changed the definition of National Health Expenditure Accounts (NHEA) categories in 2011, adding Continuing Care Retirement Communities (CCRCs) to Nursing Care Facilities. This change had the effect of reducing Medicaid's reported contribution to the cost of nursing home care from over 40 percent in 2008 to under one-third (32.8 percent) in 2009 (as reported originally in those years by CMS). That is because CCRCs include independent and assisted living. Combining CCRCs, which are mostly private pay, with nursing homes, which provide most of the Medicaid-financed long-term custodial care for the elderly, had the effect of making Medicaid appear less a factor and out-of-pocket costs a much bigger factor in nursing home financing. Medicare What about Medicare financing of nursing home care? Piddling until it jumped to 12.8 percent in 2000, 23.0, in 2010, and 20.1, in 2020. What happened? In 1983, Medicare prospective payment for hospital care incentivized quicker and sicker discharges to nursing homes. Prospective payment for nursing homes, implemented in 1998, didn’t stop the expenditure growth. Why does it matter to long-term care since Medicare pays only for short-term sub-acute and rehabilitative care? Nursing homes depend financially on Medicare’s more generous reimbursement levels to make up for their losses on Medicaid’s low reimbursements for 63 percent of their residents. Without the 10 to 15 percent profit margins from their Medicare business, nursing homes could not survive Medicaid’s often less-than-cost reimbursements. Public vs. Private Long-Term Care Financing In 1970, Medicaid and Medicare paid 26.8 percent of nursing home costs. Other sources (see the CMS tables for the definition of “Other”) paid 22.3 percent. Private health insurance amounted to almost nothing,.2 percent. Nursing home residents and their families paid 49.2 percent. In the mid-1970s a fledging private insurance product began to appear designed to cover the risk of incurring catastrophic nursing home costs. By 2020, however, the share of nursing home and CCRC expenditures covered by Medicaid (27.0 percent), Medicare (20.1 percent) and Other sources (18.0 percent) had increased to 65.1 percent. Private health insurance added another 8.5 percent bringing third party coverage to 73.6 percent. Out-of-pocket expenditures had declined by more than half to 23.0 percent. Half of that came from income, not asset spend down. Consequently, private long-term care insurance, which prospered early on with over 120 companies marketing the product, began to decline by the late 1990s as out-of-pocket expenditures declined and third party funding from Medicaid, Medicare, private health insurance and Other sources increased. What is “Private Health Insurance?” If private long-term care insurance coverage has declined significantly since 2000, what is that private health insurance (PHI) that CMS says increased steadily from 1970 until 2000 and then leveled out at over 8 percent? According to CMS, PHI [i]ncludes premiums paid to traditional managed care, self-insured health plans and indemnity plans. This category also includes the net cost of private health insurance which is the difference between health premiums earned and benefits incurred. The net cost consists of insurers’ costs of paying bills, advertising, sales commissions, and other administrative costs; net additions to reserves; rate credits and dividends; premium taxes; and profits or losses. That definition does not mention private long-term care insurance by name. Is it included? The American Association for Long-Term Care Insurance reported that the “nation’s long-term care insurers paid out $12.3 Billion in claims during 2021.” That would be 6.3 percent of the $196.8 billion America spent on nursing home care in 2020. But AALTCI also says more “than two-thirds of new long-term care insurance policy claimants receive benefit payments covering care in their own home ….” Paid claims of $12.8 billion would be only 4.0 percent of the country’s total expenditure for nursing homes and home care in 2020. So, does PHI include private long-term care insurance? Who knows? Why Pump OOP and Minimize Medicaid? Why does CMS mix apples (custodial nursing home and home care mostly paid by Medicaid) and oranges (CCRC independent and assisted living mostly private pay)? Why are nursing home out-of-pocket costs (23.0 percent) reported so high and Medicaid costs (27 percent) so low, when nursing homes’ revenue mix is 50.7 percent Medicaid and only 7.4 percent private pay and their patient day mix is 66.2 percent Medicaid but only 8.2 percent private pay (NIC, Skilled Nursing Monthly Report)? I think the intention is to make out-of-pocket costs appear higher and Medicaid costs appear lower. Why do that? To promote the idea that out-of-pocket nursing home costs are more onerous than they actually are and that Medicaid does less than it actually does to finance and influence nursing home care. Why do that? Because CMS bureaucrats, politicians, and policy analysts are biased toward public financing and against private financing alternatives. They rig the data to support proposals to expand public long-term care financing options, especially social insurance. Home Care The home care story is similar except out-of-pocket expenditures were never as large a factor as for nursing homes. In 1970, Medicaid (6.7 percent), Medicare (26.7 percent) and Other (52.7 percent) covered 86.1 percent of home care expenditures. Out-of-pocket costs were only 9.4 percent, less than one dollar out of 10. By 2020, Medicaid (32.5 percent), Medicare (33.6 percent) and Other (10.5 percent) were 76.6 percent of home care expenditures but private health insurance coverage had increased from 3.0 percent in 1970 to 12.7 percent in 2020 leaving only 10.2 percent of home care costs to be paid out of pocket. Still about one dollar in ten, leaving very little incentive to purchase private long-term care insurance against the risk of extended home care expenses. Conclusion Hopefully these observations and
interpretations shed some light on the confusing state of America’s
centrally planned, mostly public, and largely welfare-financed long-term
care system. If not for the economic distortions created by that system’s
lack of free-market price data, entrepreneurs and business people could
imagine, design and implement better ways and means to meet the caregiving
needs of aging Americans. As it stands, the age wave is cresting and about
to crash while long-term care remains hamstrung by giant bureaucracies,
self-serving politicians, and crony-capitalist operators.
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