 LTC Bullet: Who Needs LTC? How much? So what? Friday, May 19, 2023 Seattle— LTC Comment: Do 70% need LTC or half? For one year or three? Who pays? What’s it going to cost me? Medicaid? Medicare? Based on sum-of-expenditures or present discounted value? The key LTC numbers are shifting again, after the ***news.*** *** GET YOUR free article from the CLTC Digest. CLTC, the people behind “Certification for Long-Term Care” publish this thought-provoking quarterly journal. They’re offering a free download of an article in the latest issue: “Your Clients are Running Out of Money. (You just don’t know it” by Leigh Maynard. Get it here. Just scroll down and fill out the simple form. Heads up! I’ll be in the next issue of CLTC Digest with a piece on “The Elephant, The Blind Men, and Long-Term Care.” *** *** LTC CLIPPINGS keep you apprised of important industry news so you know what’s happening before clients or prospects blindside you. Steve Moses reads everything online or in print about long-term care, sends you one or two items each day like the ones that follow, and welcomes your questions or comments. If you haven’t subscribed to LTC Clippings yet or if you aren’t a member of the Center, fix that now here. Thanks for your consideration. 5/17/2023,
“Senators
probing largest Medicare Advantage plans over how algorithms factor in
care denials,” by Bob Herman and Casey Ross, STAT 5/17/2023,
“Medicaid
and leadership challenges, as state takes over nursing home,” by
Jessica R. Towhey, McKnight’s LTC News 5/8/2023,
“TCARE
Welcomes Long-Term Care Executive Vince Bodnar as Chief Actuary,” by
Julia Pitlyk, Technology Today 5/8/2023,
“Provider
payments could be at ‘catastrophic’ risk if federal debt limit breached,”
by Jessica R. Towhey, McKnight’s LTC News
LTC BULLET: WHO NEEDS LTC? HOW MUCH? SO WHAT? LTC Comment: Those are important questions. But the answers are a moving target. The experts used to say that 70 percent of the elderly will require some LTC and 20 percent will need five years or more. We critiqued the study that produced those estimates in LTC Bullet: Microsimulate This!, March 28, 2006. We were not impressed. It was full of misleading, ideologically biased statements. Garbage in, garbage out, we concluded. Then in 2015, new and better data became available. Roughly half—not 70 percent—of elderly Americans will need long-term care. One in seven—not one in five—will require five years or more. We critiqued the study (Favreault and Dey, 2016) that produced these new estimates in LTC Bullet: New Data on LTC Incidence, Duration, Cost and Financing Sources, July 24, 2015. We concluded the new data was a “vast improvement over what we had before,” but this report was also fraught with political and ideological bias. If those two opening paragraphs tweak your interest, by all means click through, read the source documents and our analysis in those LTC Bullets from 17 and eight years ago, respectively. But right now, let’s consider the latest in this series of LTC risk and cost estimates. The U.S. Department of Health and Human Services’ Assistant Secretary for Planning and Evaluation (ASPE) published “Long-Term Services and Supports for Older Americans: Risks and Financing, 2022,” by Richard W. Johnson and Judith Dey on September 27, 2022. Based on this new study’s Abstract, the key numbers have moved around again, but not so drastically this time. Now “over half (56%)” will need some LTC and about “one in five” (22%) will need more than five years. Is the Urban Institute’s Dynasim microsimulation model finally homing in on less variable, more stable estimates? Let’s take a closer look at how the newest data varies from what preceded it in 2015. We’ll proceed from here with quotes from the new paper followed by our “LTC Comments.” Johnson/Dey: “The results presented here differ from those reported in Favreault and Dey (2016) … our updated model projects longer average durations of LTSS needs (3.1 years versus 2.0 years) … The updated model also projects lower average LTSS expenditures ($120,900 versus $138,100), especially for family out-of-pocket payments. These differences result from some definitional changes between the two analyses and numerous technical changes and updates. … An important substantive change between this brief and Favreault and Dey (2016) is that we removed from our expected cost tables the incidental LTSS that Medicare covers. … Medicare generally does not pay for long-term care when it is the only service a person needs.” (p. 10) LTC Comment: Those are very big changes! LTC duration is up by more than 50 percent from two years to 3.1 years. Average LTC expenditures plummeted 12.5 percent from $138,100 to $120,900. What’s more, these authors are no longer counting Medicare as a contributor to LTC costs. That makes sense from the standpoint that Title 20 doesn’t pay for LTC, but it distorts financial analysis substantially by ignoring the role Medicare profits play in propping up LTC providers’ ability to survive losses from Medicaid’s meager reimbursement rates. The paper goes on for two more paragraphs explaining the tweaks to their model that caused the big changes. Maybe we better not assume these important estimates of LTC risk and cost are settling into a more consistent pattern. Be that as it may, let’s consider what the new estimates would mean if they are correct and do remain stable. (Note that we prefer the traditional designation “long-term care” (LTC) instead of the awkward neologism “long-term services and supports” (LTSS) used in the Johnson/Dey report. To their credit, they do at least acknowledge in an end note that “LTSS is also sometimes called long-term care.” p. 11) Johnson/Dey: “Although most people with LTSS needs will spend relatively little on their care, 14% will spend at least $100,000 out of pocket for future LTSS.” (p. 1) LTC Comment: That sounds like a small risk of a substantial loss that could be replaced by an affordable premium, which is the role of private insurance in our economy. But, the report downplays that potential. Johnson/Dey: “A private market for LTSS insurance exists, but less than 8% of Americans have purchased coverage (Freundlich 2014), partly because of high and rising premiums and the exit of insurers from the market (Scism 2015). Sales figures from recent years suggest the market has stagnated or even shrunk (Cohen 2016; Schmitz and Giese 2019; Ujvari 2018).” (p. 2) LTC Comment: Why so little demand for private insurance in the face of such a clearly insurable risk? The obvious answer is that someone or something else pays for LTC obviating the public’s need to worry about it and deflating demand for the product. But Johnson/Dey also downplay that possibility. Johnson/Dey: “Although Medicaid provides LTSS to those with chronic disabling conditions (Komisar 2013; Tompson et al. 2013), it is available only for individuals who meet income and other eligibility requirements (U.S. Department of Health and Human Services 2015).” (p. 1) LTC Comment: So, Medicaid pays for LTC but only for people who meet its eligibility requirements? That makes Medicaid sound somewhat insignificant. What are Medicaid’s financial eligibility requirements? How hard are they to satisfy? Is it possible for people with substantial wealth to qualify for Medicaid LTC benefits without spending down their wealth to qualify? The paper blanks out on these crucial topics. But it does elsewhere acknowledge Medicaid’s very large LTC financing role. Johnson/Dey: “Medicaid is the largest payer of LTSS, averaging $51,800 after age 65 and accounting for 43% of the total [$120,900].” (p. 6) “Most Americans who receive paid LTSS pay some share out of pocket. Those with longer spells may pay out of pocket until they qualify for Medicaid. Reliance on Medicaid for those who cannot afford the full cost of LTSS may increase federal and state spending for LTSS.” (p. 2) LTC Comment: So, Medicaid is a huge LTC payor but it doesn’t desensitize the public to LTC risk or impede demand for private LTC insurance because it has financial eligibility limits to which people must spend down over “longer spells” of paying privately until they finally become eligible. That’s the hidden narrative the report fails to make explicit. Where is the proof for their assumption that people must pay out of pocket before Medicaid starts? Scholars of this stature should know and acknowledge that there is no evidence in the HRS or AHEAD data bases on which they rely of Medicaid “spend down.” Those sources only show that “transitions” to Medicaid occur for whatever reason. On that subject, we offer these observations:
LTC Bullet: Medicaid Spend Down that Isn’t and Why it
Matters, July 19, 2013 The truth is that Medicaid exempts virtually unlimited resources, including home equity, personal belongings, a car and many others. People receive Medicaid benefits despite having large incomes if their health and LTC expenses are high enough, as they usually are for people in need of LTC. This report, like its predecessors, simply presumes without evidence that people “spend down” before qualifying for Medicaid. To its credit, this report does not make the explicit, preposterous, unsubstantiated claims of its predecessors that wide swaths of the American public spend down for LTC into total impoverishment. Still it, like they, ignore how Medicaid financial eligibility actually works as explained in ubiquitous legal tomes, magazine articles and internet ads for Medicaid estate planning. Nevertheless, they do give some lip service to the fact that Medicaid covers more than the poor. Johnson/Dey: “The DYNASIM4 projections suggest that although Medicaid is used by older adults throughout the age-65 income distribution, it primarily serves those in the bottom two income quintiles (Table 8).” (p. 9) LTC Comment: Medicaid is mostly for the poor? That should be no surprise. It is a welfare program, after all. What’s really important is their admission that “Medicaid is used by older adults throughout the age-65 income distribution.” These authors recognize that fact, but make no effort to explain how or why it can happen if people must spend down wealth to qualify as they believe, assume and imply without giving a shred of evidence. But let’s look again at the basic facts. Johnson/Dey: “About 15% of older adults can expect their total LTSS expenses from age 65 onward to amount to more than $250,000, whereas about 8% will have positive but low costs (less than $10,000). A smaller percentage (about 6%) will spend $250,000 or more out of pocket on LTSS. Fourteen percent will spend at least $100,000 out of pocket on LTSS after turning 65.” (p. 8) LTC Comment: Sounds pretty daunting, doesn’t it? But their Table 7 breaks it down. Turns out that of that “15 percent,” actually 14.7 percent, who spend more than $250,000 only 6.4 percent, shown as “6 percent” in the paper, are paying out of pocket. The rest comes from Medicaid, “other public,” or private insurance. In other words, long-term care financing is very complicated, constitutes a heavy burden both on taxpayers and individuals, and is going to get much worse given the current demographics of aging, before it gets better. But even with all the public and private money poured into the current system, it still fails friends and families who are left with the need to provide care themselves without pay. Johnson/Dey: “Many older adults with care needs receive substantial amounts of unpaid care from family members and friends. Our projections indicate that the value of unpaid family care received by adults born between 2021 and 2025 with significant disabilities averages $91,900 (Table 10). Among people receiving unpaid family care, the average value of care reaches $204,000, more than the value of all paid LTSS. Women receive more unpaid care than men.” (p. 9) LTC Comment: Bottom line: America’s long-term care service delivery and financing system is a huge, expensive, unproductive, debilitating failure. It traps people on public welfare, discourages personal responsibility and early planning, subsidizes institutional care, inhibits the home care people prefer, and still leaves much of the direct caregiving duties for stressed out, untrained, unpaid family and friends to provide. The whole mess seems hopeless. But what if different incentives prevailed? What if the rules that allow people to ignore LTC until they need it and qualify for Medicaid without spending down their wealth disappeared? What if people had to save, invest or insure for long-term care or actually face impoverishment if confronted with catastrophic LTC costs? What if we told everyone below a certain age—65, 50, 40, whatever—that the Medicaid planning techniques used in the past to qualify for LTC benefits will no longer exist for them in the future? I submit that people would worry much more about LTC risk and cost. They would seek ways to save, invest or insure for that risk. But how could they come up with the funds to save or buy private insurance while they are in their prime earning years, but still making house and car payments, saving for their own retirement, and setting aside funds for their children’s education? I find a clue to the answer in this report that is otherwise sterile of policy ideas. Johnson/Dey: “These estimates differ from a present discounted value (PDV) of expenditures at age 65, the amount that an individual would need to set aside at age 65 to cover future LTSS expenses. The PDV is lower than the sum-of-expenditures measure because it accounts for the investment returns that could be earned on funds set aside at age 65 until LTSS expenses begin, often after age 80. We show PDV projections in the appendix.” (p. 6) LTC Comment: Say what? What does that even mean? The cost estimates provided in the main body of this report represent what people or programs could be expected to pay for long-term care over time in today’s dollars. But how much would they need to set aside at age 65, assuming a reasonable rate of return, to cover their expected future expenses? We find the answer to that question in the PDV tables of the report’s Appendix. For example: To cover the $120,900 “projected sum of LTSS expenditures from age 65 through death for adults who turn 65 in 2021-2025” would require that an individual set aside only the “projected PDV of expenditures from age 65 through death for adults who turn 65 in 2021-2025” of $69,800. Still a big number but much less onerous. Likewise, to cover the $245,400 sum of expenditures liability for people who actually experience LTC costs, would require only $141,700 in PDV set aside. Still big, but more manageable. How do they figure that? Johnson/Dey: “PDV estimates, which are reported in Tables A1-A9, use the Social Security trustees' ultimate real interest rate of 2.5%. Because the trustees assume long-range price growth averages 2.6%, this real discount rate is equivalent to a nominal long-run discount rate of about 5.1%.” (p. 13) LTC Comment: In other words, much less money set aside at age 65 in an investment earning 5.1 percent per annum would cover future average or catastrophic LTC costs. Now imagine, if those funds were earmarked for LTC at even younger ages, how much easier the average or catastrophic risk would be to meet. Of course the numbers are very different for men and women, and that needs to be considered and accounted for, but let’s stick with the averages for purposes of the argument now. Here’s my point: what if instead of expecting people to shoulder the entire burden of potentially catastrophic LTC costs and then giving them easy access to Medicaid later if they ignored that risk as happens now, we rather created a new expectation that everyone is responsible by a specified age for the present discounted value of their average LTC risk? That would still leave the catastrophic risk for Medicaid to cover, but it would relieve the welfare program of supporting the middle class and affluent who could, should, and would save, invest or insure at least for their average LTC risk. How could people save, invest or insure for even that smaller LTC responsibility while still keeping up with their other financial liabilities? Don’t expect any help from Johnson/Dey. Johnson/Dey: “Conclusion Most Americans who survive to age 65 can expect to need and use LTSS. … Average long-term care costs can be out of reach for many Americans. Medicaid is an important payer of LTSS, but because it serves only those who meet strict income and asset criteria many families pay for LTSS out of pocket. Private LTSS insurance has only a modest reach, and it predominantly covers costs for those high in the income distribution. Other public expenditures, such as U.S. Department of Veterans Affairs (VA) care, only help cover small shares of the population with LTSS needs. The value of unpaid care provided by family members and friends to people with significant disabilities exceeds the value of paid care, and unpaid care is even more important when people have less severe disability. Our results highlight the need for better planning for LTSS to accommodate both average and catastrophic financial risks associated with chronic disability.” (p. 10) LTC Comment: Shall we conclude that nothing works and the situation is hopeless? Or shall we accept the reality that “average long-term care costs can be out of reach for many Americans” and everyone needs “better planning for LTSS” and do something about it? If you lean toward taking action, then what? We have a plan, but it’s under development and we cannot share it yet. But here’s a hint. Our plan involves persuading and enabling middle-aged and younger Americans to save or set aside enough to cover the average present discounted value of their LTC liability. Maybe they’ll also insure for their catastrophic risk if the insurance industry can come up with a new product to cover and secure the smaller average catastrophic PDV. Stay tuned to LTC Bullets for details in the coming months. |