LTC Bullet: What if the LTC Market Were Free?

Friday, July 26, 2024

Seattle—

LTC Comment: Government dominates long-term care services and financing in the U.S. What if it were otherwise? Reflections after the ***news.***

*** JOIN THE CENTER. If you receive today’s LTC Bullet from a friend or colleague, please consider joining the Center for LTC Reform in your own right. You’ll receive our bi-weekly LTC Bullets and our weekly summaries, LTC E-Alerts, of our daily LTC Clippings. There is no better way to stay abreast of everything happening in the LTC policy space. On top of that, you will support and be part of our mission to reform LTC public policy. Our goal is to encourage responsible LTC planning instead of rewarding consumers’ denial that leads to excessive reliance on Medicaid. Find all the membership options here. Join and contribute here. ***

*** PREMIUM Center members also receive our daily LTC Clippings. Steve Moses scans the academic and popular media. He identifies the reports, data, and articles you need to see to stay at the forefront of professional expertise. He sends an email with the title, author, a link and a key quote followed by his brief analysis of its meaning. Here are some examples:

7/24/2024, “Medicaid Financing Reform: Stopping Discrimination Against the Most Vulnerable and Reducing Bias Favoring Wealthy States,” by Brian Blase, PhD and Drew Gonshorowski, Paragon Health Institute
Quote: “The Affordable Care Act (ACA) created a new eligibility category for Medicaid—able-bodied, working-age adults—with a much higher federal reimbursement percentage for these enrollees. This has led to a host of problems, including 1) a diversion of resources away from traditional Medicaid enrollees, particularly low-income children, and people with disabilities, that has reduced their access to health care services; 2) a near quadrupling of Medicaid’s improper payments; and 3) a surge of spending that has significantly contributed to large and growing federal deficits.”
LTC Comment: The ACA tipped the Medicaid scales against traditional aged, blind and disabled enrollees in favor of new, younger, able-bodied recipients, simultaneously causing expenditures and error-rates to rise perilously. Don’t miss this informative study by my colleagues at the Paragon Health Institute.

7/23/2024, “Lawsuit slams staffing rule,” by Josh Henreckson, McKnights LTC News
Quote: “A federal lawsuit filed by providers seeks to throw out the national nursing home staffing mandate, charging that it exceeds the authority of the Centers for Medicare & Medicaid Services and ‘creates impossible-to-meet standards that will harm thousands of nursing homes and the vulnerable Americans they serve.’ Some industry and legal experts have boldly predicted a straightforward provider victory.”
LTC Comment: It’s been decades since the nursing home business put up a real fight against bureaucratic government over-reach. Thanks to the recent Supreme Court Chevron decision, they have a shot. But, alas, the bureaucracy is fighting back: “Bill Introduced In Senate To Override Supreme Court’s Ruling On Chevron Doctrine.” We’ll watch and report to you as this plays out.

7/23/2024, “New poll sees if WA cares about payroll tax to fund WA Cares program,” by  Claire Withycombe, The Seattle Times
Quote: “For about a year, many Washington workers have paid a 0.58% tax on their wages to fund a first-in-the-nation long-term care insurance program, an attempted antidote to the looming cost of caring for an aging population. But a new statewide poll suggests a narrow majority of likely voters, 52%, would support a ballot initiative making the tax optional, while 27% said they were certain to vote no and 22% of voters said they were undecided.”
LTC Comment: Voters who rejected WA Cares twice before when asked are likely to do it again. Will the politicians finally get the message? Compulsory, payroll-funded, financially vulnerable entitlement programs are so 20^th century.

***

LTC BULLET: WHAT IF THE LTC MARKET WERE FREE?

Free markets with unencumbered exchange between willing buyers and sellers generate price data that reflect preferences such as how much of which kind of a good or service people want and what the price should be to deliver the optimal supply for any given demand. When government tips the scale to encourage certain preferred outcomes, unforeseeable consequences, often undesirable, invariably occur.

LTC in a Free Market

What would the LTC market be like with no government regulation or funding? Certainly people would take the risk and cost of expensive extended care late in life more seriously than they do now. Without Medicaid to pick up the tab for catastrophically expensive nursing home or long-term home care while protecting practically unlimited exempt assets, planning for LTC would become a personal finance priority on a par with life, health, auto and fire insurance.

Without government limiting LTC providers and consumers to nursing homes or home care with 7000-person-long waiting lists, entrepreneurs would offer amazing new venues and practices for LTC service delivery. Home and community-based care would dominate because that’s what people want and people can demand what they want when they’re spending their own money or their insurer’s with no government bureaucrats intervening.        

Of course, in a free market, you must pay for what you get. No more gaming Medicaid to access free or subsidized care while holding back “key money” to buy your way into the best nursing homes and home care to the exclusion of the needier people Medicaid was supposed to help. It won’t be cheap, but it will be a lot less expensive than private-pay LTC is now when Medicaid pays too little and private payers have to make up the difference by paying much more.

In a free market the cost of LTC will be as high as needed to clear markets. That is, prices will rise until they suffice to support enough providers at sufficient wages to meet the LTC needs of individuals and families. Caregiver shortages will therefore disappear. On the other hand, prices will decline to reach a balance reflecting market competition. Capitalism’s creative destruction removes inefficient, high-cost providers leaving only the most efficient, lower-cost operators.

So much for the rosy scenario. What about “market failure?” Capitalism and free markets harm the poor, don’t they? What happens to people who cannot afford the great new LTC choices the free market provides? What about the bad actors who overcharge for poor care. They’ll emerge without government regulation, right?

Those problems arise because, not in spite of, government funding and regulation as explained below. With a free LTC market in place, most people will prepare to pay for their own LTC. Few will remain in need of outside help from government or private charity. Without government to co-opt natural generosity, private philanthropy will revive and thrive. Private individuals and organizations will fill in to provide a better safety net than government welfare ever did.

LTC with Government Involvement

America has never had a long-term care system remotely approaching a free market. But there was a time long ago when left to its own devices a system more like the one described above might have developed. Instead, little by little, government intervened with more and more funding and regulation. You see the depressing results all around you today.

As people lived longer and longer in the 20^th century, they died slower and slower, often with debilitating chronic illness, physical frailty or cognitive impairment. Families, who formerly provided most care for their own elders, could no longer manage. Mom and Pop residential care supplemented, but did not become a huge corporatized nursing home industry until public financing flooded the market with capital.

Many people could not afford care. Available care was often dubious as a nascent private LTC market floundered. Instead of letting the market find its way over time, government stepped in to “fix” it. Early well-intended financial infusions and regulatory interventions snow-balled into the current overweening state and federal government behemoth.

It started with money. State and federal funds poured in, enabling people to pay for residential care, which quickly supercharged the nursing home industry. In 1965, that trend vastly increased as Medicaid made LTC available to anyone unable to afford it. Medicaid did not require poverty or catastrophic spend down as often claimed. It made free or subsidized LTC available to anyone with too little income and too few resources to pay private market rates.

Medicaid chose winners and losers. It paid exclusively for nursing home care, which unleashed that sector. It paid nothing for home and community-based care, which suppressed the care venue the public prefers. Later efforts through “waivers” to rebalance from institutional to home-based care exacerbated Medicaid’s exploding cost. It turned out that home care did not save money, despite expectations that it would, because too many people who received care at home ended up needing a nursing home eventually anyway.

Having pumped virtually unlimited state and federal funding into the nursing home industry and having made that high-cost care available to anyone who could not afford it otherwise, Medicaid became fiscally unsound. It could not afford to pay adequately to ensure quality nursing home care, much less home and community-based care. Quality deteriorated becoming a crisis by 1987 when the Nursing Home Reform Act mandated better care and more caregivers but without increasing reimbursements.

Easy Medicaid LTC eligibility enabled the public to ignore LTC risk and cost, leaving them dependent on public financing when stricken. Decades of relying on Medicaid if and when catastrophic care costs occurred deflated demand for private insurance to cover such costs. Publicly financed nursing home care delayed development of care options such as assisted living and impaired the private market for home care.

Government tried to ameliorate the damage easy access to Medicaid did by closing financial eligibility loopholes, imposing transfer of assets restrictions and mandating estate recoveries. But nothing worked. A cottage industry of private Medicaid planning attorneys always found creative ways around such efforts. High-income and high-resource people not only qualified for Medicaid, they could access the best care the program offers by holding back “key money” to buy their way into the best facilities and providers. That inequity crowded out the poor from Medicaid’s best care condemning them to the worst care often highlighted in media exposes and giving rise to widespread accusations of “structural LTC racism.”

Today, the LTC system government created is a total mess. Few people worry or plan for LTC. When they need it they qualify easily for Medicaid. But the available system pays too little to ensure quality care, leaving them with very limited options. They can pay privately for good care in preferred venues, which few can afford; or rely on Medicaid’s deficient choices; or burden their friends and families with unpaid, unprofessional care. Unable to tax or spend more to better fund the system it created, government continues to mandate better care and more caregivers without providing adequate funding.

Bottom line, America’s government-dominated LTC system is tragically dysfunctional. A free or freer LTC market would likely produce much better results. We will probably find out by default when the public system collapses and we have nowhere to turn but to a freer market. It would be so much better to experiment with alternatives on purpose.

If you find anything in this short essay dubious or if you want more evidence and detail, please read the Paragon Health Institute’s “Long-Term Care: The Problem” and “Long-Term Care: The Solution” and watch this “virtual LTC event” featuring age wave visionary Ken Dychtwald and leading LTC researchers.