 LTC Bullet: OOPS! The Collapse of Out-of-Pocket Long-Term Care Spending and Its Consequences Friday, November 7, 2025 Seattle— LTC Comment: Academics and the media claim millions of middle class Americans are spending their life’s savings on long-term care until they’re broke. We examine this “Fallacy of Impoverishment” after the ***news.***
*** REGISTRATION IS NOW OPEN for the 2026 Intercompany Long Term Care Insurance Conference! Organizers report: “Our in-person conference March 8-11, 2026 at the Rosen Shingle Creek in Orlando, FL is now accepting attendee registrations! As always, our agenda will include numerous educational sessions over two days across seven tracks with ample time for networking and reconnecting with colleagues. We still have room for exhibitors and sponsors! Please contact us at info@iltciconf.org if you are interested in either opportunity to showcase your products and services to our attendees. Everyone who's anyone in Long Term Care Planning will be there. What about your company?” Damon and I will be there to work and cover the conference, respectively. See you then. *** *** BOLO. The
Cato Institute plans to publish
Steve Moses’s “Policy Analysis” titled “Better Long-Term Care for
Billions Less” on November 11. This new paper reveals why America’s LTC
service delivery and financing systems are such a mess. It proposes a
creative new approach to resolve all LTC’s problems. Be on the lookout.
*** LTC BULLET: OOPS! THE COLLAPSE OF OUT-OF-POCKET LONG-TERM CARE SPENDING AND ITS CONSEQUENCES LTC Comment: Anecdotes abound that some people spend enormous sums on long-term care (LTC). What is lacking is any evidence that catastrophic LTC asset spend down is widespread. The evidence we do have is all to the contrary. For example, consider the following decade-by-decade tables derived from annual National Health Expenditure data. Start with the most recent year for which we have data, 2023. It shows that overall out-of-pocket LTC spending for nursing homes, continuing care retirement communities, home health care and other health, residential, and personal care is only 12.9%. What can we make of this?
Source:
National Health Expenditures* If you didn’t have these facts right in front of you, what percentage of U.S. spending for LTC would you guess that people pay out of pocket? You’ve heard Medicaid requires impoverishment, so that implies a lot of private spending. You know LTC insurance is unpopular, owned by only 3.1% of Americans, so that source wouldn’t contribute much. Everyone says Medicare doesn’t pay for LTC, so no help there. The other public and private third-party LTC payers are each relatively small and not well known. So, you could be excused for guessing that out-of-pocket LTC expenditures must be half, maybe even two-thirds of total LTC spending. Actually, that guess wouldn’t be far off from what peer-reviewed scholars have estimated over the years. Kemper, Komisar, and Alecxih claimed in 2005 that 45% of LTC expenditures were “uninsured private expense.” In 2016, Favreault and Dey said: “Families will pay about half of the costs themselves out-of-pocket.” Favreault and Johnson reckoned in 2021 that “out-of-pocket payments” were 57% of “total LTSS expenditures.” The following NHE tables, covering 2020, 2010, and 2000, reveal that actual OOP spending during those periods was 12.0%, 14.1% and 19.9%, respectively. How could respected scholars get such an important statistic so wrong? And why?
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Health, Residential, and Personal Care Services
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Health, Residential, and Personal Care Services
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Health, Residential, and Personal Care Services How and Why Do Scholars Estimate OOPS at Double or Triple the Actual Rate? Instead of using the actual NHE data provided by CMS that I’m citing here, scholars chose to rely on “micro simulations” generated by software like the Urban Institute’s “Dynamic Simulation of Income Model (DYNASIM).” Here’s how DYNASIM describes its seductive capabilities: Using the best and most recent data available, [DYNASIM] projects the size and characteristics—such as income and health status—of the US population for the next 75 years. DYNASIM can also describe “what if” scenarios, showing how outcomes would likely evolve under changes to public policies, business practices, or individual behaviors. With this model, we can show how different groups will fare over time, who is moving ahead and who is being left behind, and which groups would win and lose under various policy options. In other words, as it applies to our current question, if you plug in Medicaid’s financial eligibility rules, DYNASIM will grind out a statistic for how much people must have had to pay out-of-pocket for LTC based on national data for how much income and wealth the public starts with before they confront LTC costs. On top of that, DYNASIM points scholars and policymakers toward who “would win and lose under various policy options.” Scholars like simulations based on assuming LTC causes impoverishment because they “point” to the policy options most academics prefer, i.e., more public, less private financing. What’s Wrong with DYNASIMulation? So, exactly how do the experts come up with those high OOP spending estimates? First, they cite sources that say Medicaid LTC eligibility depends on having “low income,” only $967 per month and low assets, usually $2,000. These are the Supplemental Security Income (SSI) limits that do guarantee Medicaid eligibility once reached. Then they assume everyone spends down any excess wealth they possess for private LTC until they reach those levels and become eligible for Medicaid. Their simulator applies those strict financial eligibility criteria to national income and wealth data and conclude that half or more of all LTC expenditures must come from private out-of-pocket spending. QED. What’s wrong with this method? Why does it produce estimates that are three or four times what the actual data show? Although people who fall within those low Medicaid income and asset limits do qualify for LTC benefits, that does not mean that other people with substantially more income and assets cannot qualify nor that they must spend down their savings for private LTC before becoming eligible for Medicaid. People with high incomes qualify because in most states Medicaid deducts their private health care spending from their incomes before applying a low income standard. Some states do apply an income cap, but they allow special income diversion trusts to achieve the same purpose. Either way, high income people qualify easily for Medicaid LTC benefits. Nor do high assets disqualify people from Medicaid LTC. Most large assets seniors own are exempt for determining eligibility. Exempt assets include most home equity, home improvements, IRAs, a side business, a vehicle, prepaid funeral expenses, all personal belongings and household furnishings and others, lists of which are available online and from Medicaid planners. Extra countable assets people own are easily made exempt by using them to purchase resources that are exempt, thus achieving eligibility while preserving wealth in a different form. This is “Medicaid’s $100+ Billion Leak.” In other words, Medicaid LTC financial eligibility is more complicated than simply applying the presumed income limit of $967 per month and the $2,000 cap on countable assets to national income and asset ownership data. That simple-minded simulation produces vastly over-estimated numbers for OOPS. So, given that CMS provides hard data every year on actual OOP spending, we need to ask not only how the experts come up with such inflated estimates, but why they do it. I think the reason scholars inflate OOPS is the ideological proclivity among academics toward “LTC solutions” that involve more government spending and regulation. Most of their articles, reports and books that estimate very high OOP spending then conclude that to relieve the awful burden of LTC on families, the only viable solution is to increase Medicaid spending, add LTC to Medicare, or concoct a new compulsory, payroll-funded, LTC entitlement on the model of Social Security and Medicare. But all such proposals have fallen flat. The time for big government entitlement programs has passed. We’re likely to lose the ones we already have before a new one for LTC comes along. The national debt exceeds $38 trillion. Spending surpasses revenue this year by $1.8 trillion. We’re on the brink of being unable to service the national debt, which means the bond market may demand austerity, not a promising economic environment for big new government spending programs going forward. Consequences of Declining OOPS Consider the history of actual OOPS spending over the years. Here are the remaining tables for each start of decade since 1970.
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Health, Residential, and Personal Care Services
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Health, Residential, and Personal Care Services
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Health, Residential, and Personal Care Services Note the gradual decline in OOPS starting from almost 40% in 1970, only five years after Medicaid began subsidizing LTC with virtually unlimited federal matching funds, to 25.9% in 1990, finally dropping by half again to 12.9% in 2023. Clearly the burden of out-of-pocket LTC spending on the public has declined radically over the years. These facts have consequences. The decline in OOPS explains why most Americans do not worry about LTC until they need it. As their LTC spending soars, they easily qualify for Medicaid. The next generation receives that message when, thanks to Medicaid, their inheritances are unencumbered by their parents’ LTC costs. The cycle is perpetuated as each new generation fails to save, invest or insure for LTC and ends up relying on Medicaid. Today, Medicaid is the dominant payer for all forms of LTC, 44.2%. In 2023, as the first table above shows, it covered, 30.4% of nursing home care, 34.6% of home health care, and 60.3% of “other” health, residential, and personal care services. Medicaid pays nursing homes and other LTC providers dismally low reimbursements, often less than the cost of providing the care. Much higher private-pay revenue for nursing homes has collapsed to only 7%. High dependency on low Medicaid reimbursements is the cause of LTC’s biggest problems including caregiver shortages, poor access and low quality. What to Do Instead Instead of fantasizing catastrophic LTC spending, based on wishful simulations, to scare up demand for a big new, compulsory, payroll-funded LTC entitlement program, here’s what needs to happen instead. Recognize that OOPS is much lower than the scare mongers claim. Strengthen Medicaid financial eligibility rules so they do not allow middle-class and affluent people to qualify for LTC benefits while preserving wealth and without spending down for their own care. Save and improve Medicaid as a LTC safety net for the genuinely needy who currently receive the program’s worst facilities and services. For full documentation of these problems and detailed proposals to solve them, see the Paragon Health Institute’s “Long-Term Care: The Problem” and “Long-Term Care: The Solution.” Watch for the Cato Institute’s “Better Long-Term Care for Billions Less,” forthcoming November 11. |
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