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So What if Government Pays for Most Long-Term Care? by Stephen A. Moses The percentage of nursing home costs paid by government (mostly Medicaid and Medicare) has been going up for the past 13 years (from 49.6% in 1988 to 61.5% in 2001, up 11.9%) while out-of-pocket costs have been declining (from 38.5% in 1988 to 27.2% in 2001, down 11.3%). Source: http://cms.hhs.gov/statistics/nhe/historical/t7.asp So what? The consumer's liability for nursing home costs has gone down precipitously, while the government's liability has increased dramatically. No wonder people are not as eager to buy LTC insurance as insurers would like them to be! No wonder nursing homes are struggling financially--their dependency on stingy government reimbursements is increasing while their more profitable private payers are disappearing. Unfortunately, these problems are even worse than the preceding data suggest. Over half of the so-called "out-of-pocket" costs reported by CMS are really just contributions toward their cost of care by people already covered by Medicaid! These are not out-of-pocket costs in terms of asset spend down, but rather only income, most of which comes from Social Security benefits, another government program. Thus, although Medicaid pays less than half the cost of nursing home care (47.5% of the dollars in 2001), it covers 70 percent of all nursing home residents. Because people in nursing homes on Medicaid tend to be long-stayers, Medicaid pays something toward nearly 80 percent of all patient days. So what? Medicaid pays in full or subsidizes almost four-fifths of all nursing home patient days and if it pays even one dollar per month (with the rest contributed from the recipient's income) the nursing home receives Medicaid's dismally low reimbursement rate. No wonder the public is not as worried about nursing home costs as LTC insurers think they should be. No wonder nursing homes are facing bankruptcy all around the United States when so much of their revenue comes from Medicaid, often at reimbursement rates less than the cost of providing the care. Don't be fooled by the 7.6% of nursing home costs that CMS reports as having been paid by "private health insurance." They derive this number by subtracting all the known costs from 100% and reporting the remainder as private insurance. No one knows how much private health insurance really pays toward nursing home care, because most long-term care insurance pays beneficiaries, not nursing homes. Thus, a large proportion of insurance payments for nursing home care get reported as if they were "out-of-pocket" payments because private payers write the checks to the nursing home and are reimbursed by their LTC insurance policies. How does all this affect assisted living facilities? ALFs are 90% private pay and they cost an average of $25,000 to $30,000 per year. Many people who could afford assisted living by spending down their illiquid wealth choose instead to take advantage of Medicaid nursing home benefits. Medicaid exempts one home and all contiguous property, one business, and one automobile, all of unlimited value, plus many other non-countable assets, not to mention sophisticated asset sheltering techniques marketed by Medicaid planning attorneys. Income rarely interferes with Medicaid nursing home eligibility unless such income far exceeds the cost of private nursing home care. So what? For most people, Medicaid nursing home benefits are easy to obtain without spending down assets significantly and Medicaid's income contribution requirement is usually much less expensive than paying the full cost of assisted living. No wonder ALFs are struggling to attract enough private payers to be profitable. No wonder people are not as eager to buy LTC insurance as insurers would like them to be. The situation with home health care financing is very similar to nursing home financing. According to CMS, America spent $33.2 billion on home care in 2001. Medicare and Medicaid paid 51.5% of this total and private insurance paid 21.1%. Only 19.0% of home health care costs were paid out of pocket. The remainder came from several small public and private financing sources. Data source: http://cms.hhs.gov/statistics/nhe/historical/t9.asp So what? Only one out of every five dollars spent on home health care comes out of the pockets of patients. No wonder they do not feel the sense of urgency about this risk that long-term care insurers think they should. No wonder "Sizable reductions in Medicare payments between 1997 and 1999 led approximately 3,500 agencies to merge, withdraw from Medicare, or close entirely." Bottom line, people only buy insurance against real financial risk. As long as they can ignore the risk, avoid the premiums, and get government to pay for their long-term care when and if such care is needed, they will remain in "denial" about the need for LTC insurance. As long as Medicaid and Medicare are paying for a huge proportion of all nursing home and home health care costs while out-of-pocket expenditures remain only nominal, nursing homes and home health agencies will continue starved for financial oxygen. The solution is simple. For the answer, read our report titled "LTC Choice: A Simple, Cost-Free Solution to the Long-Term Care Financing Puzzle" at http://www.centerltc.com/pubs/CLTCFReport.pdf . Stephen A. Moses is president of the Center for Long-Term Care Financing in Seattle, WA. Reach him at smoses@centerltc.org or 206-283-7036. Or visit www.centerltc.org. The Center for Long-Term Care Financing is a charitable, nonprofit think tank and public policy organization with the mission of ensuring quality long-term care for all Americans. Subscribe to the Center's free online newsletter "LTC Bullets" by emailing your request to info@centerltc.org . Attend the Center's full-day "LTC Graduate Seminar." |
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