Is Granny Headed to the Ice Floe?
The failure of the ObamaCare program for long-term care must have been a huge disappointment to fans of Ponzi schemes everywhere. Just like Social Security and Medicare, the Community Living Assistance Services and Supports (CLASS) program was designed to collect “premiums” during employees’ working years and spend the money immediately — with no saving and no investment. Then, when the obligations came due, the program would have been forced to seek a taxpayer bailout.
Plus, I have no doubt that the supporters envisioned this program as little more than the camel’s nose under the tent. If left to pursue its natural course it would have blossomed into a program many times its initial size — with Congress making the benefits more and more generous over time. So with its apparent demise, advocates of sound finance can breathe a collective sigh of relief.
Just because CLASS has been dismissed, however, doesn’t mean the threat has gone away. In fact, in a very real sense, Medicaid itself is a stealth CLASS program. Technically, seniors can qualify for government provision under Medicaid only if they impoverish themselves by “spending down” their assets. However, an entire cottage industry of lawyers is now helping seniors protect their assets and still get Medicaid long-term care coverage. Long-term care is the fastest growing expense in the Medicaid program. As 78 million baby boomers reach the age of 65 at a rate of 10,000 per day, expect them to take full advantage of the legal opportunities to obtain Medicaid benefits at taxpayer expense.
Meanwhile, there is a very real social problem that needs solving. The need for long-term care may arise for all of us. Yet there is very little private insurance for this — only 7 million people are so insured. And the baby boomers have done a poor job of saving to pay for their own long-term care needs.
Is there a responsible way of dealing with this problem — one that doesn’t adopt chain-letter finance and one that encourages each generation to pay its own way, each family to pay its own way and each individual to pay his own way? I believe there is. Here are five ideas, four of which appeared in our Handbook on State Health Care Reform.
Encourage Community Care over Institutional Care. In most places, Medicaid encourages the most expensive form of long-term care: nursing homes. In fact, once fire and safety standards are imposed along with myriad other regulations, there is literally no such thing as an inexpensive nursing home. Although state programs are changing, there are many unexploited opportunities to substitute less-expensive home care for institutional care. Home care often costs only half as much as a nursing home, and in some areas, the cost savings from home care may be even greater. Home care in Washington, D.C., costs less than one-third of nursing home care. In Manhattan, it’s about one-fifth.
Ohio, Oregon, Washington and Wisconsin expanded home care and community-based care to help control rapidly increasing institutional care expenditures. These states were able to serve more people while controlling the growth in overall long-term care spending. Between 1982 and 1992 the combined total of nursing home beds in the four states declined 1.3 percent, while total nursing facility beds nationwide increased 20.5 percent.
Ohio’s Commission to Reform Medicaid proposed additional reforms, including rewarding families who choose lower-cost options that save the state money. This reform would allow the elderly living with family members to receive a few hours of home or personal care per week that could delay their entry into a nursing home. To increase the financial incentives, some assets could be excluded from eligibility tests or shielded from cost recovery.
Encourage the Use of Assets to Finance Long-Term Care. There are more than 13 million households headed by people aged 62 years or older. Many seniors own their homes but are reluctant to tap their equity to pay for nursing home care for fear of losing those homes. A possible solution to this problem is a reverse mortgage. This is a home loan that does not have to be repaid as long as the owner (or a spouse) lives in the house. By one estimate, more than 6 million senior households could access more than $72,000 in home equity per household using reverse mortgages. This would pay for a year or more of nursing home care and two or more years of home care in most areas.
Currently, seniors rarely use reverse mortgages for long-term care. Why should they? Home equity is generally an exempt asset when qualifying for Medicaid long-term care. So they can obtain long-term care without it. However, the Deficit Reduction Act of 2005 makes cash-poor seniors ineligible for Medicaid nursing home coverage if their home equity value is greater than $500,000.
Seniors could be required to first tap home equity using reverse mortgages before qualifying for Medicaid. However, such a requirement would have to take into account the needs of a spouse who remains in the home after a partner is institutionalized. A possible alternative is to place a lien on property jointly owned by the spouse, so that the state could recover some of its long-term care costs from the couple’s estate. An added benefit is that more people may plan ahead and purchase long-term care insurance if they are not allowed to shelter their largest asset when qualifying for Medicaid.
Increase Estate Recovery. Federal law permits the states to recover personal and real property in which the individual has an interest or legal title in order to reimburse the government for nursing home costs. Few states are aggressively pursuing estate recovery, however. One problem: the states are hamstrung by federal regulations that tie their hands. Another problem: although all states receive federal funds to recover assets, they get to keep only a percent of recovered funds — equal to their matching rate; the rest goes to the feds. But if they spend their share of recovery on Medicaid, the federal government matches that new spending.
Future legislation should require that any funds placed in a trust be considered income for determining Medicaid eligibility. It could even eliminate the use of trusts that reduce a senior’s current income (which helps them meet the income qualification). The Deficit Reduction Act of 2005 created a five-year waiting period to apply for Medicaid coverage after a significant gift of property. Property settlements in divorces made prior to Medicaid eligibility should be subject to the same five-year rule as other divisions of property.
Encourage Private Insurance. States now have a way to encourage private long-term care insurance. It is an outgrowth of a pilot project in New York, Connecticut, California and Indiana called the Partnerships for Long-Term Care. The plan allows people to shelter their assets by purchasing a qualifying private insurance policy with a defined amount of coverage. Today, these Partnership programs have spread to about 35 states.
When a policyholder enters a nursing home, she first relies on the insurance. When the insurance is exhausted, assets equal to the value of the policy are ignored when determining eligibility for Medicaid. The insurance, then, is protecting the senior’s assets rather than protecting Medicaid.
Medicaid still comes out ahead, however. In the California and Connecticut Partnership pilot programs, individuals purchased coverage from competing private insurers. For each dollar of coverage, they protected a dollar’s worth of assets. For instance, a long-term care policy with $120,000 in benefits allowed an individual to shelter $120,000 in assets and still qualify for Medicaid long-term care. Since most nursing home stays are less than one year, very few of those who purchased these policies applied for Medicaid benefits.
William Galston of the Brookings Institution has proposed a similar reform, but unfortunately wants to make it mandatory. Making any insurance mandatory is almost a guaranteed path to another Ponzi scheme. (HT to Sarah Kliff at Ezra Klein’s blog).
Allow Insurers to Price Risk Accurately. The principal reason for the failure of CLASS is community-rated pricing. Everyone was going to be charged the same premium, regardless of expected long-term care expenses. In response, actuaries expected healthy people to be over-charged and people more likely to file a claim to be under-charged. Under such an arrangement, long-term care insurance would appeal mainly to those most in need of it. But if they are the main ones paying premiums, then an “average premium” will be insufficient. Insurers will have to charge much higher premium — leading to what analysts in the trade call a “death spiral,” under which premiums rise progressively higher and enrollees become progressively sicker.
All of this is avoided if insurers can charge a fair premium — one that accurately reflects each individual buyer’s risk.
Apparently, fair pricing at the state level is permissible under federal law. According to Don Taylor at the Incidental Economist:
Genetic Information Non Discrimination Act of 2008 (GINA) makes it illegal for health insurers and employers to use genetic information to discriminate based on the results of genetic tests. However, the law does not ban the use of such information for [long term care insurance (LTCI)], disability or life insurance. Some states have banned the use of genetic markers for LTCI. Thus, a genetic marker such as APOE4 (e4) that has been shown to predict admission to a nursing home (NH) in a community based sample could be used to underwrite LTCI policies in some states.
Very good. And very timely. We need an alternative to CLASS.
Not allowing insurers to use the results of genetic testing to underwrite health coverage (or presumably long term care insurance) is supported by public opinion. However, allowing individuals to use genetic testing predict their risk of needing costly treatments but not allowing insurers to use genetic testing could result in adverse selection that could destabilize the market for insurance.
The CLASS Act was the most poorly conceived LTC insurance anyone could imagine. I suspect that supporters purposely made it easy to enroll for people in poor health. Senator Kennedy had championed the concept for years. It’s a fortuitous that the law required that it be actuarial sound. Otherwise, taxpayers would be stuck with an entitlement that would become increasingly insolvent.
Efforts in Congress are afoot to repeal the CLASS act entirely, just in case a future HHS secretary wants to resurrect the Ponzi scheme.
From the OECD/WHO report on the Swiss health system released last week: “In principle, all medical treatments and diagnostics prescribed by doctors and dispensed by licensed professionals are covered, unless they are explicitly excluded from the benefit basket. Mandatory health insurance also covers the costs of medical care provided to patients receiving long-term care in institutions or at home.”
It can be done, if we are willing to accept a bona fide social insurance program, and dismiss the deceptive and inappropriately applied Ponzi scheme argument.
Also from this same report: “The high levels of fragmentation in a country with a small population raises questions about a single health insurer. In theory, a single insurer could pool risks more effectively. In light of risk equalisation mechanisms that are imperfect as long as there remain incentives for risk selection, a single insurer might in principle better ensure health financing equity across the population and strong purchasing, in addition to a tendency for lower administrative costs. Moreover, it provides incentives to focus more on prevention. A single insurer system thus has some important advantages.”
Excellent article, John. Our firm does long-term care planning, and there is a misconception that home health care is cheaper than facility-based care. Actually, home care is twice as expensive as facility-based care. Let’s say a nursing home charges $200 per day for all costs. You would pay $6,000 per month.
If you moved granddad back home and paid for a medical assistant (not a nurse or higher) to see him five days a week and 12 hours a day (60 hours per week) at $20 per hour (netting the medical assistant only $14), you would pay $1,200 per week, or about $5,000 per month. That sounds cheaper than $6,000 for the nursing home.
However, the nursing home provides care 24/7, not 12/5. If you paid for 24/7 care for granddad at $20 per hour, you would pay $3,360 per week or about $14,000 per month. Moreover, granddad would have immediate access to a team of medical staff at a nursing home, whereas he would be served by only one medical assitant at home.
As expensive as nursing homes are, home care never will be as efficient, at least for those needing 24/7 care.
Having talked to a number of nursing home directors about the regulatory process they go through, and a number of physicians about the legal risk of the elder care laws, I’d add deregulation to the list.
@Don McCanne–simply increasing the number of people in an insurance pool does not necessarily buy more efficient risk pooling. It also depends on the kinds of risks enrolled, namely the composition of the group, and whether the pool is already large enough to that the expected value of the losses doesn’t change as the number increases. The downside of having a monopoly provider is that it pretty much insures that costs will be higher than necessary and that innovation will be slow.
@Linda Gorman
Increasing the number of people in the pool to include everyone – a single payer pool – does buy much greater efficiency. The study of the Swiss system cited above confirms once again that multiple insurers covering different pools with varying risks and compositions are effective in gaming the system to the advantage of the insurers, while resulting in inequities for the patients.
A universal single payer administrator does not function as a monopoly or single seller (there remain a large number of competing providers), but rather as a monopsony or single purchaser. In the private sector, monopsonies can wreak as much havoc in the market as monopolies, but in the public sector, the monopsony is owned by and therefore serves the people of the nation – thus it is a beneficent monopsony.
If I really correctly, gaming the system in the way you describe is possible only if medical underwriting is outlawed and guaranteed issue with price controls is required. It is a result of regulatory interference not market failure.
This is one reason why some people argue that individuals with health problems should be subsidized directly and able to use the money they are given to purchase health insurance offered by the market. Unlike guaranteed issue and price controls is does not screw up the market mechanism for determining, pricing, and allocating risk.
A universal single payer administrator is a political body. Believing that government monopsonies or monopolies are somehow more benevolent than private ones ignores decades of public choice work in economics and fails to take into account the fact that government entities can do far more damage because they have more power. They can expropriate resources and force people to do what the entity wants or go to jail or worse.
I can believe that so few people have Long-Term Health Insurance. Have you ever checked out the premiums?? I can’t afford them and I am a 71-year-old female working full time. We do not plan on utilizing any nursing homes, but hope to use home health care and/or home hospice care at the end.
The plan under Obama care was truly a Ponzi scheme and I’m glad to see that someone stepped up and admitted that it was unsustainable!
@ McCanne and Gorman:
Just to reinforce Ms Gorman’s comments on the downside of monopsony, it is sobering to read that several states are now setting limits on the number of days of hospital care per Medicaid beneficiary per year. Florida: 45; Miss-30; Ark–124; Ala–16 Ariz–25; Hawaii – 1! What’s wrong with this?
States could have limited the number of beneficiaries, instead of increasing them.
States could have narrowed benefits, such as classing organ transplants as outside of their scope;
States could have narrowed the number of hospitals taking Medicaid patients, so limited the amount of overhead being picked up by the program, possibly choosing lower cost facilities, and being able to bargain prices with the provider.
With this kind of cap on inpatient days, the hospital is in the position of having to give care or risk malpractice suits, which means they will probably give the care and just cost-shift to private health plans as they do now.
Cost shift, in other words, is a hidden tax on private health plans to make the government programs look viable even as they are eating up a state’s budget as never before….
And this is the government that wants to add 70 million more people to Medicaid and subsidized private insurance.
Wanda J. Jones
President
New Century Healthcare Institute
San Francisco
@ McCanne and Gorman:
Just to reinforce Ms Gorman’s comments on the downside of monopsony, it is sobering to read that several states are now setting limits on the number of days of hospital care per Medicaid beneficiary per year. Florida: 45; Miss-30; Ark–24; Ala–16 Ariz–25; Hawaii – 10! What’s wrong with this?
States could have limited the number of beneficiaries, instead of increasing them.
States could have narrowed benefits, such as classing organ transplants as outside of their scope;
States could have narrowed the number of hospitals taking Medicaid patients, so limited the amount of overhead being picked up by the program, possibly choosing lower cost facilities, and being able to bargain prices with the provider.
With this kind of cap on inpatient days, the hospital is in the position of having to give care or risk malpractice suits, which means they will probably give the care and just cost-shift to private health plans as they do now.
Cost shift, in other words, is a hidden tax on private health plans to make the government programs look viable even as they are eating up a state’s budget as never before….
And this is the government that wants to add 70 million more people to Medicaid and subsidized private insurance.
Wanda J. Jones
President
New Century Healthcare Institute
San Francisco
“Believing that government monopsonies or monopolies are somehow more benevolent than private ones ignores decades of public choice work in economics and fails to take into account the fact that government entities can do far more damage because they have more power.”
It also ignores the fact that the only countries providing effective LTC do it in the manner you criticize. You have no functional model for what you advocate.
Steve
For John Goodman, Linda Gorman, John McCanne, Wanda Jones, et al.:
John – Good timely article. I am especially in favor of home health care…all patients do not need 24 hr/day care…much variability…and relatives WHO QUALIFY and are certified might be the caregivers at a lower rate. Obviously lots of room for fudging there from families, just as those patients who demand handicapped car decals.
But I disagree with the reverse mortgage idea. That whole ship has been sinking for 8-10 years…and who backs up the banks as houses go to negative value (that same scheme is now being pushed by Obama…125% mortgages to the least able to pay)? Banks might go under, and that backup guarantee from Fannie/Freddie has been shown to be a disaster.
Linda – your point of risk pool is well taken. Further, the claim that our almost-single-payer Medicare (or Medicaid) has lower overhead is absurd for now. Medicare usually farms out claims to whom? Why, private insurance companies, such as Blue Cross, to process. Plus the huge HQ in DC. Medicare/Medicaid are the worst payers to deal with.
And your next point: control of how much care patients get (rationing, death panels, as already goes on). The “US Preventive Services Task Force,” publicized as independent but in reality funded by HHS, made an edict re. no mammograms for women 40-50. California Medicaid was one of the first to implement that wrongheaded decision, roundly criticized by experts in the field. There were NO breast experts on the panel…just family practice, internists, women’s health, pediatric doctors and some statisticians. No OB-GYN, breast surgeon, radiologist, endocrinologist, oncologist, or pathologist. Further, the panel was headed by a Dr. Calonge from Colorado, who, during his term as head of the state Board of Medical Examiners, hid from the accused doctor evidence that the ICU nurse had killed his patient with a morphine overdose. The Independent Payment Advisory Board for Medicare will act in the same rationing way.
Don McCanne – First, most western/northwestern European countries have a high tax rate, some of which is used to fund the program. Those countries do not have lawyers chasing their doctors…so that possibly 20-30% of defensive medicine expense plus doctors’ malpractice premium expense is eliminated. To show you how bad it is…in my last year of practice, my premium was just under $100,000. To put that in its awful perspective, Medicare allows a neurosurgeon in Colorado $1,760 for brain tumor surgery plus 90 days followup. And for you plus Ms. Jones, you can see how little doctors are paid, leading to loss of many of the best and brightest. Further, there is no cost-shifting, as private insurers also ratchet down what they pay…and they control the reimbursement price, and the patient, take it or leave it.
I have often joked that I could solve our high gas price problem the same way so many who push for single payer or Medicare for all want: the comparable way is to put everyone into a Gasicare or Gasicaid plan, and force gas station owners to accept 85 cents a gallon for gas. That’s how they pay doctors now.
Good discussion.
I am a retired social worker, whose wife was dx with Lewy Bodies dementia 19 years ago. I cared for her at home with only brief respites in institutional care and a few hours/week professional in-home care, for the first 14 years. She has been in a memory care facility since.
Met Life, industry giant, Mature Market Institute’s national survey found that the average “private room in a nursing home increased 4.6% in 2010 to $83,585 per year ($229 per day)”. Average home health aid was $21.00 per hour. Met life announced in Nov. it would no longer sell long term care policies. Same year John Hancock another giant in the industry asked regulators on many of its long term policies, for an average increase of 40%.
Many folks, like my wife needs 24/7 custodial care. My experience is that custodial care in the midwest starts at $50.000 – $80,000 plus by private-for-profit and non-profit facilities alike. They are picking the “low hanging fruit” from sources that can pay. Spousal impoverishment in most cases is almost a certainty. With local, state and national debt, government sources are not a violable alternative either.
This economic crisis will only be accentuated with the tsunami of baby boomers on the horizon and extended life expectancy.
Added to the unsustainable economic issue of long term care is the issue of humane care. Long term care – nursing and custodial care – has been described as the most regulated industry in our society. Regulation is a direct out growth in an attempt to correct issues of concern. In the care industry, this is often prompted by incidents of neglect or abuse. (Watch the news headlines.)
An authority, speaker and author on long term care, Wm. Thomas MD, writes in his book, WHAT ARE OLD PEOPLE FOR, that the model of care in this country is so broken that it cannot be fixed. My conclusion is that there must be fundamental flaws in our long term care design – in economic sustainability and in humane sustainability.
Solution:
As in the beginning of life so it is true in the ending of life, direct family involvement addresses both the economic and humane issues above. History bears witness to the effect that when other arrangements have been tried the evidence keeps coming back to the family model over and over again.
After extensive reading, thought and personal experience, I have concluded that the model which I belief would address both the economic and humane issues in caring for our elderly in need, in a sustainable manner, would be units of small, locally based intentional communities on a cooperative style model. It would require
family involvement in both direct care and administration within roles that could be provided and with a minimum of professional services included where needed. This would be a family “boots-on-the-ground” from the very beginning and continue by
necessity for knowledgable, effective, efficient, effective and sustainable outcomes.
By cultural necessity, the impetus for such an undertaking must come from the lay public and not the government or the professionals in order to avoid the pitfalls of today’s model.
Nick Even
evenup2@gmail.com
I love to see the discussion sparked in this and other blogs throughout the past week(s) about long term care. Looks like this issue is finally bubbling up to the top of health policy conversation. Regarding the options mentioned to improved LTC uptake, I am surprised that hybrid-LTC-life insurance policies were not mentioned.
While only 10 percent of the elderly have a private LTC plan, we can clearly see that the market is not working perfectly. By tagging LTC with life insurance, and thereby reducing the overall cost, more people should be able to afford it in the private market. My full argument is here: http://www.policyprescriptions.org/?p=2094
I’m unclear if the article is saying that private LTC insurers are currently disallowed from pricing their policies according to risk. My impression is that they currently can – many do have preferred and substandard risk classes, and they all price by age and underwrite really poor risks out. At least, they do their best to. Even under a mandatory version of CLASS, private insurers could still have priced wraparound policies by risk.
Very good article and well thought out comments. As a long-term care insurance agent, I see the benefit of LTC insurance daily. Family care-givers have respite, clients can choose where they live and who is their caregiver. They paid from $75 to $250 a month premium for a benefit of $100-$250 a day, usually with inflation built in. I have insured over 1000 healthy folks over the last 15 years and a full quarter of them have already had claims. They and their families are satisfied w/ their care so far. Yes, LTC insurance works.
The biggest issue for people is denial—“I will never need long-term care.” 2nd is that after that denial, they can access Medicaid thru the legal system when needed = adverse selection for Medicaid! Medicaid is then stuck w/ the middleclass AND the truly needy.
Another problem: We need to be able to pay for the LTC insurance. We need folks who have saved $50,000+ w/ decent retirement income able to pay the insurance comfortably. Big issue here. I am seeing statistics that 50% of the boomers have little savings. Homes are worth less, and I think most felt that was their retirement. So, we have a much smaller pool able to afford to buy traditional pay-as-you- go LTC insurance—and few w/ over $300,000 saved who can tie up $100K in a life/LTC combo product.
I am seeing more elders lately who have thought ahead and lined up their support system—they have 2-3 friends w/ powers of attorney, have bought their LTC policy, and have downsized intentionally and are emotionally ready to obtain help at home or in assisted living. Interestingly, these are the singles—the couples and people w/ kids seem to spend very little time being prepared or speaking w/ their family. I feel that a document needs to be part of the will/trust discussion re: who will care for me, how we pay for it, where to do it, etc. It will need to be discussed and signed by the entire family—especially the designated care-givers. I am liking the idea of the intentional community, maybe 2-4 plex homes w/ a room for a live in caregiver who the group pays communally. Again—pre-supposes savings and /or insurance/income available to pay care costs.
Preceding comment regarding Swiss medical care at home—we have that, too. The key word is MEDICAL. Custodial care is what we need w/ LTC. Even in most European countries, custodial care still falls to families/neighbors or is paid out of pocket if you want the best accommodations. Our government healthcare system pays custodial, too, when we hit the Medicaid portal. My experience w/ Germany and England has been you spent down or were needy before the government chips in.
As human beings, we need more acknowledgement of the inevitability of the need to have a plan. According to http://www.longtermcare.gov , 70% of us will need LTC after 65. LTC costs a lot in family burden and finances. There are ways to plan and we all need to have our own long-term care plan—starting now, before we need it.
Good site you’ve got here.. It’s difficult to find high-quality writing like yours nowadays. I truly appreciate individuals like you! Take care!!
I do consider all the concepts you’ve introduced on your post. They’re really convincing and will definitely work. Still, the posts are too short for newbies. May just you please extend them a bit from next time? Thanks for the post.
Thanks for making my survey bit easy !
http://www.medicaremissouri.com/
The CLASS Act may be gone but it doesn’t mean that people should lose hope and age without coverage. Life expectancy is much longer these day, so the tendency is people grow older, they become weak and vulnerable to sickness. When this happens, they will obviously need help in terms of doing their daily activities like eating, bathing, toileting, dressing and more. Extended care can be done by family members but the problem is, they don’t have proper training and they might not give the kind of care that is suitable for the needs of their loved ones. Some would feel confident that they can afford skilled nursing care from professionals through Medicare or Medicaid. These federal programs only provide limited long term care coverage. So what are the other options? Purchasing ltc insurance is recommended. It may be a bit expensive but by exploring your options, you can cut your premiums and find the perfect policy for your needs. If you’re still a bit confused and lost, read this: http://abcsoflongtermcare.webs.com/apps/blog/show/22334440-long-term-care-in-the-u-s. This can help you understand long term care as a whole and can help you plan for your future.