The Crumbing State of Long Term Care Funding in the United States

This may be a bit of a downer, so be warned. However, I plan on following this post with a more uplifting, upbeat analysis of the state of home care alternatives to LTC placement (stay tuned!) – so just keep that in mind.

In the news recently was a conference of some high-level policy experts from the SCAN (Senior Care Action Network) foundation – which is a think-talk spinoff of the SCAN Health Plan, which is a modest-sized health plan with a number of beneficiaries mostly in southern California and Arizona.

At the conference these experts basically groused about something we all kind of know at this point – in the United States our ability to save for our own retirement is of course poor, but it’s downright terrible when it comes to saving for the cost of long term care. Which is unfortunate, because if you live past the age of 65 there’s apparently around a 70% chance you’ll need to stay at least temporarily in a skilled nursing facility (SNF).

The problem is that nursing home costs have soared over the past decade or so, and are projected to double within the next 15 years if current trends continue. Currently the cost of a nursing home bed in the United States costs between 50,000 and 100,000 annually – which is a cost structure that puts even college tuition and fees to shame (another sector of the economy in crisis due to near-hyperinflation).

At the SCAN conference the policy they noted several distressing issues, which we’ll review here. From the Forbes article linked to above:

“The existing system for funding paid long-term supports and services is built on a wobbly three-legged stool: low private savings, an underfunded Medicaid program, and a hobbled private long-term care insurance market.

 For whatever reason, the long term care insurance market has basically crumbled in this country. This may have something to do with the current financial crisis – insurance companies need to grow their premiums via investments in order to make a profit and also pay off beneficiary claims. In the current financial environment, basically at the same time their investments have tanked (recent stock market rally aside) and interest rates on savings have been basically set at subzero by the Federal Reserve, their costs have gone through the roof. Typically, insurance companies are rather risk-averse when it comes to their investments – they aren’t hedge funds. So, they’ve been investing in bonds. And they’ve been getting hammered.

Regarding “low private savings” – I think that this is somewhat of an unfair point, when you think about it. How in the name if all that is Holy can an family not in the privileged 1% even hope to afford to save up the tens (if not hundreds) of thousands of dollars one might need to pay for the cost of a year or two in a SNF? And mind you, again, if costs double in 15 years, it strikes me that it’s impossible, practically speaking, to put away enough unless one is essentially functionally super-rich.

Finally, they note Medicaid. In California, we have something called Medi-Cal, which is our state’s version of Medicaid. It’s generally the way everyone else pays for their skilled nursing care (everyone aside from the super wealthy, that is, and aside from those that require 30 days or less of skilled nursing, who can tap their Medicare benefits for this).

This is how Medicaid / Medi-Cal it works, from what I understand. First, you have a person (typically an older adult) who needs SNF care. Then they see the cost of private care, which is astronomical – this older adult may have a home, a car, and a savings account, and maybe some retirement money and a pension – but they realize that this money would be very quickly wiped out of they tried to do private pay. So, this older adult may try to do home care for awhile, or see if they can hack it in an Assisted Living Facility (ALF) – a less expensive, but still very expensive option. They may have already tried these things. They visit a financial planner and an attorney to discuss how to qualify for Medi-Cal.

In order to qualify for Medi-Cal, you have to prove that you are indigent and that you deserve to have the government pay your SNF tab. So, in this situation the older adult has to find a way to do what’s called “spending down” – which refers essentially to the process of getting rid of all of your ‘excess resources’ so that you can  meet the legal definition of being indigent. Then, Medi-Cal will pay for your long term care. Note there are a lot of exemptions (e.g., you can keep one car for transportation, one home, et cetera) but if you get any of it wrong the mistake can be financially ruinous (people have been pursued for five and six-figure nursing home bills due to not properly following spend-down rules).

Getting on Medi-Cal / Medicaid can be a lifesaver, however, as SCAN participants noted, the Medicaid program is underfunded and we can assume that it will continue to be so (at least, I will).

In the way of a personal anecdote, a social worker that I work with has let me know of an informal test she did of how nursing homes in California tend to treat “Medi-Cal beds.” She calls up Nursing home X and says, “I have this patient who needs placement at your facility – Medi-Cal is his funding source. Do you have any room?” Nursing home X says no. She calls Nursing home X back a half hour later, disguises her voice, and says, “I have this patient and he can pay privately. Do you have room?” She gets an enthusiastic yes. From what I am aware,  Nursing home X may be breaking the law here (e.g., nursing homes are not allowed to deny a patient admission based on their funding source), but I have a feeling this is a rampant problem. Medi-Cal pays at best an anemic, discounted rate to SNFs, and private pay (and Medicare) are much more generous, so they want to avoid it where possible. In the end, this means that the low-quality nursing homes that tend to be on probation with surveyors, provide poor care, and get frequent complaints are likely the ones with a number of “Medi-Cal beds” whereas the higher quality nursing homes that can attract private pay patients simply have a couple of token Medi-Cal beds just for appearances sake.

I’ve worked in nursing homes in California. We have a two-tiered system of skilled nursing in our state, at best.  And it’s getting worse.

What the SCAN participants suggested was a variety of reforms which focused on funding mechanisms almost exclusively. They suggested that people shouldn’t be inflexibly forced to spend down in order to qualify for Medi-Cal (which in many, but not all cases involves essentially sheltering assets so they don’t have to go towards paying for the exorbitant costs of nursing care). Unfortunately, that may have the downside of confounding what the actual point of Medicaid / Medi-Cal, which is reserving the program for the indigent.

Also brought up amongst the SCAN conferees, apparently, was the idea of “universal long term care,” basically a mandatory long term care insurance plan for all Americans. While this idea probably has some currency in the current political ethos, this was one of the areas that conferees didn’t agree on – probably because it’s not clear that it would do anything to address the problem of upward-spiraling costs in long term care.

Otherwise I wasn’t impressed with their proposed fixes, at least how they were represented in the Forbes article – it was all quite status quo. Other than discussions of nips and tucks in how to address affordability (none of which I think will work, politically or logistically), there was no discussion of implementing wide ranging innovation or reform in the business of skilled nursing care, or ways of encouraging competition as a way to bring down costs.

Regarding the issue of political will to start trying to address the sorry state of long term care in this country, my wife recently sent me this link. You ever heard of the “Class Act”? Well, you won’t – because it’s dead. This was a half-hearted attempt on the part of the Obama administration (and opposed by the Republicans) to implement a national, voluntary long-term-care insurance plan as part of the Affordable Care Act (ACA, also known as Obamacare). To be fair – it was hard to support it. The premiums were projected to be far too large to be affordable, and the program was generally thought to be unsustainable otherwise, so it was scrapped as part of the “fiscal cliff deal” from a few months back (As an aside, as far as the ACA goes – it’s a pretty good deal for older adults overall; apparently the way some of the law is structured, it essentially provides a subsidy for older workers over younger ones. While that’s great – at this point the ACA does nothing to address the downward spiral in the long term care market).

My take is that for the long term care industry to survive and be relevant in the future for the majority of Americans (as opposed to being just a niche specialty care market for the 1% and an inhumane warehousing system for the indigent), the LTC industry and the regulatory and funding structures surrounding  it need to innovate and evolve.

Let’s be clear – innovation is happening in long term care – but from where I’m standing it seems to be happening most intensively in home care. So, in a future article (or articles), I’d like to discuss and feature some innovative businesses that are capitalizing on the fact that more and more older adults are staying in the home rather than going into skilled nursing care (which doesn’t mean that demand for SNF care is going down, unfortunately – it just means there’s more older adults out there), and showcase them as examples. I personally believe that even with the coming ‘demographic tsunami’ we can innovate a long term care infrastructure that can serve the needs of this country’s growing older adult population – but we’re going to need to innovate, and fast – and we’re going to have to start fostering an environment where that innovation can happen.

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4 thoughts on “The Crumbing State of Long Term Care Funding in the United States

  1. Interesting article. Unfortunately, long term care means long term custodial care. Private pay patients may be admitted more easily, but their care is not different than the care of the indigent. Long term care insurance does not cover long term care but really short term care in a long term setting. Medicaid beces the primary payor eventually. Only moving away from fee for service, chronic disease care paradigm will change the system.

    C

    • Thanks for the reply, Barbara. I think my main point (which you’re essentially echoing) is that the current system we have doesn’t serve the neediest amongst us very well at all and is long overdue for innovation and change.

  2. The long term care industry has certainly evolved nowadays. Insurance companies have learned to adapt to the ever evolving needs of their consumers hence giving birth to combination products or hybrid policies. So this time around, people have other options aside from traditional long term care insurance and federal programs. Change is not only evident in payment methods but as well as the quality of the services offered. What you said is true, more people prefer to receive care at home. Instead of moving out, they can simply modify their homes according to their long term care needs with the help of the most advanced medical equipment. Most long term care facilities today are still in the old-fashioned way in providing care. I just hope concerned individuals will do something about this as soon as possible.

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