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LTC E-Alert #9-023: Why Medicare Matters to LTCi (Long Term Care Insurance)

Monday, March 2, 2009

Seattle–

LTC Comment: How does Medicare impact the market for long-term care insurance?

If I’ve heard it once, I’ve heard it a thousand times: “Medicare doesn’t pay for long-term care.”

That’s true of course, but it doesn’t mean Medicare isn’t critically important to long-term care financing and a major factor crowding out the market for private LTCi.

Here’s how to resolve that seeming paradox.

Although Medicare pays only for short-term post-acute care under strictly limited circumstances, it does pay 17.7 percent of all nursing home care and 40.3 percent of all home health care.

Nevertheless, Medicaid is a much bigger payor of custodial long-term care for the elderly than Medicare. So, why is Medicare so important?

While Medicaid pays LTC providers less than cost, Medicare pays very generously. In other words, Medicare props up Medicaid’s ability to fund long-term care.

 
Now, we know from research published by Jeff Brown and Amy Finkelstein (www.nber.org) that Medicaid crowds out 2/3 to 90 percent of the potential market for LTC insurance.

So, if Medicare stops paying so generously for LTC, Medicaid-financed LTC will suffer, and Medicaid will stop crowding out so much private LTCi.

What’s the evidence that Medicare will stop offsetting Medicaid’s LTC losses?

MedPAC, the Medicare Payment Advisory Commission, has been advising Congress for years to stop paying nursing homes so much through Medicare. The nursing home lobbies have dodged that bullet heretofore, but won’t be able to avoid such cuts in the future.

Proof is published almost daily since the current recession began.

Following are some concrete examples of the pressure brought to bear on Medicare nowadays.

Yesterday’s New York Times said “The financial condition of Medicare is deteriorating because of the recession, according to new information from federal officials, and the Medicare trust fund could be depleted several years sooner than expected. . . . In their annual report last April, Medicare trustees estimated that Medicare’s hospital insurance trust fund, a widely watched barometer of the program’s financial health, would be depleted in 2019. But Richard S. Foster, the chief Medicare actuary, now says the recession will speed exhaustion of the trust fund by as much as three years.

Most of the money in the trust fund comes from payroll taxes. Because of the recession, Mr. Foster said, unemployment has been higher than expected, and wage growth slower, so payroll tax revenues have been lower.” Source: Robert Pear, “Obama’s Health Plan, Ambitious in Any Economy, Is Tougher in This One,” NYT, March 1, 2009: http://www.nytimes.com/2009/03/02/us/politics/02health.html?pagewanted=2\

Bad as that sounds, the situation is really much worse. There is NO money in the Medicare trust fund. Just IOUs, promises to pay back trust funds that have already been borrowed and spent by the federal government. To pay the money back, the government will have to increase taxes or print more money. Either way, we all pay and taxes, inflation or both impede economic recovery.

Any doubts? Check this out:

“Like having Medicare? Then taxes must rise By David Leonhardt. The New York Times. Feb 24, 2009 ‘Revenue is the thing almost nobody wants to talk about, but I think if we’re going to be honest with each other, we’ve got to recognize that is part of a solution as well.’ said the chairman of the Senate Budget Committee, Senator Kent Conrad. The simple translation is that if Americans want to keep programs such as Medicare, Medicaid, Social Security and more, we will have no choice but to pay higher taxes. http://www.nytimes.com/2009/02/25/business/economy/25leonhardt.html” Source: AHCA / NCAL Gazette – Wednesday, February 25, 2009

So, what’s the solution. A recent study suggests letting Medicare take over the whole LTC system from Medicaid. That would be like adding deck chairs to the Titanic after the incident with the iceberg. Nevertheless, here’s that proposal:

“Report suggests shifting nursing home care to Medicare program. McKnight’s Long-Term Care News & AssistedLiving. Feb 17, 2009 http://www.mcknights.com/Report-suggests-shifting-nursing-home-care-to-Medicare-program/article/127388/ Moving the cost of care for the nation’s 9 million dual-eligibles from Medicaid to Medicare could save states as much as $47 billion annually, according to an analysis by Kaiser Family Foundation’s Commission on Medicaid and the Uninsured. The analysis can be found at www.kff.org/medicaid/7862.cfm.” Source: AHCA / NCAL Gazette – Tuesday, February 17, 2009.

LTC Comment: Where am I headed with this? Simple. Medicare props up Medicaid which has crowded out a market for LTCi for decades. But, trends that can’t continue, won’t. So a severe crisis in public LTC financing is on its way, the only solution to which will be more private financing. That means more spend down of personal wealth, more home equity conversion to pay for LTC, and much more long-term care insurance.

When? Within five years.

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“LTC E-Alerts” are a feature offered by the Center for Long-Term Care Reform, Inc. to members at the $150 per year level or higher. We’ll track and report to you news and analysis regarding long-term care financing, service delivery, and research. We hope The LTC E-Alerts will help you attain and maintain a high level of knowledge and competency in this complex field. The Center for Long-Term Care Reform, Inc. is a private institute dedicated to ensuring quality LTC for all Americans (www.centerltc.com).