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Long-Term Care Costs: Ticking Time Bomb for American Healthcare and Our Economic Future

Long-Term Care Costs: Ticking Time Bomb For American Healthcare And Our Economic Future

This week, Kaiser Health News shined a light on a rarely talked about issue that literally threatens the future of healthcare and America’s economy – the aging of society and the cost of long-term care (view the article here). The aging of society is not just one felt here in the United States, but the costs of aging tend to impact developed countries much more than others. Why? Frankly and sadly, because those in the developing world do not live as long and do not have access to the life-saving technologies and pharmaceuticals that tend to prolong life. With a healthcare system predicated on access to the very best, America will likely experience an even greater impact from aging than those in the ‘single-payer’ countries, where access to life-saving technology is often explicitly or implicitly rationed.

The real cost crunch of aging comes in two ways. First, the cost of acute care. Medical care tends to increase dramatically as the decades add up. Second, as we age, we almost always need access to some form of long-term care – in-home aid, supportive housing, assisted living, and nursing homes. While a great deal of such care is informal (provided by family members), a good share is not. The informal care has its societal and economic costs, including reduced incomes for families and the concomitant need to tap public assistance programs.

The real problem is that only the wealthiest can possibly plan for and save for such costly care. With Americans living longer after retirement, how can the broad base of Americans save hundreds of thousands of dollars for their living costs and potential long-term care costs? Thus, while the Medicaid program was initially fashioned for the truly destitute, it is increasingly becoming the payer of long-term care (and with it acute medical care later in life) for middle-class Americans. Those who plan well are able to set up trusts or engage in other asset transfers to protect their children’s inheritances and still qualify for Medicaid long-term care services. Those who don’t plan so well end up “spending down” what little assets and income they have and quickly become eligible for Medicaid long-term care and acute services.

The aging of America in general, and the asset transfers and depletion in particular, create a ticking time bomb for state and national budgets. As the proportion of those over 65 increases every year, the greater the resources needed for Medicaid and Medicare budgets in the outyears. I mention both government programs because Medicare covers acute medical care as well as rehabilitative stays in nursing facilities and short-term home care. But Medicaid covers the secondary acute care costs and 100% (with federal revenue sharing in states) of the chronic long-term care bill. As bad as the unfunded liabilities of Medicare and Medicaid are projected to be now, they only get worse as life expectancy and technological innovation increases. It seems like technology advances are an almost daily occurrence (although, whether those expensive drugs and procedures you see advertised on television are the most clinically and cost effective is a whole different matter).

So how do we resolve this problem? Should America raise the white flag and surrender to its socialist temptations to create a high-tax welfare state? The answer, of course, is no. There is a better way through the creation of an incentive-based system for both long-term and acute care for the elderly. When I was the Budget and Policy Secretary of Connecticut in the late 1990s and early 2000s, I led a team of multi-disciplinary policy-makers that fashioned a continuum of care for lower and middle-class residents that reaped both short-term savings and projected long-term ones. Thus, here are a few policy thoughts as the aging of America continues:

  • Educate the broader public about planning for their long-term care future. Admittedly, it is hard enough to educate the American public on insurance for medical care and prevention, but the Millennials have to quickly understand that long-term care insurance is as important to their future as medical and life insurance. Buying a plan while young creates affordable payments and greater coverage amounts for the future. Even the Generation Xers still have some time to be converted before chronic co-morbidities set in and long-term care insurance costs skyrocket.
  • Make it harder in the future for Americans to transfer assets. While this sounds draconian given what I said earlier, the education campaign noted above would only be effective if Americans understand that Uncle Sam may not be the absolute safety net it has been because we simply can’t afford it. Current best practice is to require that such transfers occur at least 60 months prior to the long-term care need, and additional safeguards need to be put in place.
  • Connecticut was the first state to adopt a Long-Term Care Partnership waiver and today about 80% of all states have implemented some form of it. These partnerships allow citizens to buy various financial levels of long-term care policies. These policies are then used to pay for the initial long-term care that is needed. In return, those who need additional care may go on Medicaid and shield assets (generally equal to the amount of the original policy) from government recoupment. This strategy can work in concert with the education campaign above. In essence, citizens save for their long-term care needs by purchasing policies and still have a partial safety net to fall back on. Their children also receive an inheritance.
  • Build a broad range of alternatives to nursing home care. Nursing homes are by far the most expensive form of long-term chronic care. Few states have invested in alternatives to nursing homes such as home care, adult day care, congregate housing, supportive housing, independent living with supports, and assisted living. It will mean the state and federal governments will need to focus not just on the traditional Medicaid matching fund entitlement medical services but add baskets of capital funding, rental subsidies, and various long-term care and medical support services in the community.Skittish states tend to shy away from such dynamic changes in their long-term care approaches, worried that adding to the options for the elderly will lead to “woodworking,” a phenomenon of previously passive populations coming forward for such services and driving up costs further. It is true more could become eligible or now want such services.

    But even with the additions, these forms of care run between one quarter and one half the cost of nursing homes. And because few states invest in a true continuum, only the wealthy have real access to community-based alternatives. The poor and middle class are disproportionately forced into expensive nursing homes due to lack of cost-effective alternatives. They may come on the rolls later, but end up there eventually and cost so much more. In Connecticut, we found that these alternatives (whether in the federal Medicaid matching program at lower income levels or even 100% state-funded at middle incomes) were still overall much more cost effective than the cost of nursing home care. This supports the premise that, whatever the risks, all states need to start building their alternative long-term care infrastructure now to be ready for the aging boom.

  • Adopt broad buy-in approaches to alternatives to nursing homes that are based on income. In Connecticut, we found that allowing higher asset eligibility thresholds and creating income-based sliding scale buy-ins helped residents gain access to alternatives to nursing homes and still pay a fair share. It made it easier for the state to expand the programs up the income scale. It made the differential between the costs of nursing home care and alternatives even better. More importantly, it restored the dignity of living in the community for as long as possible. A more fiscally sound and socially compassionate public policy simply does not exist, bar investments in children’s healthcare.
  • Coordinate acute and long-term care to further reduce costs and trends. Today, even with broad managed care in most states for Medicaid medical assistance, long-term care is often still captive to the inefficient fee-for-service environment. Coordinating the services or even hiring one managed care plan to deliver both sets of services will reap savings on both sides. Better coordinated care reduces acute episodes. Focusing on an elder’s medication management, healthy nutrition, and socialization and cognition tends to help maintain them in alternatives longer. For the naysayers who believe that managed care has enough trouble managing acute care for relatively healthy populations in Medicaid, one need only look at the promising results of Medicaid-only managed long term care as well as Medicare institutional special needs plans. Interesting and accountable models that control costs and boost quality are being built.

While the Affordable Care Act needs its own overhaul, it is time that the Centers for Medicare and Medicaid Services (CMS) and state Medicaid agencies begin collecting the best practices from various states to pursue a long-term care agenda for the nation. Some very progressive states have proven models and incubators exist out there. Time is ticking and the stakes are very high not only for healthcare but the nation’s economy as a whole.

Marc Ryan

Marc S. Ryan serves as MedHOK’s Chief Strategy and Compliance Officer. During his career, Marc has served a number of health plans in executive-level regulatory, compliance, business development, and operations roles. He has launched and operated plans with Medicare, Medicaid, Commercial and Exchange lines of business. Marc was the Secretary of Policy and Management and State Budget Director of Connecticut, where he oversaw all aspects of state budgeting and management. In this role, Marc created the state’s Medicaid and SCHIP managed care programs and oversaw its state employee and retiree health plans. He also created the state’s long-term care continuum program. Marc was nominated by then HHS Secretary Tommy Thompson to serve on a panel of state program experts to advise CMS on aspects of Medicare Part D implementation. He also was nominated by Florida’s Medicaid Secretary to serve on the state’s Medicaid Reform advisory panel.

Marc graduated cum laude from the Edmund A. Walsh School of Foreign Service at Georgetown University with a Bachelor of Science in Foreign Service. He received a Master of Public Administration, specializing in local government management and managed healthcare, from the University of New Haven. He was inducted into Sigma Beta Delta, a national honor society for business, management, and administration.

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