"Long-term care as we know it is finished...." (interview with Stephen Moses, Director of Research, Long-Term Care, Inc.)(Interview)

An interview with Stephen Moses, Director of Research, LTC, Inc.

There is probably no more articulate spokesperson for privately-financed long-term care than Stephen Moses. Director of Research for a long-term care insurance industry-sponsored "think tank", LTC, Inc., Moses is a frequent speaker at long-term care industry conventions, writes often for industry publications, and is cited regularly by national media. His message: long-term care financing has gone from bad to worse - from almost exclusive reliance on out-of-pocket spending by fixed-income elderly, to dependence on tax-supported programs, principally Medicaid. The solution, in his view, is private long-term care insurance. Now, after years of indecision and the imminent threat of Medicaid block grants, the long-term care industry firmly supports that view. Moses, however, goes beyond simply describing the virtues of private insurance. He delves into the ideological clashes wracking Washington and, for that matter, the world. Long-term care, he says, is wrapped up in an historical sea change. He laid out the range of his views in this recent interview with Nursing Homes Editor Richard L. Peck.

Peck: As of now (late April), it appears as though those long-sought-after tax clarifications for long-term care insurance will be passed by Congress. If so, what is the significance of this?

Moses: The most important aspect of it is that it helps get across the message that government acknowledges that government-financing won't be there and is encouraging purchase of private long-term care insurance. Also, recent Health Insurance Association of America research indicates that 49% of non-purchasers who had been exposed to the product said they would give it a serious second look with tax clarifications. Ultimately, though, I don't think this will affect sales much, because tax uncertainties are not the major reason people don't buy.

Peck: We will get to those in a moment, but first, you seem to favor Medicaid block grants, which are anathemas to many nursing homes. How would you suggest nursing homes look at those?

Moses: I'm not sure how favoring I've been. The important thing is that they would be a step toward getting government out of financing long-term care. I think everyone in the industry would agree: long-term care as we know it is finished. There is change underway, and it's permanent. Nursing homes are going to have to wean themselves off of public money, and many are, whether it's upscaling to subacute care to get the remaining available public dollars, or downscaling to assisted living to get the private dollars. Meanwhile, groups like the American Health Care Association are pushing long-term care insurance very heavily; five or ten years ago, I could barely get them to talk to me about this.

Whether block grants are enacted or not, public money is disappearing. The private money will come either directly from people's pockets, which is very disruptive, or from a third-party resource.

Peck: It is frequently stated that private long-term care insurance will never occupy more than 40% of the market in need. How do you view that?

Moses: That's dead wrong. I could make a case for 75 to 80% of the market. The problem is that the research on affordability, not only by Weiner and Rivlin, but by the industry itself, is based on a false premise. It finds that people will not spend more than 5 to 10% of their disposable income for such policies. If you use U.S. Census data, which count everyone on Medicaid, it's true that affordability goes down. If, as the industry does, you exclude Medicaid recipients, then maybe you get 40%. The false premise, though, is "disposable income." Of course, the elderly are cash-poor. But they are "house-rich."

If you take into account all their assets, not just liquid assets, they're the richest cohort in America. About 77% own homes, and 83% of those own them free-and-clear. Seniors have $1.5 trillion in net equity in their homes. Almost none of this goes to long-term care, and reverse annuity mortgages don't sell, because Medicaid exempts the home - the government will pay. The fact is, there is enough wealth here to solve long-term care financing for this generation and all generations to come; 57% could buy insurance with nothing more than the proceeds of reverse annuity mortgages.

Still another resource is the adult children. Right now they receive a windfall of public dollars when they don't plan ahead. If there were a serious effort toward estate recovery - paying back the public money with proceeds from the estate - the kids would have serious second thoughts. It might behoove them, if necessary, to help Mom and Dad with the insurance premiums, if for no other reason than to protect the estate.

In general, though, people are not educated as yet to these realities.

Peck: But isn't it the perception that many of the elderly and their kids don't have the assets available to afford much of anything?

Moses: There's the recent HIAA research showing that people with combined assets under $30,000 are purchasing policies; they're about one-third of the purchasers. But, sure, let me address that perception you mention. I spent 18 years working for the Federal government - both with the Inspector General's office at HHS and at HCFA - on ways to save the public welfare programs for those who really need them. And even though the private long-term care insurance industry pays my salary, I retain that objective. Part of the problem is that those who can afford to protect themselves don't because there's a gut sense out there that nothing bad is happening. Catastrophic asset spend-down hasn't been found to be widespread in the studies that have been done - 15 to 25% for Medicaid recipients, i.e., for the most part it isn't happening. Medicaid eligibility rules are generous, even in the strictest states, and the lack of estate recovery efforts means that there are no negative consequences of failing to plan.

Peck: Those who do plan, i.e., to go on Medicaid via estate planning, have been one of your major targets. Yet HCFA Administrator Bruce Vladeck noted in our April issue that estate planning has had little apparent financial impact on Medicaid. Your comments?

Moses: The problem really is not egregious planning by millionaires. Generous Medicaid eligibility rules are the problem. There is virtually no one on private pay in today's nursing homes that I couldn't get on to Medicaid in 30 days.

Peck: One measure you've advocated to counteract that is the 36-month lookback on disposable assets, as embodied in OBRA '93. How is that working?

Moses: It is helping to send a message. As a practical matter, though, it has been countered by estate planning attornies, by states' lack of interest in pursuing it, and by HCFA's overall lack of enforcement. In fact, three years isn't enough - if you consider the onset period of Alzheimer's disease, for example, eight years would be better. In fact, that's one provision of model legislation that we've created that has been approved by the American Legislative Exchange Council for introduction in all the state legislatures.

Peck: What are some of the other provisions?

Moses: First, retain the current generous Medicaid eligibility standards. Second, pursue estate recovery to pay the public money back. Third, use 10% of the proceeds to finance a mass public education program about this issue.

Peck: Why retain the Medicaid eligibility standards if those are the problem?

Moses: Because requiring people to spend down is an anathema to the American public. This is a gentler way of going about it. You shouldn't punish people for not planning ahead when they didn't even know there was a problem. Don't put them on welfare. I mean, where we do get off telling this generation of older Americans, who got through the Depression and fought our wars, and who did what they thought was the right thing all their lives, that now they have to go on welfare? Well, it isn't welfare if you pay it back. They could receive a line of credit on their estates to use specifically for long-term care at any level they need.

Peck: What does it take for a state to mount a good estate recovery program?

Moses: I have been involved with a number of states not only on this, but on issues involving child support and recovery from third-party insurers, and I have found that by and large they're not very effective. Exceptions have been Oregon, Massachusetts, New Hampshire and California, which have managed to recover millions of dollars. The keys to success are: know the time of death and then move immediately to discover whether there is an estate and how much Medicaid has paid. In short, find those cases that have the best chance of paying. That takes prioritization, and states aren't very good at this; they're better at giving money as fairly as possible to everyone who claims an entitlement.

The fact is, though, that the big savings will not come from estate recovery itself; maybe 5% of costs may be saved that way. The big savings will come from publicizing the fact that the public money will have to be paid back. Savings from the changed behavior that would cause could amount to 15% or more.

Peck: But don't politicians fear moves like these that target the wealthy elderly - the same group that shot down catastrophic health insurance after one year back in the late-80's?

Moses: The politicians are more scared of the elderly lobby than they need to be. A lot more politicians are going to lose their jobs because of Generation X than because of the elderly; the old "third-rail" politics of aging-related issues has undergone a sea change. My 19-year-old son will see his Social Security and Medicare premiums go up to 44% during his lifetime just to get the same benefits his grandparents have, and that reality is setting in. The plug's been pulled on AARP, for example; Senator Alan Simpson estimates that, because of his hearings last year on AARP, the organization lost some 3 million members.

So now you have the politics of the "greedy geezer" - except today's elderly are not greedy. They've always done the financially responsible thing, and once they get the facts, they won't want to take away the future of their grandchildren. And they don't have to be hurt - there's more than enough wealth in the system to assure high-quality long-term care for everyone, once today's perverse incentives toward public funding have been eliminated.

Peck: What can administrators and DONs do to spread the word about private long-term care insurance?

Moses: The key, in my view, is to make it in ownership's financial interest to do so. They want private pay, but the policy that's sold today may not kick in for 15 or 20 years, and they're worried about the bottom line next month and next quarter. So, we start with the fact that 10 to 15% of the premium dollar goes simply to marketing these products. What if a portion of that went to the nursing home instead, simply for working with the private insurance industry to generate sales referrals? There are two ways to do this legally and ethically: Insurance companies would pay for the referrals whether they made a sale or not, so this would not be a kickback arrangement. Or the nursing home could have someone on staff licensed as an independent agent, who would run educational sessions on private long-term care insurance and recommend several companies for interested people to contact. This individual would then split the commission on any sales that were made. An insurance company should be able to convert 30 to 50% of referrals to sales, and those referral fees and commissions would go straight to the nursing home's bottom line. Everyone benefits.

Admittedly, though, this has been tough to sell to the nursing homes because many of them are still in this public utility mode, and they have to get past that.

Peck: What about the Big Question: according to the social insurance concept, the only way to finance these major needs is to use the biggest "insurance pool" of all, i.e., the taxpayer pool. Your thoughts?

Moses: The social insurance principle sounds wonderful: "From each according to his abilities, to each according to his needs." The fundamental problem with that is that ability is limited. If you don't cultivate and encourage it, what you get is need. And need is unlimited - if you give me stuff, I'll want more, and I'll want to do less and less. What made this country great in the first place is that we rewarded work and achievement, and we took responsibility for ourselves. And there were consequences if we didn't. You ended up begging for charity, and it was called that: "charity." Now it is called an "entitlement."

The sad thing is we're taking welfare and making it an entitlement. And we're taking Social Security and Medicare, which are entitlements because you put something in and get something back, and "means testing" them into welfare. Social insurance always degenerates into welfare, and ends up punishing those who try to do the right thing.

Today, though, there's an historical dynamic that's moving us in the right direction. Ten years ago I was afraid this wouldn't happen, but it is. It's a function of the collapse of collectivist societies in Eastern Europe and a restoration of the old-fashioned values of personal responsibility and independence. So, it doesn't much matter whether or when block grants are enacted, or whether Clinton is re-elected. There's an enormously important historical change going on, and the solutions will come.