LTC triathlon.

SEVEN NURSING HOME CHAINS HAVE DECLARED BANKRUPTCY. New assisted living facilities are filling too slowly. Our home and community-based services infrastructure is under-developed and starved for financing. LTC stock prices are down and capitalization by debt or equity is stymied. The supply of both free and paid caregivers is drying up. Most Americans cannot afford expensive formal long-term care services. Medicaid and Medicare pay too little to assure access to quality care. Few seniors and almost no baby boomers own long-term care insurance. Aging demographics guarantee an ominous future for long-term care. What is wrong and how can we fix it? That's what this article will explain.

How did we get into such a muddle in the first place? The answer to this question points to a solution. Thirty years ago the need for long term care was increasing rapidly. Left to their own devices, the public would have voted with their dollars for a seamless continuum of care. Low cost, unintrusive options such as chore services, home care, adult day care and assisted living would have thrived immediately. Expensive institutional care in J nursing homes would have been used only as a last resort. Private insurance products designed to price and spread the risk of catastrophic long-term care expenses would have evolved early and fast. By now we would have the comprehensive service delivery and financing system that we only dream about today.

Unfortunately, the market was not allowed to work. Instead, with every good intention, the government made free or subsidized nursing home care available through Medicaid. If you wanted home and community-based care, you had to pay for it out-of-pocket. If you were willing to go to a nursing home, Medicaid would pay and enforce quality care.

The public is smart. They sent Grandpa and Grandma to the Medicaid-financed nursing home. The nursing home industry was smart, They built more beds as quickly as possible to take full advantage of the funding bonanza. The new beds filled with Medicaid recipients as fast as the industry could build them.

Before long, Medicaid nursing home costs were out of control. The government tried to stanch this fiscal hemorrhage by capping the supply (certificate of need or CON restrictions) and price (limits on reimbursement) of Medicaid beds.

Predictably, demand skyrocketed. Occupancy jumped to 95 percent. Nursing homes could easily fill every bed if they were willing to accept Medicaid's low reimbursement rates. But they could not survive financially without attracting enough private payers at a much higher market-based rate of payment.

If the nursing homes appealed to private payers by offering better services, they were accused of discriminating against Medicaid patients. If they tried to economize on their growing Medicaid census, they were accused of sacrificing quality of care. Slowly, the vise closed on the nursing home industry. Inadequate reimbursement squeezed in from one side. Quality of care mandates (OBRA '87) squeezed in from the other side.

In the meantime, a whole new sub-practice of law evolved promising access to Medicaid nursing home benefits for everyone, regardless of wealth and without spending down their own assets. (See August 2000 CLTC, "Elder Law," page 28.) Medicaid estate planning attorneys can artificially impoverish almost anyone overnight by taking creative advantage of loopholes in the welfare law. They've successfully evaded every effort by the government to control this practice, including criminalization. Nowadays, they are working the back end, too. They litigate against the very same nursing homes whose cash flow they destroyed by overloading them with Medicaid residents.

To add insult to injury, the government repealed the only legal assurance of adequate reimbursement the industry has ever had (the Boren Amendment). The last straw came when Medicare imposed a prospective payment system on nursing homes without adequate compensation. The logical consequences of these counterproductive policies are proceeding inexorably toward a dismal end that was predictable from the very beginning.

So, here's the history of long term care in a nutshell: The government anesthetized the public to the cost of long term care by providing free nursing home care through Medicaid and extended home health benefits through Medicare. Consequently, privately financed home care and assisted living developed slowly and private long term care insurance remains stunted. Without a reliable source of adequate financing, nursing homes are going under, long term care stocks are in the tank, and the future looks bleak for long term care in general-just as the Age Wave begins to crest!

What can we do? First, we have to wean the public and the industry off their excessive dependency on government financing. Second, we have to infuse long term care with a reliable source of private financing for assisted living and nursing homes. Finally, we need to get out of the way and let the private marketplace fill the long term care continuum with home and community-based services that support and prolong the independent living seniors crave.

How do we do all that? The Center for Long-Term Care Financing has devised a public policy proposal called "LTC Choice" to achieve these goals. In briefest outline, the plan is (1) to educate people about the risk and cost of long term care while they are still young enough, healthy enough, and prosperous enough to plan, save and insure, (2) to notify people simultaneously of the "LTC Contract" by which every American must acknowledge individual responsibility for his or her future long-term care expenses, (3) to extend to people who fail to insure against this risk a line of credit fully collateralized by their estates which enables them to purchase LTC services in the private marketplace, and (4) to recover the cost of care funded by such lines of credit from the estates of people who failed to plan early, prepare diligently and insure fully.

With the "LTC Choice" plan in place, most Americans will insure for the risk of long-term care to avoid putting their estates at risk. Those who fail to insure will gain access to quality LTC services in the private market financed by a government-backed, privately administered reverse mortgage on their estates. Some people will remain who neither purchased insurance nor possess estates. They will rely on a financially re-invigorated Medicaid program that no longer has to support middle and upper-middle class people on public assistance. In other words, if we remove the perverse public policy incentives that have trapped them on welfare, most Americans should, could, and would take responsibility for themselves, pay privately for their own care, and create a new source of private financing for all sectors of the ILTC service delivery system.

To make "LTC Choice" a reality, however, we must forge a new economic and political force that will advocate for it in the halls of power. The three major stakeholders in the private long-term care marketplace--the financiers, the providers, and the insurers--have to pull together in common purpose toward this end. Unfortunately, these groups have rarely communicated with each other, much less worked together. Yet each stands to prosper if public financing is targeted to the genuinely needy and everyone else is encouraged to save, insure, and pay privately for long-term care.

The Center for Long-Term Care Financing is starting a campaign to build bridges of communication and cooperation between these critical groups. We will interview the major financiers, providers and insurers, bring them together for a weekend intensive, and publish a report with a plan of action. If these major suppliers of LTC capital, services, and revenue recognize and act upon their common interests, they can quickly cure what ails the long-term care system. But there is no time to waste. This is a race for survival. Call it the LTC Triathlon. And let it begin now!

Stephen A. Moses is President of the Center for Long-Term Care Financing in Seattle, Washington. The ideas and proposals in this article are fully developed in two white papers: "LTC Choice: A Simple, Cost-Free Solution to the Long-Term Care Financing Puzzle" and "The Myth of Unaffordability: How Most Americans Should, Could and Would Buy Private Long-Term Care Insurance." The Center for Long-Term Care Financing also publishes a free on-line newsletter called "LTC Bullets."