Long-term care financing.

BASED ON AN INTERVIEW WITH JOSHUA M. WIENER, PHD, PRINCIPAL RESEARCH ASSOCIATE, THE URBAN INSTITUTE

No one can say that Congress hasn't "done something" about the financial issues confronting long-term care providers during the past two years: repeal of the Boren Amendments' reimbursement protections; creation of a Medicare Prospective Payment System (PPS) for skilled nursing facilities providing post-acute care; the Kassebaum-Kennedy legislation providing tax deductibility for qualified long-term care insurance policies; encouragement of the spread of Medicare HMOs; and continued support for such experiments as the Program for All-inclusive Care for the Elderly (PACE) and social HMOs (SHMOs). How will all of this work itself out in 1998? What near-term prospects do providers face? Recently, Nursing Homes/Long-Term Care Management invited Joshua M. Wiener, PhD - a prominent long-term care policy analyst for The Urban Institute - to offer predictions:

Post-Boren Amendment Changes

"With a continuing strong economy, relatively low inflation, low wage pressures, modest Medicaid increases and strong state revenues, I don't see much pressure coming from states to roll back Medicaid reimbursements to nursing homes, even without the Boren Amendment. And the nursing home industry continues to be very strong at the state level; many of the state officials I've spoken with in recent months suggested that Boren was pretty much a 'fig leaf,' and that nursing home rates were largely sustained by the power of the industry. Even the states that took an initially aggressive stance pulled back: Alabama's legislature resisted the governor's proposed 20-30% cuts and came up with a compromise not at all unfavorable to the industry, and kentucky actually increased its nursing home budget by 12%, which should be adequate, given current inflation.

"The situation changes completely if we experience a general recession - as we will sooner or later. While some may question whether states save money by moving the elderly into alternative settings, everyone knows you can save money by cutting nursing home rates. I think we'll have to watch economic developments for an answer on this one, but I don't anticipate major change."

Medicare PPS

"As we have seen with hospitals, there can be substantial winners and losers with prospective payment among skilled nursing facilities, as well. I don't, however, see a lot of real change occurring during 1998, if only because the Health Care Financing Administration (HCFA) faces a substantial technical challenge to accomplish this in a very short time frame, and they don't have the technical base for this as yet. In fact, if anything, I would hope that Congress grants HCFA considerable administrative funding for some very difficult years ahead, though I'm not hopeful about this. In any event, PPS in 1998 will be a work-in-progress."

Medicare HMOs

"It is clear that managed care will continue to grow and that post-acute care will be a part of it - it is at about 10% of total Medicare expenditures right now. However, something of a public backlash against managed care is occurring right now, and I wouldn't be surprised to see this extend to the Medicare side. Furthermore, HMOs themselves are experiencing some uncertainties about the Medicare market - there is considerable enrollment turnover in some areas, and these patients are difficult to care for at best - so I suspect we may see some slowing in the rate of Medicare HMO enrollment growth.

"The ultimate question for long-term care providers will be whether managed care sees them as 'part of the problem,' i.e., a cost center to be controlled, or as 'part of the solution,' i.e., a critical component of the overall continuum of care."

Managed Medicaid

"Even though long-term care now accounts for 75% of Medicaid expenditures for the elderly and nearly a third of total Medicaid expenditures, I think 1998 will see more talk than action in applying managed care to Medicaid-funded long-term care. Most state-sponsored managed care initiatives are focusing on children and nondisabled adults, but some are beginning to address the difficult problem of bringing SSI recipients and dual-eligible elderly into managed care. But chronic long-term care is on a pretty slow track."

PACE, SHMOs, etc.

"Though these approaches to integrating services and funding streams for the elderly are among the hot topics in long-term care innovation, this is another area where there is more talk than broad action. This is partly because the provider infrastructure is lacking, and partly because states do not as yet have a purchasing strategy for moving large numbers of people into these settings.

"PACE, wonderful though it is, has only about 300 enrollees in each program, and it is hard to change the world 300 people at a time. SHMOs don't have much involvement with Medicaid and are oriented more to the private-pay middle class; they are not growing rapidly, in any case. State demonstrations, such as Minnesota's Senior Health Options, are just getting started and are quite small. They face considerable difficulties, as well - for example, you have to get Medicare and Medicaid working together. Furthermore, there are some fairly serious disputes between the Federal and state governments over the ground rules. For example, the states want mandatory enrollment, after seeing the difficulties they had in getting the ADC (Aid to Dependent Children) population to sign up. HCFA, though, maintains that dual-eligibles are first and foremost Medicare beneficiaries and can't be forced to join HMOs.

"In short, some good things are going on, but they're very preliminary. The states recognize that they're entering new territory, and they're being quite cautious and experimental in their approach."

Private Long-Term Care Insurance

"This is likely to remain a relatively small part of the market this year and for some years to come. Kassebaum-Kennedy has had, I think, only a limited impact; tax deductibility can't affect many elderly, because only about half pay Federal income taxes, 30% of all taxpayers itemize and only 8% claim the medical deduction.

"Nor do I think this will have much impact on the employer benefits side, because the issue for many employers right now is their large, unfunded liability for retirees' acute care benefits. I can't imagine many are looking for another potentially expensive benefit to provide, especially one that isn't likely to be used for another 15 to 20 years after retirement. Yes, Kassebaum-Kennedy was a step in the right direction for employer-sponsored long-term care insurance, but it was only a small step."

Medicare "Part C"

"This was, of course, the late Representative Pepper's proposal to reduce Medicare acute expenditures and increase long-term care expenditures, with more focus on home care. Of course, Medicare home health expenditures are already large and growing rapidly. Nevertheless, it's an idea that could conceivably resurface during the deliberations of President Clinton's and Congress's newly appointed Medicare Commission, but I don't see any signs of this yet.

"I think the Balanced Budget Act of 1997 pretty much exhausted - and then some - the Medicare reform proposals that had any chance of broad consensus. And one thing that the Clinton Administration learned with health reform in 199394, and that the Republicans learned with their Medicare proposals in 1995-96, is that you can only take the American people so far so fast. I think it will be a while before anything else of substance happens with Medicare."

Baby Boomer Awareness

"I believe it is true that awareness of long-term care financing realities is growing among Baby Boomers, particularly as their parents reach the typical nursing home ages. I have certainly observed this personally among people I know. The question is whether the Baby Boomers will want to translate their personal stories into broad public initiatives or, on the other hand, move toward purchase of long-term care insurance. I don't think we'll see much impact from this in 1998, though - unless, perhaps, members of the Medicare Commission have personal experiences they find to be compelling.

"To summarize, if I were asked to characterize the real extent of long-term care financing change in 1998, I would say that it will be pretty much more of the same."