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Letter to the editor: What is really needed to unleash the long term care market

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Steve Moses writes: The feature article by Trevor Thomas in the February 2009 LTC e-Wire, Major LTC Initiatives Could Emerge from Congress in 2009 , is another example of a yearly ritual. Congress returns from its holiday recess and long term care insurance cheerleaders make us this promise: New government policies to encourage the market for LTC insurance are on the verge of passing.

In years gone by, the hopes were much higher. Surely this would be the year when legislators grant above-the-line tax deductibility, approve Section 125 cafeteria plan coverage, and fund a huge LTC insurance education program. But, no, each year passed with hopes dashed.

Now, even these wishful hopes have dwindled to this: “Proposals to emerge are likely to include legislation introduced in the past 2 years but never voted on, such as bills to encourage home and community-based care and to extend Section 125 cafeteria plan to include consumers’ spending on long term care.”

Neither of these bills will pass, but imagine if they did. Congress jumps on the brake by making Medicaid more attractive (more home and community-based care) while lightly nudging the accelerator with a half-hearted nod toward LTC insurance (Section 125). Not a good trade if you want less Medicaid dependency and more LTC insurance.

Through this last decade of shattered hopes and unrealistic promises, one voice has remained consistent: mine. To wit: the LTC insurance market won’t expand until government stops giving away what the industry is trying to sell. Say what?

Medicaid crowds out the market for LTC insurance. By covering people after the insurable event occurs who would, could and should have purchased private insurance, Medicaid has anesthetized the public to LTC risk and cost. Read almost anything at to see how it happens.

The market for long-term care insurance will explode soon–certainly within a decade, probably within a few years. But the reason will have nothing to do with government incentives. They won’t pass. What will happen is that government disincentives to the purchase of private LTC insurance will disappear.

In that respect, the anonymous (pusillanimous) source made the only accurate prediction in the whole LTC e-Wire piece: “Another analyst, who asked not to be identified, doubts that legislative proposals to add LTC premiums and costs to employer cafeteria and FSA plans are going anywhere this year. With the current dismal economy, he says, Congress is going to have a ‘pay as you go’ mindset.”

Instead, here’s what will happen to unleash the LTC insurance market.

Medicaid, which currently kills between two-thirds and 90% of the potential LTC insurance market, will stop doing so. Medicaid’s home equity exemption of up to three quarters of a million dollars, will mostly disappear. Medicaid long term care eligibility, lien and estate recovery rules will be tightened and much more strongly enforced. Medicaid will pay its principal LTC providers even less than the $4.2 billion short of break-even it provided last year, causing nursing home access and quality to plummet even further. Other Medicaid services will be cut back radically, especially home and community-based care, which most people prefer for long term care. Many poor women and children will be hurt as their preventive, acute, and emergent care benefits are cut too. But the elderly with assets will no longer be able to ignore the risk of long term care, wait to see if they ever need expensive LTC services, and, when they do, pass the cost to taxpayers and LTC providers while leaving inheritances intact for complacent heirs. That’s when all kinds private LTC financing will begin to fill the void.

This will happen only when the baby boomers start to retire, the Age Wave crests and crashes, and the entitlement system house-of-cards collapses.

When Medicaid stops being the principal payor of LTC for everyone, it will be reinvented as a better safety for the poor, providing and paying adequately for a full range of LTC services from home care to assisted living to skilled nursing care.

Private financing flowing into the LTC service delivery system from home equity conversion and, in time, from private long-term care insurance, will supercharge America’s home and community-based services infrastructure and make capital investments in all levels of long-term care profitable again.

When home equity is at risk for long-term care, the $3-trillion-plus in home equity held by seniors (even after the recent contraction of home values) will boost the reverse mortgage market as a long term care funding source and as a source of extra premium dollars for long term care insurance. Because of its “long tail,” private LTC insurance will not become a major funder of LTC for a long time. But in the meantime, new tax revenues from an invigorated LTC insurance and reverse mortgage market, will help increase government coffers available to fund a real safety net for the needy.

Still, not a pretty picture. But it can be and will be much worse the longer we wait to do what must be done: give Medicaid LTC back to the poor and pour most of the savings into encouraging responsible long-term care planning.

Stephen A. Moses
Center for Long-Term Care Reform, Inc.
Seattle, WA 98109
[email protected]


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