On April 27, the House Energy and Commerce Subcommittee on Health held a hearing entitled, “Long-Term Care and Medicaid: Spiraling Costs and the Need for Reform.”
Centers for Medicaid and Medicare Services (CMS) Administrator Mark McClellan explained that Medicaid is currently “the largest public source of funding for long-term care in the United States,” adding, “In 2000, Medicaid paid for 45 percent of the total amount spent on long-term care services in the United States. State and federal financing of long-term care costs is a significant issue both for state and federal budgets. In FY2004, total federal and state Medicaid expenditures on all long-term care reached $100.5 billion and accounted for 35.7 percent of all Medicaid spending.”
Explaining that most seniors receiving long-term care under Medicaid must receive institutional care, Dr. McClellan highlighted the administration’s efforts to provide home- and community-based care. “As part of the New Freedom Initiative legislative package, the President’s FY2006 budget authorizes $350 million in each of five years, a total of $1.75 billion over five years, for the Money Follows the Person demonstration. In this initiative, the federal government will pay the full first-year cost, with no state match required, for a package of home- and community-based services for eligible individuals who move from institutions into the community.” He also noted the administration’s support for home- and community-based services waivers, which allow states to pay for home-based long-term care as long as the costs of providing the services are less than those at an institution. In addition, Dr. McClellan said that the CMS launched the Own Your Own Future Campaign in 2004 “to encourage more people to plan ahead for their long-term support needs,” adding, “It has been piloted in five states (Arkansas, Idaho, Nevada, New Jersey, and Virginia) and involves the use of various outreach techniques, including targeted mailing of [Department of Health and Human Services] HHS materials and a letter from the Governor of each state to every household headed by an individual between the ages of 50 and 70. The letter includes a toll free number people can call to request a Long-Term Care Planning Kit that covers a wide range of topics.”
Douglas Holtz-Eakin of the Congressional Budget Office (CBO) described how demographic trends would affect long-term care in the future: “According to estimates by the Bureau of the Census, the number of elderly people (those age 65 and older) in the United States will increase by two and a half times between 2000 and 2050. The share of the population claimed by the oldest seniors, those age 85 and older and those most likely to use long-term care will reach about 5 percent by 2050, more than triple the 1.5 percent share they had in 2000. By comparison, the proportion of the population accounted for by working-age people (ages 20 to 64) will grow by only about 35 percent by 2050.” He added, “Smaller families, lower fertility rates, and increasing divorce rates may make donated LTC services less common in the future…At the same time, the rate at which women participate in the labor force will probably continue to grow, at least until 2010, further reducing the availability of donated care. Those family-related trends, in sum, could further stimulate the demand for formal, or paid, services.”
Dr. Holtz-Eakin noted that there are a number of “drawbacks” to relying on Medicaid for long-term care: “As a means-tested program, Medicaid requires eligible applicants to rely on out-of-pocket spending until they use up all of their savings. In addition, because Medicaid generally pays lower fees for services than those paid by private payers, beneficiaries may not receive the same quality of care that private policyholders receive. In some states, moreover, Medicaid might not be as flexible in the types of services it covers as private insurance would be…Those drawbacks to Medicaid’s coverage are balanced by features that some people might consider advantageous. Medicaid is free from the perspective of the beneficiary. In addition, Medicaid has a defined-benefit structure that is, it covers a specified set of services. Private insurance, by contrast, only ensures that a policyholder will have a specified monetary benefit to pay for care. It does not guarantee that the money will be sufficient to pay for desired services.”
Testifying on behalf of the General Accounting Office, Kathryn Allen urged the subcommittee to recognize “the benefits, burdens, and costs of informal caregiving,” stating, “Effective policy must create incentives and supports for enabling informal caregivers to continue providing assistance…At the same time, it is important to recognize the physical, emotional, and social burdens that providing care impose[s] on the caregiver and its economic costs to the caregiver and society. Caregiving may create needs in caregivers themselves that require respite or other relief services. In addition, caregiving can conflict with caregivers’ employment, creating economic losses for caregivers and society. Such losses in productivity will become even more important in the coming decades as the proportion of the population that is working-age declines.”
Karen Ignani, president and CEO of America’s Health Insurance Plans (AHIP), expressed her support for long-term care insurance, explaining that “since 1996, the number of policies purchased has more than doubled, increasing from 4.9 million to about 10 million policies sold.” In order to encourage more people to purchase long-term care insurance, she urged Congress to pass legislation that would “enact both an above-the-line tax deduction for long-term care insurance premiums which means that they would be deducted directly from a taxpayer’s adjusted gross income (the ‘line’) and a tax credit of up to $3,000 for those with long-term care needs or their caregivers.” Ms. Ignani noted that AHIP would support a proposal allowing employers to offer long-term care insurance as an option under cafeteria plans. In addition, she stated that AHIP would support “the expansion of public-private long-term care ‘partnerships’ similar to those that currently operate in New York, California, Connecticut, and Indiana into a nationwide program. These partnerships allow consumers in these states to purchase long-term care insurance with the understanding that if their policy benefits are exhausted, the government will cover the costs of their continuing care through Medicaid without first requiring them to ‘spend down’ their life savings and become impoverished.”
Barbara Stucki of the National Council on the Aging (NCOA) addressed the issue of reverse mortgages, which “can give older homeowners the funds they need to pay for long-term care and other expenses, while allowing them to continue living in their own homes. These types of loans are called ‘reverse’ mortgages because the lender makes payments to the homeowner…Borrowers can select to receive payments as a lump sum, line of credit, fixed monthly payment (for up to life), or a combination of payment options. Proceeds from a reverse mortgage are tax-free, and borrowers can use these funds for any purpose.” She also explained that the NCOA “estimates that among candidate households for a reverse mortgage, there are about 3.3 million households who are at financial risk for spending-down if they need home care,” adding, “These moderate-income elders could tap almost $63,000 on average with a reverse mortgage. Most of these households (66 percent) consist of unmarried homeowners.” Finally, Ms. Stucki said that older homeowners “need additional information to evaluate the appropriateness of taking out a reverse mortgage. Consumer outreach can help older homeowners and their families understand the benefits and limitations of using a reverse mortgage to ‘age in place.’ Greater awareness of the potential of reverse mortgages will help seniors and the people who advise them consider this product as a mainstream option for long-term care financing.”
A professor and dean of the Georgetown Public Policy Institute, Judy Feder, argued that more federal funding would be needed to address future long-term care needs, stating, “Expanded public financing for long-term care could take a variety of forms and by no means need eliminate private contributions. One option, modeled on Social Security, would be to provide everyone access to a ‘basic’ or ‘limited’ long-term care benefit, supplemented by private insurance purchases for the better-off and enhanced public protection for the low-income population. Another option would be establishment of a public ‘floor’ of asset protection a national program assuring everyone access to affordable quality long-term care at home as well as in the nursing home without having to give up all their life savings as Medicaid requires today.” Finally, Dr. Feder said that “because Medicaid serves the neediest population and, in the current budgetary environment is at risk, my highest priority for expenditure of the next federal dollar would be responding to this call (along with supporting more home care and better quality care) with more federal dollars to Medicaid.”
