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Financing Long-Term Care For People With Disabilities

Financing long-term care (LTC) is a key policy and budget issue both in New Hampshire and nationally. Debates focus on who should bear the financial burden of LTC or how the burden should be distributed. This brief looks at what LTC is, its importance to people with disabilities, LTC financing mechanisms, the economy and LTC, and recommendations for change.

WHAT IS LONG-TERM CARE?

"Long-term care" is:

  • A range of medical and non-medical services, from personal care to nursing care;
  • Provided in the home, the community or a facility (e.g., nursing home or assisted living);
  • Sufficient to rehabilitate or compensate for loss of independent physical or mental functioning;
  • For people of all ages with a chronic illness or disability (physical, mental or developmental);
  • For a short period of time to a lifetime; and
  • Necessary so that an individual may function at his or her maximum level of ability.

Often the term "long-term care" is used to refer to nursing home care for elders. Here "long-term care" refers to a broad range of services provided to people of all ages, of all disabilities, in all settings.

LONG-TERM CARE AND DISABILITY

LTC is a fact of routine daily life for many people with disabilities and necessary for their full participation in society. Historically, people received LTC services in institutions, such as nursing homes, intermediate care facilities or psychiatric hospitals. Our society has long since recognized the value of community living and the value of an individual's right to choose where to live. Today, people with disabilities choose to remain in their homes and part of their communities. LTC in the home and community allows people with disabilities to:

  • Live independently;
  • Participate fully in society;
  • Achieve economic self-sufficiency; and
  • Enjoy equal opportunity.

LTC services:

  • Transfer an individual with a spinal injury out of bed in the morning and into bed at night.
  • Enable a child with cerebral palsy to attend school.
  • Provide job support to an individual with autism learning a new job.

Problematically, many do not currently receive the LTC services that they need. At the core of this LTC problem is an insufficient and fragile LTC financing structure coupled with an already weak LTC community infrastructure which will become weaker without financing. Exacerbating this problem is that the number of people with disabilities is growing as a result of improved medical knowledge and technology, as well as the general aging of the population, and the overall cost of LTC services is spiraling.

LONG-TERM CARE FINANCING MECHANISMS

LTC financing is very limited. Unpaid caregivers provide most LTC services. Most LTC financial coverage is out-of-pocket or Medicaid coverage. LTC insurance coverage is minimal. Importantly, private health insurance plans and Medicare do not cover LTC services.

Unpaid (Informal) Caregiving

The value of unpaid caregiving far surpasses public or private coverage. An estimated 23% of Americans provide informal care.1 The 1997 estimated national economic value of unpaid care for adults was $196 billion, a figure stunting same year spending of $115 billion on home and nursing home care.2

Out of pocket payment

Out-of-pocket spending accounted for 14% of total health care spending in 2002.3 Research shows that families with chronically ill members are 2.6 times more likely than other families to spend $1,000 out of pocket annually for medical care.4 Out-of-pocket spending rises when there is more than one chronic condition.4

Long-Term Care Insurance

LTC insurance pays for less than 7% of the nation's LTC costs. Marketed since the mid 1980s, LTC insurance provides coverage for a minimum of 12 consecutive months. Purchase barriers include consumer understanding and affordability, as well as a pre-existing disability.

Medicaid

Medicaid is the largest single payer for LTC services. In 2001, New Hampshire Medicaid LTC expenditures amounted to $358,376,475 (State and federal funds), 59% toward institutional care and 41% toward home-and-community care.5 Medicaid LTC spending accounted for 69.4% of State nursing home spending and 40.9% of total State Medicaid spending.5,6

MEDICAID "CAUGHT IN THE CROSSFIRE"

Medicaid budgets are cost-cutting targets across the nation. Medicaid is a federal-state funding partnership with basically three coverage programs in one: (1) insurance coverage for low-income children and pregnant women, (2) wrap-around coverage for low-income elders on Medicare, and (3) acute and long-term care coverage for people with disabilities and frail elders. Under federal law, Medicaid is meant to provide coverage for rehabilitation and other services so that people may attain and retain capability for independence or self-care.7 As such, Medicaid financing is specifically targeted to LTC coverage for people with disabilities. Of great concern today, Medicaid is a target for balancing state budgets. Importantly, the core of the problem is not Medicaid. Instead, Medicaid is "caught in the crossfire" between decreasing state revenues and increasing health care spending.

HEALTH CARE SPENDING, MEDICAID SPENDING AND THE ECONOMY

National health care spending grew at a rate of 8.7% in 2001, the fastest rate since 1991.3 In the states, health care spending is second only to education spending, accounting for an average of 20% of state costs.3 Medicaid spending accounts for most of state health care spending. The most common factors driving the rise in Medicaid spending are: (1) prescription drug costs, (2) increased enrollment in an economic downturn, (3) a rise in the cost and use of medical services, and (4) LTC.8 The highest cost groups are the elderly and disabled, accounting for roughly 2/3 of Medicaid spending.

In line with the nation, the New Hampshire Center for Public Policy Studies (NHCPPS) concludes that two of the six programs fueling New Hampshire spending increases are Medicaid programs. The 2003 general fund budget for Medicaid provider payments is $99.4 million. Medicaid nursing home and home health care payments are budgeted at $62.7 million in 2003, although notably home care costs are expected to amount to only one-tenth of nursing home costs.9

The Congressional Budget Office projects what most believe to be an unsustainable Medicaid growth rate of 12% in 2002 and 9% for the next 10 years. The states' response is to reduce Medicaid spending through: constraints in benefits, eligibility or provider rates; prescription drug action; increases in beneficiary cost sharing; or "Medicaid maximization" strategies involving provider taxes, upper payment limits or disproportionate share hospital payments. New Hampshire is similarly responding to its rising Medicaid costs.

Will these strategies work? Medicaid maximization is beneficial in the short term but federal constraints and oversight will likely diminish its future value. The other strategies are private sector cost-cutting techniques which when implemented in Medicaid have significant repercussions.

  • Provider payment constraints mean fewer Medicaid providers and reduced access to needed services for our most economically and medically vulnerable populations. Reduced access has grave health consequences and effectively little, if any, cost savings.
  • Constraints mean significant cost shifting to hospitals that shift to insurance companies to employers and finally to employees. It is effectively a back-door tax.
  • Medicaid cut-backs mean an impact on the State's economy through a loss in federal matching funds ($103 million in 2003),9 through job loss and through decreased economic activity.10,11

Importantly, policymakers must remember that it is health care spending that is the problem and Medicaid is only a part of health care spending. Experts caution with a hard lesson from the past - controlling costs through one component of the health care system is not a sustainable control.12 Sustainable control requires effort from the government, consumers, employers, providers and private insurers.12 It requires incremental reform to the structure and process of health care delivery, including LTC, to reduce waste and inefficiencies.12.

RECOMMENDED NEW HAMPSHIRE LONG-TERM CARE FINANCING REFORM

New Hampshire must implement real solutions to its LTC financing problem. Realistically, LTC services must occur. Realistically, federal assistance must also occur, both in the form of fiscal aid and through elimination of the higher-cost federal institutional bias in Medicaid. Ultimately, however, New Hampshire must also reform its Medicaid LTC structure and process.

LTC reforms must constrain cost, usage and the effect of a growing disability community. Three strategies are key to this goal - (1) implement a cash-and-counseling model of LTC financing, (2) implement quality case management, and (3) build a strong community-based family support infrastructure. All support lower-cost home-and-community care.

Cash and Counseling Model of LTC Financing

Cash and counseling (C&C) is a consumer-directed finance model in which the care recipient receives a cash benefit or voucher, along with counseling, to purchase LTC services and items. Often the LTC system forces people to comply with a prescribed package of services that does not match their needs and is likely more costly than necessary. C&C allows people to prioritize their LTC spending to meet their needs and to do so within a fixed budget. It is flexible and permits choice in services and providers, especially important when service needs and availability change over time.

The cash and counseling finance model has been successfully implemented in the Medicaid program and in private insurance coverage.13 Interim evaluations of current Medicaid demonstration projects in Arkansas, New Jersey and Florida are very positive.14

Service Coordination and Case Management

Health care utilization surged upward 3.8% in 2001 (1.6% annual increases 1993-2000).3 Quality service coordination and case management, including disease management, reduces unnecessary service utilization in both acute and LTC. Interim findings in the New Hampshire Nursing Home Transition Project show significant cost savings when moving people out of nursing homes and into the community through good service coordination.

Community-Based Family Support Infrastructure

The number of people with disabilities is expected to continue to grow and it becomes more critical to build supports for our most valuable LTC resource, the unpaid informal caregiver. Caregiver support prevents higher-cost out-of-home care, by allowing caregivers to remain physically and emotionally able to provide care and to remain employed. Studies show:

  • Frequent help from children with personal care reduces elder nursing home entry by 60%,15
  • Women ages 55-67 who help elder parents with basic personal activities, chores or errands, need to cut back their work hours by 367 hours per year or 41%,16 and
  • Being an elder caregiver experiencing emotional strain is a risk factor for mortality.

New Hampshire needs a solid support infrastructure (both paid and voluntary) to support family and other informal caregivers.

A better Medicaid LTC financing structure is needed for the economic health of New Hampshire and to ensure that people with disabilities live independently, participate fully in society, achieve economic self-sufficiency, and enjoy equal opportunity.

REFERENCES

  1. Karen Donelan, et al., Challenged to Care: Informal Caregivers in a Changing Health System, 21:4 Health Affairs 222 (2002).
  2. Peter S. Arno, Carol Levine and Margaret M. Memmott, The Economic Value of Informal Caregiving, 18:2 Health Affairs 182 (1999).
  3. Katharine Levit, et al., Trends in U.S. Health Care Spending, 2001, 22:1 Health Affairs 154 (2003). (Katherine Levit is director of the National Health Statistics Group, Office of the Actuary, CMS.)
  4. Wenke Hwang et al., Out-Of-Pocket Medical Spending For Care Of Chronic Conditions, 20:6 Health Affairs 267 (2001).
  5. Medicaid Long Term Care Expenditures in 2001, The Medstat Group, Inc. (2002).
  6. Steven R. Gregory and Mary Jo Gibson, Across the States 2002, Profiles of Long Term Care, AARP (2002).
  7. 42 U.S.C. § 1396.
  8. Vernon Smith, et al., Medicaid Spending Growth: Results from a 2002 Survey, Kaiser Commission on Medicaid and the Uninsured (Sept. 2002).
  9. Douglas E. Hall, Six Programs Fueled State Spending Increases, 1993-2003, New Hampshire Center for Public Policy Studies (Sept. 2002).
  10. Leighton Ku and Matthew Broaddus, Why are States' Medicaid Expenditures Rising?, Center for Budget and Policy Priorities (2003).
  11. Medicaid: Good Medicine for State Economies, Families USA (2003).
  12. Stuart Altman, et al., Escalating Health Care Spending: Is It Desirable or Inevitable?, Health Affairs, http://www.healthaffairs.org/WebExclusives/Spending_Web_Excl_010803.htm (Jan. 8, 2003).
  13. Robyn I. Stone, Providing Long-Term Care Benefits In Cash: Moving To A Disability Model, 20:6 Health Affairs 96 (2001).
  14. Leslie Foster et al., Cash and Counseling: Early Experiences in Arkansas (Oct. 2000); Cash and Counseling: Consumers' Early Experiences in Florida, Part II: Uses of Cash and Satisfaction at Nine Months, Interim Memo, (Apr. 2002); Cash and Counseling: Consumers' Early Experiences in New Jersey, Part II: Uses of Cash and Satisfaction at Nine Months Interim Memo (Oct. 2002); Mathematica Policy Research, Inc. (Oct. 2002).
  15. Anthony T. LoSasso and Richard W. Johnson, Does Informal Care from Adult Children Reduce Nursing Home Admissions for the Elderly?, 39:3 Inquiry (Fall 2002).
  16. Richard W. Johnson and Anthony T. LoSasso, The Impact of Time Assistance to Elderly Parents on Female Labor Supply at Midlife, (Dec. 2002). (Article provided courtesy of the authors.)