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HEALTH REPORT
The Graying of America Spells Trouble
For Long-Term Health Care for Elderly
Facing massive increases in demand for long-term health care, state and federal
officials are searching for ways to limit the growth of medicaid costs.
BY JULIE KOSTERLITZ
W
hen the social security program
faced imminent bankruptcy two
years ago, people suddenly started hearing a lot about the graying of America
and how it would affect the public purse.
With far less fanfare, other consequences
of the same demographic trends are beginning to unfold in the area of health
care.
Health policy experts are particularly
concerned that the inexorable growth of
the elderly population combined with
other demographic and health care
trends is beginning to strain the resources available for long-term health
care for the elderly.
Because of chronic diseases, such as
Alzheimer's, the aftereffects of a stroke
or the simple frailty that often accompanies old age, many of the nation's elderly
are unable to care for themselves. Nationwide, expenditures on nursing homes
have quadrupled over the past decade.
Nearly half of those costs, more than $14
billion a year, are now borne by the states
and the federal government not primarily
through medicare, the nation's health
program for the elderly, but almost entirely through medicaid. Only about 5 per
cent of the elderly end up in nursing
homos and other institutions, but for
those who do, the cost can be high as
much as $200 a day in some places.
Concerned thai public expenditures
cannot keep pace with the growing demand for long-term care, state and federal officials are looking for ways to cut
mcdicaid's nursing home costs. fcllorts by
many states to limit both the fees paid to
nursing homes and the construction of
new nursing home beds have slowed the
growth of medicaid costs but increased
competition for existing facilities and
may have heightened discrimination
against medicaid patients.
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NATIONAL JOl RNAL 4:13 S ;
Long-range programs to substitute
home and community-based care for
nursing home care have attracted considerable interest at the state level, but it is
unclear if they will significantly reduce
costs. In fact, the Reagan Administration, fearing that these approaches to
long-term care will increase federal outlays by attracting patients who are now
not being treated in nursing homes, has
imposed strict cost restraints on the programs.
In the meantime, federal and state
officials are encouraging greater privatesector involvement in lung-term care. Rising income levels among the elderly and
their increased sophistication as consumers may increase the market for private
insurance and special!} designed communities tor the elderlv But health experts
warn that private-sector initiatives will
not end the government's problems.
INCREASING DF.MAND
How to provide for the health needs of
the elderly who can no longer care for
themselves "is a re.;; crisis, and it has
been getting worse in recent years," .said
John C. Rother, director of legislation for
the American Association of Retired Persons (AARP) and a former staff director
of the Senate Special Committee on Aging. "But it's not getting a whole lot of
attention," in part "because it's localized
and hard to see" and in part because of an
"inevitable psychological dynamic" when
society contemplates its own aging.
"There's a lot of denial," he said.
But if the public and policy makers
have been slow to confront the problem,
health policy analysts are immersed in it.
Mention the future of long-term health
care and many will reel otf a string of
statistics that they have long since committed to memor>: According lo the Census Bureau, the number of Americans
over the age of 65 doubled from 1 950-80
and is expected to double again b> the
year 2030, making 20 per cent of the
population 65 or older.
Declining mortality rates are also
swelling the ranks of the very old -who
are the most likely to require nursing
home care. "The aging of the population
has a double kick," >aid I ynn M.
Htheredgc, who is a senior research a>so-
4
\ ^
ciate at the Urban Institute. "It's not only
the aging but the aging of the aging that
is going to drive up demand." The Census
Bureau projects that the number of people 85 and older will grow by more than
20 per cent during this decade (compared
with a 10 per cent increase for those of all
ages). The over-85 population will increase three to four times faster than the
population at large during the following
two decades.
At present, more than 70 per cent of
those requiring long-term health care receive it at home most often from relatives or from community programs. But
some health care analysts speculate that
because of other demographic trends,
such as a high divorce rate, a declining
fertility rate and an increased number of
women in the work force, more of tomorrow's seniors may find themselves without children or spouses to care for them in
their sunset years.
Health experts also speculate that
medicare's new prospective payment system, which pays hospitals on the basis of
a patient's diagnosis rather than length of
stay, may also put pressure on nursing
homes. The new system may create an
incentive for hospitals to release patients
sooner perhaps before they are ready.
Those patients may then require a higher
level of care than is available at home.
The average length of a hospital stay
has dropped by two days since fiscal
1983, the year before the new system
took effect, according to data collected
by the Health Care Financing Administration (HCFA), but that decline may in
part reflect a trend thai began before the
new payment system was adopted. A recent General Accounting Office study
and a survey by the House Select Committee on Aging reported concerns of
local health providers and officials that
the prospective payment system is causing hospitals to release patients both
sooner and sicker.
Even without an influx of new patients
from hospitals, the nursing home population is expected to grow by 57 per cent
from 1980-95 and to increase nearly three
and a half times by the year 2040, when
4.3 million elderly are expected to be in
institutions, according to various Health
and Human Services Department (HHS)
projection-!.
Providing long-term care
"is a real crisis, and it
has been getting worse in
recent years," says John
C. Rother, a lobbyist for
the elderly.
Medicaid now picks up 48 per cent of
all nursing home costs, and those costs
account for nearly half of all medicaid
expenditures nationwide. In some states,
the percentage is much higher, but in
nearly every state medicaid is already one
of the top line-item expenditures. Costs
are substantial at the federal level as well,
and a recent study by the private consulting firm 1CF Inc. at the request of HHS
concluded that "the federal budget cannot support the potential scale of the longterm care outlays implied" by the demographic trends.
Part of the problem is that medicaid
has assumed much of its role in financing
long-term care by default. Nominally a
medical safety net for the poor, the program has now become a payer of last
resort for many middle-class nursing
home patients whose medical expenses
have made them poor. In most states,
anyone eligible for supplemental securiu
income (SS1) is also eligible for medicaid, and other state programs have exPAY INC THE BIU.
tended medicaid coverage to those whose
Just how this rising demand tor care incomes arc somewhat above the SSI
will be paid for is another cause for con- eligibility levels but are already institucern. In an article last year in Health tionalized or have medical expenses that
('arc Financing Review, HCFA econo- exceed their income.
"One real problem is that people enter
mists Mark S. Freeland and C'arol K.
Schondler said that the nation's nursing nursing homes as private pay patients,"
In line bill (primarily for tho.se 65 and. said John II. Kuehrs. a senior staff assoolder) could balloon from 520.6 billion in ciate at the National Governors' Association, and once their savings are depleted.
1 (>XO to S52 billion in 1990.
"end up on medicaid. But medicaid had
nothing to do with evaluating whether
these people should 'go into nursing
homes in the first place." HCFA has
cited estimates that approximately half
of all nursing home residents on medicaid
are the newly impoverished people who
ran through most of their assets and income paying for nursing home care.
Lacking much control over who ends
up receiving medicaid in nursing homes,
the states have tried to cut costs by instituting stricter reimbursement rules for
nursing homes. Since 1980, when the
federal government gave the states new
leeway to determine how they would pay
nursing homes under medicaid, most
states have switched from paying after
the fact for whatever the nursing homes
charged to setting daily fees that are
often based on a nursing home's historical
costs. Many of the states have used the
new flexibility to increase rates for costs
that are associated with direct care of
patients while restricting reimbursement
for nursing homes' capital costs and
profit.
In another stab at cost containment,
some states have imposed limits on the
construction of nursing home beds, while
others have imposed an outright freeze.
Behind the movement is the belief that a
bed built is a bed filled and, chances are,
billed to medicaid. "They want to hold
the line on bed expansion until they can
figure out what to do," Luehrs said. In
Ohio, where a ban on construction recently ended, he said, 4,500 beds now
coming on line are expected to cost medicaid S38 million a year.
Construction limits and lower reimbursement rates have helped to reduce
the government's share of all nursing
home costs from 56 per cent to 48 per
cent since 1979, but they have also made
it harder for medicaid recipients to get
nursing home care. A decrease in construction has contributed to a shortage of
nursing home beds, and because medicaid patients pay less and require more
paper work than private patients, they are
often the last to get placed.
"They're rationing care by restricting
supply and pushing the market to private
pay patients," said AARP's Rot her. "If
you're a medicaid patient today, \oifre
facing limited choice, and it's shrinking."
At hearings held by the Senate Special
Committee on Aging last October, chairman John Hein/, R-Pa., said the >tateimposeu limits on nursing home beds
have "created a sellers' market in which
nursing homes operate at 90-95 per cent
occupancy rates and can afford to pick
and choose the most profitable patients."
Nothing in federal law prohibits nursing homes from refusing to accept medicaid patients, although there are certain
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Who'll Pay the Big Bill?
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tw '.<
"1
SOO
With nearly everyone predicting that the demand for long-term care and the
cost of providing it are going to increase dramatically, government officials
and health care providers are starting to worry about who will pick up the
tab: the federal government or the states?
The Reagan Administration has forced the question by proposing to cap
the amount of matching funds it gives to states for medicaid. Unlike the
medicaid cuts imposed from 1982-84, which reduced federal expenditures by
3, 4 and 4.5 per cent in successive years, the Administration proposal would
cut fiscal 1986 outlays by $1 billion-Si.4 billion and then freeze federal
contributions to the states at existing levels, adjusting only for changes in the
medical consumer price index.
Some say that approach represents not merely budget cuts, but a substantial shifting of the burden to the states."A cap says it doesn't matter if the
economy is down, if eligibility is up, if medical technology increases costs or
if you have a rapidly aging population: The amount is fixed," said Barry L.
Van Lare of the National Governors' Association.
But in the Administration's view, states are not only better able to control
program costs but, with many now boasting budget surpluses, also in a better
fiscal position to take on a growing share of medicaid costs.
The states, however, say the proposed cap would leave them with an
unacceptable level of risk. In a letter of protest to Congress, 38 governors
wrote that "most states will have to cut medicaid services if their medical
care needs rise above the amount of the capped federal payments." Already
fiscal pressures and tighter eligibility rules have meant that a declining
percentage of those people with incomes below the poverty line are now
covered by medicaid, the governors argued: less than 50 per cent now,
compared with 63 per cent in 1975.
Furthermore,-because the federal government has traditionally given a
greater proportion of matching funds to poorer states, the cap will hurt some
of these states the most, state officials say. According to an analysis by the
Congressional Research Service, the proposed cap would cut federal grants
to Mississippi a state with low per capita income by 12.6 per cent in
1986. State expenditures would have to increase by 45.8 per cent just to
maintain current medicaid programs.
Just before the Easter recess, Senate Republican leaders, in a compromise
worked out with the White House, abandoned the Senate Budget Committee's earlier opposition to the cap and signed on to a modified proposal that
leaves most of the Administration's medicuid proposals in place. The cap
would take effect in fiscal 1986 with some adjustments for expected growth
in the caseload of women and infants resulting mainly from changes in the
medicaid law last year. The Office of Management and Budget estimates
that the new plan would reduce spending by $4.8 billion over three years, as
opposed to almost $6.5 billion under the Administration's initial plan,
although the Congressional Budget Office's estimate is expected to be
somewhat lower.
Whether or not the cap becomes law, all parties say the question of who
should bear responsibility for medicaid will persist. Some state officials have
indicated states would be willing to shoulder more of the burden of medicaid's long-term care costs in exchange for much greater flexibility in how the
programs are managed.
A 1983 report by a group of state medicaid administrators that was
convened by the Center for the Study of Social Policy recommended that the
long-term care portion of medicaid be turned over to the states in the form of
a modified block grant. The amount of money would be adjusted each year to
reflect the number of people covered as well as inflation. This, they said,
would allow the program to be managed as part of states' over-all social and
health services.
Although such a move would cost states more, some state officials feel that
it might be preferable to the uneasy status quo. "It's an untenable federalslate relationship," said Tom Joe, director of the Center for the Study of
Social Policy. "They spend all their time haggling over the nitty gritty
details."
\\TION\I .101. RV\I. 4/M'XS
prohibitions against forcing private patients out once they qualify for medicaid.
But a parade of witnesses, including patients, relatives, nursing home employees
and legal experts, testified that many
nursing homes have found sophisticated
ways to discriminate against medicaid
patients.
Toby S. Edelman, a staff attorney at
the National Senior Citizens Law Center
who testified before the Senate Special
Committee, said that a common scheme
requires private patients or their relatives
to sign a contract on entering a nursing
home that obligates them to pay private
rates for a certain length of time, even if
the patient becomes eligible for medicaid
during that time; another is to "charge
for extras 50 cents for an aspirin or a
Kleenex" that are often already covered by medicaid.
SUBSTITUTE CARE
Aware that construction restrictions offer a short-term solution at best, some
states are also trying to limit the growth
in the nursing home population by establishing home or community-based care
programs. Advocates of this approach
contend that many people who don't require institutional care have been placed
in nursing homes because medicaid traditionally did not cover the medical and
social services that might allow them to
be cared for better and at lesser cost at
home or in the community.
In 1981, the medicaid law was
changed, making it easier for states to
waive the provisions that limited medicaid reimbursement for such services. A
total of 95 "waiver" programs have
sprung up in 46 states, serving an estimated 50,000 people, and scores of applications for new programs are awaiting
federal approval.
But while the programs are expected to
improve the quality of life for those who
were needlessly placed in institutions,
federal officials say it's too soon to assess
whether they will save money. A preliminary study conducted for HCFA of 13
pilot community-oriented care programs
established before the new waiver system
showed that only two of them had produced significant savings. Newer programs that can draw on the experience of
the pilot projects may be more cost-effective, government officials say.
Mitre than 70 per cent of those requiring long-term care are now getting it
outside of nursing homes, and the Administration has voiced concerns that these
waiver programs will service many of
those people who would have been taken
care of" at home previously without public
assistance.
"A fair part of the exercise is trying to
assure that the scope of the program is
A
V
limited to individuals who would have
otherwise been in nursing homes at a
higher cost," said Robert Wardwell, director of HCFA's noninstitutional services branch.
Another federal concern is that some
states are using the waivers to get around
federal fiscal austerity measures. "At a
time of decreasing federal involvement
[in social programs], some states are trying to transfer to medicaid those same
services that are losing funding,"
Wardwell said.
Because of those concerns, HHS issued
a new set of regulations in mid-March
designed to subject the waiver programs
to greater federal scrutiny and cost restraints. A key provision would end
matching funds once a state exceeded its
original estimate of what the program
would cost.
Many state and congressional advocates of home and community care programs see the new regulations as part of a
continuing effort to limit the role of the
federal government in long-term health
programs. (See box, p. 800.) The Office
of Management and Budget "is driving
policy," said a House aide, "and the policy is that the feds want.to get out of the
long-term care business. They don't want
any exploration of alternatives; they want
to leave things the way they are and put a
cap on them."
Whatever the over-all intent, the new
regulations "will have a fairly chilling
effect" on state efforts to set up largescale home and community-based longterm care programs, said Joshua M. Weincr. a senior fellow at the Brookings
Institution who is studying long-term
health trends. Despite the fact that a
growing number of people are seeking
home care, he said, "for the foreseeable
future, long-term care will be dominated
by nursing homes."
PRIVATE-SECTOR ROLE
While publicly financed alternatives
are facing new constraints, private-sector
alternatives are attracting increased attention because of the free-market orientation of the Administration and the
improved economic status of the elderly.
The 1985 Economic Report of the President said that the median real annual
income of the elderly has more than doubled since 1950 to more than S21.420
(before taxes) for families 65 and over.
Among the options that could bring
more private dollars into long-term care
arx- financing arrangements designed to
free up income that most of the elderly
have tied up in their homes One option is
a "reverse annuity mortgage," in uhich
in individual retains title io ,t house but
tSra'.vs on the equity for montliK cash.
Another approach is "life care communi-
"For the foreseeable
future, long-term care
will be dominated by
nursing homes/9 says
Joshua M. Weiner of the
Brookings Institution.
ties," where older people typically pay an
initial lump sum and monthly fees to live
in a private community that offers medical, nursing and social services. Approximately 300 such communities with about
100,000 residents have sprung up over
the past decade, but with entry costs
averaging $35,000 in 1982, and monthly
fees, $550, the market may be limited.
The idea that seems to be generating
the most public interest, however, is private long-term care insurance. The ICF
study for HHS projected that 47 per cent
of people between the ages of 67-69 who
had assets of at least $3,000 would buy
such insurance if it cost 10 per cent or less
of their annual income. That would reduce medicaid costs by as much as 23 per
cent or S9 billion over a 35-year period, the study said. Using the more conservative assumption that people would
purchase the insurance only if the premiums cost less than 5 per cent of their
annual income, the study found that 21
per cent of the same group would buy it,
producing about an 8 per cent saving for
medicaid over the same period.
But only a handful of companies currently offer long-term care insurance, and
outstanding policies now finance less than
1 per cent of all nursing home care. One
of the chief reasons such insurance has
not been olVered, said Weiner, is "because a very large number of people who
are disabled are receiving care infor-
mally." The insurance companies, he
said, "are worried that if they make it
available, there will be a substitution for
informal services." And while the insurance is all too tempting for those people
already in need of or getting some kind of
assistance, it has not proved terribly attractive to those without an immediate
need, he said, "because most people don't
think they'll need it."
Lack of consumer interest is also
attributable to jjie widespread, but mistaken, belief that medicare covers longterm nursing home costs. In a survey of
its membership conducted last fall,
AARP found that 80 per cent of those
who had already acknowledged they
might one day require long-term care
thought they had long-term care coverage under medicare, while nearly 50 per
cent thought they were covered by private "medigap" policies, which typically
cover deductibles and the portion of medical bills not paid by medicare. In fact,
medicare covers only short-term nursing
home care for those recuperating from a
bout of illness or a hospital stay.
But a market for long-term care insurance may develop as today's crop of baby
boomers take greater stock of their increased longevity and as the insurance
industry becomes aware that a growing
segment of the elderly population is financially better off than in the past.
On that expectation, AARP has been
working with Prudential Insurance Co. of
America to try to develop a policy for its
members. The organization may testmarket such a product by the end of the
year, although key issues of eligibility
and extent of coverage have yet to be
resolved.
But while the private-sector offerings
may hold promise, the experts caution
that neither insurance nor other privatesector programs will solve all the problems that lie ahead. Despite the publicity
that accompanied ICF's cost savings projections, some people view the study's
assumptions as overly optimistic and say
that the projected savings for medicaid
from long-term care insurance may be
dwarfed by the size of increased future
costs.
"If you're looking at long-term care
costs that are going to increase two or
threefold." said Brookings's Weiner. "8
per cent savings is nice to have, but it
doesn't change the basic picture."
The study's authors arc also quick to
add that private-sector alternatives are no
panacea liven with a segment of the
elder!) increasingly better off financially.
said David Kennell of ICF. "a lot of
people aren't going to go out and buy a
fanes condo [in a life care community) «^r
an insurance package, and people
O
shouldn't think that thev will."
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