Sobering report details big problems with long-term care in Minnesota

What do you think would happen if someone proposed a major new government medical give away? Would taxpayers swarm the state Capitol with pitchforks and clubs? After all, we’ve learned from Medicare that these programs grow into budget busters.

Right?

Nope. In refusing to take responsibility for their own long-term care, Minnesotans are creating a massive government program. They have made the state the insurer by default for the costly care they’re likely to need when they are old.

Now comes a sobering report from the Citizens League — essentially saying, “Wake up, Minnesota. You can’t sustain the cost of a program that is projected to grow from $1.1 billion this year to $5 billion in 2035 as baby boomers retire.”

“We have this big costly program on the books, and unless we change it, it’s going to drag us all under,” said Stacy Becker, the League’s Project Director. “What we need to do is to make this program work better for people and to save money while we are doing it.”

If you’ve groused about run-away government spending at the same time you’ve hidden family assets so that the state will pick up the tab for your grandma’s care, you definitely need to read this report, “Moving Beyond Medicaid: Long-term Care for the Elderly as a Life Quality and Fiscal Imperative.”

And anyone who is not among the 10 percent or so of adults who pay for long-term care insurance should read it too.

For that matter, read it even if you do buy the insurance. You’re paying twice: as a responsible individual and also as a taxpayer footing the bill for the majority of Minnesotans who are gambling they won’t need the care.

The report, based on more than a year of research, offers innovative suggestions for rescuing the system we have now and revamping it to save the state money and spare families the considerable risk of losing income and assets. 

The $75,000 project was sponsored by groups with an interest in the issue, ranging from the Alzheimer’s Association to long-term care providers to the Minnesota Chamber of Commerce. The project builds on more than 30 years of Citizens League work on the financial aspects of aging.

Parameters of the problem
Before we get into the details of those recommendations, let’s look at the parameters of the problem outlined in the report.

Taxpayers fund long-term care in a joint federal-state program known as Medicaid — or, in Minnesota, Medical Assistance. The program was created to provide publicly funded health care for the minority of the population living in dire poverty. That care included the cost of nursing homes and other long-term expenses for people with almost no assets, about $3,000 in today’s values.

But tens of thousands of people in middle-income/-wealth brackets have taken advantage of the program, sometimes hiding assets or signing them over to relatives. Indeed, some financial advisors tell clients they don’t need to worry about long-term care insurance unless they have considerable assets to protect, say savings and investments of $600,000 or more.

The upshot is that long-term care is a major component of the fiscal problems confronting the incoming Legislature. It accounts for nearly one in every five dollars the state spends.

And it’s on the verge of explosive growth. From 2005 to 2035, the population of Minnesotans aged 65 and older will double, from 623,000 to 1.4 million. Older Minnesotans also will increase as a share of the overall population, from 12 percent to 22 percent over the same time period.

Here’s the sum of those trends: there will be fewer workers per elderly person to support the tax burden of caring for the elderly.

“Unless we all agree to massive tax increases to pay for one another’s long-term care, Medicaid as the fallback is unsustainable,” says the report.

The gamble
At age 65, a person has about a 70 percent chance of needing some type of long-term care in the future. Families and friends sometimes provide the care, but 60 percent will incur costs, spending an average of $48,000. There is a 6 percent chance of costs exceeding $100,000.

Minnesota baby boomers, to a surprising degree, are basing their bets of beating those odds on a false assumption. In 2007, 29 percent of Minnesotans aged 42 to 60 said in a survey that they are relying on Medicare to cover their long-term care.

Wrong! Medicare covers only limited expenses for short periods of time.

Take my late mother’s experience. After her stroke, Medicare paid some expenses related to her stay in a nursing home where she got therapy aimed at restoring her ability to eat, speak and move around. When the therapy ended, so did the Medicare payments. After that, we needed to drain her savings to pay for assistance at home.

Some of the gamblers are cheating to improve their odds, scheming to hide their assets as they approach retirement. While that may work for some, it doesn’t for everyone. And the sad reality confronting many Minnesotans at an already stressful time is that they must forfeit a loved one’s life savings — drain the bank accounts and sell the vehicles.

Thus, Medicaid has been dubbed a public insurance with an extremely high deductible — virtually all of one’s assets.

Weak points in the system
The Legislature and various private organizations have taken steps over the years to nudge more people toward buying long-term care insurance. 

One step was to give tax credits for those who bought the insurance. That apparently hasn’t appealed to the bulk of middle-income Minnesotans. About 75 percent of the tax credit has been taken by households in the upper 30 percent of Minnesota incomes, says the report, citing Minnesota House research.

A key reason, no doubt, is that the insurance is expensive. Middle-income families might be more willing and able to buy it if the system encouraged them to get partial coverage, akin to the insurance seniors buy to supplement their Medicare benefits.

But Medicaid, as currently structured, doesn’t welcome supplemental payments.  Effectively, it operates on an “on-off” basis. A person is “on” if destitute, “off” if not.

So the incentives to do what you can just aren’t there.

Say you are a retiree with a home and $60,000 in savings. Nursing home care could cost as much as $80,000 a year. So if you are unlucky enough to need the care you are going to have to turn to the state, and it is going to take most of your savings. In other words, you’ll be destitute anyway. Might as well spend the $60,000 on other things you’ll enjoy before the day comes when you have to move.

To be sure, many elderly Minnesotans try to stay in their homes. And their families typically pitch in to make that happen, providing the care themselves.

Still, that family support has broken down to the point where Medical Assistance picks up about 40 percent of the cost of long-term care for the elderly in the state.

What to do?
The report targets the 1.4 million Minnesotans who are between the ages of 45 and 65, saying half of them should have some financial planning in place for their long-term care by 2015; 85 percent, by 2020.

Here are some of the suggestions for getting to that goal:

  • Revamp Medicaid into a type of co-insurance. To qualify for the plan, an individual above a certain income would have to purchase some level of long-term care insurance and/or set aside savings to pay for some of the care. Medicaid would supplement the individual effort based on criteria that do not require the insured to be penniless in order to qualify.
  • Encourage insurers to create a broader mix of affordable plans.
  • Promote financial products that would appeal to middle-income households. The federal health insurance overhaul took a step in this direction with the CLASS Act, under which workers can use payroll deductions to set aside money for their own home-based care. Other ideas include a reverse mortgage tailored for funding long-term care and savings incentives such as making the saver eligible to enter a drawing for prizes.

“The whole idea — for a certain set of people who can afford to contribute something toward their own care, but aren’t — is to get them to do what they can,” said Becker, the project director. “Unless you move to something like this, people are not going to buy long-term care insurance. They just aren’t doing it.”

Not only would the state save money if the recommendations succeeded, but the individuals would get a better deal too.

“The win for the individuals is that they don’t have to become destitute to get help,” she said. “That is just devastating for them and their families…. The goal also is to give the individuals more certainty, more flexibility in terms of their care.”

The Citizens League’s pitch to those individuals across the state and to the Legislature too begins today with the presentation of the report at a long-term care forum at the University of Minnesota’s Humphrey Institute.

While the problem is urgent, the state has some time to consider the options in the report. Under the recently passed federal health insurance law, Medicaid rules can’t be made more restrictive until 2014.

“We recommend that Minnesota use the intervening time to create, analyze and agree on a co-insurance plan that can begin implementation in 2014,” the report says.

Sharon Schmickle writes about national and foreign affairs and science. She can be reached at sschmickle [at] minnpost [dot] com.

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Comments (8)

  1. Submitted by Jon Kingstad on 12/14/2010 - 08:25 am.

    Baby boomers are in denial about inevitability of aging. This explains the lack of an obvious solution to the problem: increase in taxes. It is my experience that the same people who complain so vociferously about taxes are the same people who will plan to give away their assets to their children to qualify for welfare in their old age. This report acknowledges that this is the standard plan.
    In fairness, the shrinking middle class which practices these various forms of self-deceit live from paycheck to paycheck. There is no room in many budgets to pay for something like long term care, any more than there is to save. My prediction is that this elephant of a problem, both societally and individually, will be ignored like the other problems like aging and collapsing infrastructure. Our institutions, like Congress or the legislature, are incapable of facing and dealing with long term problems that affect peoples’ lives.

  2. Submitted by myles spicer on 12/14/2010 - 09:37 am.

    This is precisely, exactly, absolutely why in the Health Care Reform bill insurance was a mandatory requirement for all citizens. And why it is unfortunate that it has been challenged recently in the courts. So it could be with long term care insurance.

    I have long term insurance, purchased in my early 60s. It runs about $1200/year. But had I bought it earlier, the cost would have been a fraction of that amount. A person in their 20s or 30s could own it for very little, and it wowuld not impact on their lifestyle — but it would be a huge relief for national well being, and ultimately the taxpayers. It would spread out the actuarial premiums (and eventual payments) in a manner that would be less stressful and more beneficial to society.

    During the health care debate, one possible solution offered was to include EVERYONE in Medicare (as an optiional choice). If that had been done, and Long Term Care insurance was included in the package (as partially suggested by Schmickle) it would go a long way to solving this huge and growing problem. Unfortuantely, in recent years (partially because of the continuing flap over reducing taxes and cutting spending), these kinds of issues continue to keep getting kicked down the road. Eventually, our society is going to come fact to face with them, and the solutions are going to cost considerably more (and the solutions far more complex) that dealing with them now.

  3. Submitted by Bernice Vetsch on 12/14/2010 - 10:02 am.

    The suggestions you describe seem like good ones. This is a real and pressing issue that will only grow worse.

    I would add these:

    1) Some long-term care insurers delay paying claims in the hope that patients will die off, at which point their families will no longer press them for payment.

    2) Make all long-term care facilities nonprofit state-licensed entities, each of which would be a stand-alone facility instead of being part of a huge chain of for-profit businesses. The goal should be care, not profit.

    3) To address this problem, and the problem of limited access to all kinds of health care, we can start thinking of health care at all stages of life a piece of the common good — like police or fire protection, against which we “insure” ourselves by paying taxes. We need, in short, single-payer, tax-supported health care like that in Canada, Taiwan and most other countries that spend as much as half of what we do while leaving no one without care.

    Nationally, including long-term and end-of-life care, we would save $400 billion per year, much of it now used to cover advertising/marketing, claims denial specialists, gigantic salaries for top executives of insurance and drug companies, plus the cost excessive paperwork for providers, patients and insurers. None of these costs go to the actual provision of care.

    Minnesota is one of three or more states that may become America’s Saskatchewan (the first province in Canada whose system eventually was adopted country-wide). We could be the first to show America how all our residents could have the peace of mind that would come from knowing that on-going preventive and curative care would always be available to them. And do it while saving hundreds of millions of dollars for our state.

    See HR-676 for the national plan at thomas.loc.gov and the Minnesota Health Plan at http://www.muhcc.org.

  4. Submitted by Lynda Friedman on 12/14/2010 - 04:54 pm.

    In addition to the cost of long-term care insurance, one reason many individuals don’t purchase it, is lack of trust that the policy one purchases will actually pay for the care needed when one needs it. The industry doesn’t have a long or good track record and many potential consumers are skeptical. I would be very interested in an objective analysis of how well the long term care insurance industry functions in paying for care or controlling the cost of care. I expect the industry spends more on lobbying for exemptions from regulation than on building trust with potential consumers.

  5. Submitted by Richard Schafer on 12/14/2010 - 05:18 pm.

    CLASS Act vs. LTC insurance:
    What’s best for LTC providers?

    Two divergent paths to financing LTC are offered to providers, public by Stephen A. Moses Center for Long-term Care Reform (www.CenterLTC.com)

    CMS Chief Actuary Richard Foster warned on April 22, 2010:

    In general, voluntary, unsubsidized, and non-underwritten insurance programs such as CLASS face a significant risk of failure as a result of adverse selection by participants. Individuals with health problems or who anticipate a greater risk of functional limitation would be more likely to participate than those in better-than-average health. Setting the premium at a rate sufficient to cover the costs for such a group further discourages persons in better health from participating, which may lead to further premium increases. This effect has been termed the “classic assessment spiral” or “insurance death spiral.” 2

    Foster expects that only 2% of eligible employees will take up CLASS. On the other hand, LTC insurance has been tested in the private marketplace for more than 30 years. It pays market rates for the kinds of services consumers prefer (home care, assisted living, and the best nursing home care when needed). Private LTC insurance has no risk of insolvency because of stringent state insurance regulations and “guaranty funds.”

    The table below shows the fundamental differences between private LTC insurance and the CLASS Act.

    A comparison of LTC insurance and the CLASS Act

    LTC Insurance

    Collects and invests hard-dollar reserves
    Underwritten to price risk and protect insured
    Premiums based on past experience
    Regulated by state insurance commissions
    Contract enforceable in a court of law
    Voluntary
    Average 90-day waiting period
    Available to retirees

    The CLASS Act

    Relies on low-interest government IOUs
    No underwriting, so adverse selection
    Premiums subject to future claims
    HHS Secretary decides everything
    “Entitlement” at whim of Congress/President
    Compulsory (opt-out allowed)
    Five-year waiting period
    Available only to active employees

    Well then, if private LTC insurance is so great, why have less than 10% of American consumers purchased it?

    Simple. Government has paid for the vast majority of all expensive long-term care since 1965. Easy access to Medicaid-financed long-term care after the insurable event occurs has anesthetized the American public to LTC risk and cost. Most people don’t know who pays for it and they don’t care. They’ve had that luxury because government has always picked up most of the cost for LTC, while protecting beneficiaries’ biggest assets. Medicaid, for example, exempts up to $750,000 of home equity.

    Unfortunately, the CLASS Act will only add to the public’s sense of complacency and entitlement regarding long-term care. The act holds out a false hope for providers that reimbursement help is on the way. I predict CLASS will never pay a claim either because it is repealed when political sanity returns or because the federal government cannot afford to repay the Treasury bonds in the program’s empty “trust fund.”

    Stephen Moses is president of the Center for Long-Term Care Reform.

  6. Submitted by Ginny Martin on 12/14/2010 - 05:53 pm.

    Another reason some of us don’t buy it is the cost. I had it for a couple of years but the cost grew exponentially. It was perhaps not a good program. Now I simply cannot afford it. For several years, my mother and the three of us children were buying long-term care for her, but the costs became so high it was simply not sustainable.
    Some of us do understand what’s coming. We just can’t afford to do what we should do. Younger people have a chance to buy policies that are much more affordable.
    I was hoping that long-term care would be part of the health care reform but I don’t know if it is or not.
    None of us wants to get rid of all of our assets to be able to use government funded care, but right now, we have no choice.

  7. Submitted by Herbert Davis on 12/14/2010 - 07:12 pm.

    Many of the so-called Honest Christians have put things in trust for their children and don’t have anything the state can easily capture…not exactly my idea of honesty but, as many crooks say…hey, it’s legal!

  8. Submitted by myles spicer on 12/14/2010 - 08:50 pm.

    To Lynda, your concerns are legitimate; my best suggestion is to forget the policy promises, and go with the company with the highest reputation and history of performance (I went with Hancock who has been very active in this kind of insurance, but certainly this is not a recommendation). One of the best features of modern long term care insurance is they will also provide HOME care — much less expensive for the insurers, and becoming more common at least in the earliest stages of need.

    At the bottom of all this is the overriding issue of how a nation cares for its most needy. Sadly, America does not stand up very well here. As with health insurance, lots of dollars are eaten up with the insurance company administration costs.

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