Long-Term Care - Financing Of Long-term Care
Financing of long-term care
In 1998 the average cost of care in a nursing home was $56,000 per year. National spending for nursing home and home health care in 1998 totaled $117 billion dollars (HCFA, "Table 7." 2000; "Table 9," 2000). These expenditures do not include much of the spending on home and community-based long-term care services, much of which is spending by older persons themselves and their families (termed out-of-pocket expenditures).
Nearly a third (30 percent) of home health and nursing home care expenditures were paid by older persons themselves and their families, and the largest portion (39 percent) was paid by Medicaid (see Figure 1). Long-term care services are usually not covered by private health insurance policies or Medicare. Moreover, few people have private long-term care insurance, which is unaffordable for many and often provides only limited coverage.
Costs to family caregivers. These expenditures for long-term care do not include any accounting of unpaid caregiving. If unpaid caregivers had to be replaced by paid workers, the estimated cost would be $196 billion as of 1997 (Arno et al.). This amount is far more than national spending on home health and nursing home care combined in the same year ($115 billion) (HCFA, "Table 9," 2000).
These unpaid caregivers often incur both direct and indirect costs. In a national survey of caregivers to older persons, half had regularly spent their own money on caregiving. The average amount spent was $171 a month per caregiver, or approximately $1.5 billion per month in direct costs to caregivers nationwide. More than half of all caregivers reported that their caregiving responsibilities caused them to have less time for other family members or for personal activities. More than half made at least some work-related changes (e.g., modifying their work schedule or taking time off during the day) to accommodate the demands of caregiving. Fifteen percent of caregivers reported suffering physical or mental health problems as a result of caregiving, and one in four found caregiving to be emotionally stressful (NAC/AARP).
Private long-term care insurance. Although private long-term care insurance is a growing form of financing of long-term care, relatively few older persons have coverage. The number of long-term care insurance policies sold doubled from about three million in 1992 to almost six million by mid-1998 (Coronel). People are often reluctant to buy long-term care insurance because they believe that they will never need long-term care or believe, erroneously, that care will be covered through Medicare or private health insurance. The cost of long-term care insurance premiums is unaffordable for many people. Consumer Reports estimated that only 10 to 20 percent of older persons could afford long-term care insurance ("Long-Term Care Insurance Special Report").
Medicaid. The federal- and state-financed Medicaid program contributes to the cost of care for about two-thirds of nursing home residents (GAO, 1998). Medicaid has strict financial and functional eligibility requirements. These requirements vary from state to state, but in all states, individuals must be impoverished before they can qualify for benefits. In most states, nursing home residents can have no more than $2,000 in liquid assets to be financially eligible for Medicaid coverage of their care. In addition, individuals who need long-term care due to cognitive or mental impairments often have difficulty meeting Medicaid's functional eligibility standards. In most states, Medicaid will not cover long-term care services for individuals who need prompting, physical cueing, or supervision to perform activities of daily living or who need supervision due to mental impairments, unless they meet other nursing or functional criteria (O'Keefe).
People of all ages prefer to receive long-term care services in their own homes, if possible, or in homelike supportive housing settings, such as assisted living. Historically, however, Medicaid has covered long-term care primarily in institutions. The federal government and the states have limited Medicaid coverage of home and community-based long-term care out of concern about the potential cost of covering services for the large number of people with disabilities who are cared for by their families at home (GAO, 1998). In 1965, when the Medicaid program was developed, there were few alternatives to institutions for people who needed more long-term care than their families could provide (Kassner).
Today, however, there is a growing movement to expand Medicaid coverage of home and community-based long-term care services (Kassner). The 1981 Omnibus Budget and Reconciliation Act gave states the option of applying for Medicaid waiver programs to fund home and community-based services for people who meet Medicaid eligibility requirements for nursing homes (GAO, 1998). Waiver programs allow states to offer services not covered under the regular Medicaid program and to waive certain Medicaid requirements. Specifically, services do not have to be statewide; states can use more liberal financial eligibility criteria; and designated groups can be given benefits that other groups are not eligible to receive (Lutzky et al.). All states now have waiver programs or a program similar to a waiver. Through these programs, states are increasingly offering services in the home or in the community that enable older persons and persons with physical disabilities, developmental disabilities, or mental retardation to avoid living in an institution.
Unlike nursing home residents, most assisted living residents pay entirely out of their own incomes. Average monthly rates for assisted living facilities range from less than $1,000 to over $4,000 (GAO, Assisted Living, 1999). Many states are now providing Medicaid coverage of assisted living, though this coverage remains limited. In 2000 Medicaid programs in thirty states covered assisted living or residential care services for approximately 58,544 beneficiaries, a nearly 50 percent increase since 1998. Still, Medicaid covered only a small fraction of the 795,391 licensed assisted living and board-and-care units or beds (Mollica).
The growth of Medicaid waiver services was partly a result of laws and court rulings, including the 1990 Americans with Disabilities Act (ADA), which required that states provide services to people with disabilities in the "most integrated setting appropriate" (Lutzky et al.) In 1999, in Olmstead vs. L.C., the Supreme Court ruled that unnecessary institutionalization of persons with disabilities constitutes discrimination based on disability under the ADA. However, the decision allows states some flexibility in making placement decisions as long as a state has an equitable plan to provide care in less restrictive settings and moves people off waiting lists for such services at a reasonable pace.
Despite growing coverage of home and community-based care, Medicaid still has an institutional bias. In 1999 only 26 percent of Medicaid long-term care funds were spent on home and community-based services. Such services cost less than nursing home care, thereby allowing more persons to receive care for lower total costs. In fact, 64 percent of Medicaid recipients who were older and disabled long-term care clients received some type of home and community-based services (Doty). In several states, financial eligibility standards are stricter for home and community-based long-term care services. This gives individuals an economic incentive to choose a nursing home over home care. Also, the federal government requires states to provide nursing home services under Medicaid, whereas providing home and community-based services is optional (Kassner). Many states have waiting lists because the demand for waiver services exceeds the capacity of waiver programs (Lutzky et al.).
Medicare. Medicare plays a limited role in long-term care. Unlike Medicaid, the federally funded Medicare program does not have financial eligibility requirements. Medicare provides limited coverage of nursing home care, paying for only up to a hundred days of skilled nursing care following a three-day hospital stay; after twenty days, beneficiaries must contribute a copayment of up to $97 per day (HCFA, Medicare and You, 2001). In 1998 Medicare accounted for $10.4 billion of the $87.8 billion in national expenditures on nursing home care (HCFA, "Table 7," 2000).
Due to court decisions and administrative changes in the late 1980s, Medicare has expanded coverage of home and community-based long-term care through its home health care benefit (GAO, 1998). In 1991 Medicare spending on home health care totaled $4.2 billion, about a quarter (26 percent) of national spending on home health care. By 1998 Medicare spending on home health care more than doubled to $10.4 billion and accounted for over a third (35 percent) of national spending on home health care (HCFA, "Table 9," 2000). The Balanced Budget Act of 1997 changed the Medicare reimbursement system in order to control spending, encourage efficiency, and decrease fraud and waste (HCFA, National Health Expenditures Projections, 2000).
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