Most of long-term care’s problems boil down to heavy dependency on low Medicaid reimbursement rates. The program paid 61% of total U.S. LTC spending in 2022 at about 70% of private-pay rates. Economists explain that government price fixing causes market disruptions. Set prices too low, and shortages occur.
Providers are forced to compensate by compromising on services. Most complaints about questionable LTC quality, high cost, inadequate staffing, caregiver shortages, too much nursing home and too little home care, all the big challenges would improve or disappear entirely if Medicaid paid market rates.
How did Medicaid come to dominate America’s LTC service delivery and financing system, often paying less than the cost of providing the care? Its enactment in 1965 supercharged LTC funding. The Social Security Act’s appropriation language authorized Medicaid to provide medical assistance, rehabilitation and related services, including LTC, to individuals “whose income and resources are insufficient to meet the costs of necessary medical services… .”
With that open-ended authorization, Medicaid took on a potentially boundless financial responsibility.
The commitment to fund LTC for everyone who cannot afford it raised a lot of difficult questions. Who should qualify? How much income and resources are “insufficient” to meet medical necessity? How much money and property should people be able to retain while they receive Medicaid LTC benefits? Which services will Medicaid provide? Should it pay market rates for the care or require a lower rate to constrain expenditures?
Answers to the first four questions in that list determined the answer to the last one. Medicaid makes financial eligibility appear strict. By law, applicants/recipients (ARs) may possess no more than $943 per month of income and $2,000 of assets. Left to that tough standard, Medicaid LTC costs might not have exploded, forcing cost containment measures such as below-cost reimbursement rates and paying only for nursing homes consumers preferred to avoid. Instead, as I explained in my previous McKnight’s article, “How Medicaid Cripples SNFs,” Medicaid LTC eligibility rules allow high-income and high-resource people to qualify while preserving most of their wealth.
Consequently, most people who need expensive professional LTC qualify quickly and easily for Medicaid. That’s why the program is the dominant LTC payer and private-pay revenue to nursing homes has nearly disappeared. It is why private assisted living and home care markets were slow to evolve, because Medicaid made nursing home care free or highly subsidized for decades. It is why Medicaid pays deficient rates to make up for having covered too many Medicaid dependents. It is why the Centers for Medicare & Medicaid Services feel compelled to use regulation to achieve quality they undermined by inadequate reimbursement.
What does this mean for LTC providers? Reimbursement rates too low to fund high quality care with a reasonable financial return. Too many people on Medicaid who could, should and would have paid privately for care in the absence of easy access to public assistance. Residents who contribute their private income, largely Social Security, but at Medicaid’s low, not higher private rates. Little hope for the future because easy access to Medicaid LTC late in life while preserving wealth anesthetized the public to the need to plan, save, invest or insure for future LTC needs. The whole Rube Goldberg system is rapidly spiraling toward collapse as the age wave crests.
What should be done? Medicaid must stop being the LTC payor of first resort. It should become the safety net program most people still think it already is. Medicaid income and resource eligibility limits need to be reduced so more people pay privately for care.
Social Security and Medicare agencies should notify the public that LTC is a personal responsibility for which they need to plan and prepare. Strong income and asset spend-down rules will quickly convey to consumers that they need to prepare for LTC.
When Medicaid is no longer a magnet drawing consumers away from private planning for LTC and into public welfare dependency, few people will still need to rely on Medicaid. Medicaid will be able to pay better for a small number of genuinely needy recipients.
But something else will happen. Cost shifting to private payers in order to compensate for low Medicaid rates will no longer be necessary. The market rate for LTC will settle substantially below the private pay rate but well above the current Medicaid rate. Everyone, including private payers and Medicaid, will pay that market rate infusing the LTC service delivery system with desperately needed revenue and resolving most of the problems challenging LTC today.
For answers on how Medicaid can be redirected to the needy and the non-needy can find the resources to fund their own LTC, consider these two studies from the Paragon Health Institute: “Long-Term Care: The Problem” and “Long-Term Care: The Solution.” To identify more funds to fix these problems, stanch “Medicaid’s $100+ Billion Leak.”
Stephen Moses is president of the Center for Long-Term Care Reform, a visiting fellow at the Paragon Health Institute and the author of “Long-Term Care: The Problem” and “Long-Term Care: The Solution.”
The opinions expressed in McKnight’s Long-Term Care News guest submissions are the author’s and are not necessarily those of McKnight’s Long-Term Care News or its editors.
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