Can Long-Term Care Survive A Balanced Budget?
If you've followed the mess that Washington made of the budget process during the last fiscal year, you know that "entitlement programs" are headed for the chopping block. But, of course, it depends on who you consider "entitled" as whether those cuts are a good thing or a bad thing. Many of the pundits frame the "entitlement" issue in terms of welfare and other federal "safety net" programs.
Similarly, in state legislatures the state-federal program known as Medicaid has seen the same kind of attention - all of it bad. As budgets grow tighter and tighter, it is entitlement programs that find themselves on the chopping block. Of course, for people on Medicare and Social Security, who paid premiums for scores of years so that they could retire in relative security, it isn't so much an issue of "entitlement" as "we earned this."
Some of the pundits suggest that entitlements like unemployment compensation could be fixed simply by creating jobs, while others recognize that there are sufficient jobs in the economy, but the pay scales associated with them are such that many of these jobs are less than attractive. In the Great Recession that began in 2004, most of the jobs lost were in manufacturing and industry where pay is typically higher than minimum wage (sometimes triple or quadruple it), and most of the jobs created since the Recession have been in the service sector (think McDonalds) and typically pay poorly. But lost in the talk of cutting entitlements is what the impact of that is on the long-term care industry.
Some estimates have the skilled nursing sector facing cuts of $6.35 billion in the next nine years, after analyzing data from the Congressional Budget Office's (CBO) recently released March 2012 Medicare Baseline, which reveals projected cuts in Medicare payments to skilled nursing facilities this year compared to 2011. To give you an idea of how much money that is, one million dollar bills stacked on top of each other is 0.67 miles high. A billion dollars is 67 miles high. That is a lot of money missing from the coffers of skilled nursing facilities.
Prior to the 1960s and the changes that came with Medicare and Medicaid, most nursing home care was provided either at charity institutions run by religious orders, or was provided at home in the end-stages of life. Society was different then too. Most women did not work outside the home. There were caregivers available in the home to undertake these tasks. But in today's society where both parents in most households work, elderly parents cannot assume that they'll be taken care of by their children. Some have opted for private insurance, while others have decided to assume that Medicare will pay their bills.
This has created two classes of SNF resident. Those that are privately insured with long-term care insurance, and those that are cared for under state Medicaid programs.
Very few seniors today have long-term care insurance. Most simply cannot afford it if they are dependent on Social Security. And those that do have it are seeing their premiums skyrocket every year. Unlike the federal healthcare reform package that reformed health insurance, long-term care insurance is largely regulated (and regulated poorly) by the states.
Medicaid is a payor of last resort, so your typical Medicaid patient must liquidate their assets in order to qualify. That means that the patient or her family must sell off the house, farm, equipment, and jewelry in order to pay down to the point where Medicaid will provide care. When lawsuits or settlements recover money for patients on Medicaid, Medicaid gets paid back for what it paid for their care.
The largest part of Medicaid spending nationwide is for skilled nursing. The elderly and disabled account for the majority of Medicaid spending. In 2007, 10 percent, or 5.8 million enrollees, were elderly, accounting for 25 percent of annual Medicaid spending, or $75 billion. Medicaid is the largest source of public assistance for nursing homes. In 2009, Medicaid paid for 40 percent of all nursing home spending in the US. When there is a $6 billion shortfall in revenue by the payor that pays 40% of the costs, that is sure to cause two things to happen: (1) nursing home daily rates for private insurers will climb; and (2) staffing and expenses at nursing homes across the country will be cut.
Add to this problem the fact that a majority of the baby boomers born between 1940 and 1960 are going to outpace the number of nursing home beds available and you have a crisis in the making. But as yet, because of perceived budget shortfalls at the federal and state levels, no one is even beginning to talk about this problem.
There is no easy solution to this issue. It will require Congress to set aside sufficient money to care for seniors, and it will not be an easy fix to get through. But if someone doesn't own up to the problem and start doing something about it, the LTC industry as we know it will be radically different in 10 years.