A September 1, 2010 article in the Washington Post, titled “Federal Spending Rises a Record 16%” reports: “Federal domestic spending increased a record 16 percent, to $3.2 trillion, in 2009, the Census Bureau reported Tuesday, largely because of a boost in aid to the unemployed and the huge economic stimulus package enacted to rescue the sinking economy.”

This increase in spending was the largest since 1983, when the Census Bureau began measuring it.

The stimulus package has thrown our nation a trillion dollars further into debt.

The largest chuck of federal spending (46 percent of the $3.2 trillion) was spent on Medicare, Medicaid, Social Security, and other entitlement programs that are expected to swell as the population ages.

Long-term care insurance (LTCi) premiums can be as low as $50 a month. You’ve put off buying long-term care insurance because you expect the government to pay for your care?

A July 16, 2010 article by John Leland of the New York Times states that since the start of the recession, at least 25 states and the District of Columbia have curtailed programs that enable low income, disabled people to remain at home.

In Oregon early this month, 4,500 low-income residents received letters stating that their state-paid home health care benefits would end. Cuts affecting an additional 10,500 residents are scheduled for October 1. This is due to Oregon’s $577 million budget deficit.

Ironically, what is likely to happen is that due to cut services, many of the affected will wind up in Medicaid-paid nursing homes, which are far more costly. Oregon’s average cost of nursing homes is $5,900/month, while the cost of the slashed home care services averages $1,500/month.

These cuts do not seem logical, but they are.

Medicaid is a joint state and federal program. Its rules require states to provide nursing home care (but not home health care) in order to receive federal money. In Oregon’s case, over half of its Medicaid dollars are spent on the home health care services being cut. The easiest place for it to save money and balance its budget without jeopardizing Medicaid funds is to slash home health care benefits.

Unfortunately, such money-saving cuts are likely to be “penny-wise and pound-foolish”. Many of those affected may wind up having incidents that will cause them to need nursing home placement in short order.

In the past Medicaid has paid for care for indigent, disabled people. Sadly, it is increasingly obvious that Medicaid as we’ve known it is simply unsustainable.

A favorite excuse for many wanting to avoid a conversation about responsible long-term care planning has been to insist that the government will pay for their care if they need it. I hope this blog helps readers understand how unwise this belief is.

How great is the title I Want It All, Even Better If You Pay For It, by Caroline Baum?

This is a brief, self-explanatory piece I think you’ll find worthwhile.

A new study titled “What is the Distribution of Lifetime Health Care Costs from Age 65″ by the Center for Retirement Research at Boston University has calculated the largest sources of our financial risk once we’re 65.

The survey states that an average couple over 65 can expect to pay $260,000 out-of-pocket on health care costs before they pass away. This number includes Medicare and private insurance premiums, co-payments, and nursing home costs.

Government statistics show that the average American reaching 65 has more than 60 percent odds of needing care during their lifetime.

Few Americans can tolerate a need for long-term care without serious consequences to their financial integrity and personal dignity.

According to a 2009 Prudential survey, 53% of employee benefit plan participants rate long-term care needs as “highly important”. Yet only eight percent of workers participated in group long-term care plans if one was offered by their employer, and another five percent purchased long-term care insurance (LTCi) coverage outside the workplace. The same survey states that retirement savings continue to decrease.

There is an obvious disconnect between people’s concern about needing care and their willingness to take action to protect themselves.

I would be very interested in hearing your views on why or how this denial and disconnect occurs.

On being able to sustain our current methods of funding long-term care:

“Medicaid is the principal funding source for long-term care (LTC) throughout the United States. Although LTC users are only seven percent of the Medicaid population, they account for more than half of the program’s costs nationally.” Stephen Moses, The Center for Long-Term Care Reform 

“Within 12 years, without an increase in interest rates, the single-largest line item in the federal budget would be interest on the federal debt. That means more than defense, more than social security, more than Medicare.” David Walker, Peter G. Peterson Foundation 

Long-term care is expensive. One year of care in a nursing home, based on the 2008 Texas average, costs over $43,000 for a semi-private room. www.ownyourfuturetexas.org

On the urgent need for responsible long-term care planning:

The lifetime probability of becoming disabled in at least two activities of daily living or of being cognitively impaired is 68% for people age 65 and older. - The American Association for Long-Term Care Insurance (AALTCI) 

“The greatest risk is not the longevity of this bear market, or even another bear market. It’s the devastating cost of long-term care.” – Terry Savage, nationally syndicated Chicago Sun-Times personal finance columnist. 

The following 3 articles hit the news Thursday and Friday of this week. The message here: it’s unrealistic to expect the government to be able to pay for long-term care. Long-term care insurance needs to be a core part of your financial planning. 

The total federal deficit is expected to exceed $14 trillion next year – about $47,000 for every US resident.

Medicaid rolls swell by 3.3 million nationwide By Catherine Candisky, Columbus Dispatch. Feb 18, 2010, Between June 2008 and June 2009, Medicaid enrollment rose by 7.5 percent and all 50 states saw increases, according to an analysis released Thursday by the Kaiser Family Foundation’s Commission on Medicaid and the Uninsured. Medicaid currently pays for approximately 50% of long-term care in the US.  

States consider Medicaid cuts as use grows By Kevin Sack and Robert Pear, New York Times. Feb 19, 2010 States are already unable to make budgetary ends meet with the influx of Medicaid recipients resulting from the country’s economic woes, yet health care reform could add more than 15 million more people to the rolls. Many states are considering cutting vision and dental care which are considered optional benefits, and some other states are discussing new taxes on tobacco or levies on doctors and hospitals.

Deficit panel: Budget cuts will hurt By Andrew Taylor, Associated Press, February 19, 2010. In a poisonous legislative atmosphere, almost no one is willing to go on the record with budget solutions like raising the Social Security retirement age, ordering broad-based tax increases, or increasing co-pays and deductibles for Medicare. On Thursday, President Obama created the new National Commission on Fiscal Responsibility and Reform, charged with coming up with a plan by December 1, 2010 that will reduce the government’s annual deficits to 3 percent of the national economy by 2015. 

A very scary report from the U.S. Centers for Medicare and Medicaid Services was published today in the journal Health Affairs. 

According to this report, even if healthcare reform falls by the wayside, federal and state programs will pay for more than half the cost of healthcare in the US by 2012.

Health care spending jumped to $2.5 trillion, or 17.3 percent of the economy in 2009, the report states. The annual increase in share of gross domestic product, from 16.2 percent in 2008, was the biggest since record keeping began in 1960.

President Obama’s budget director, Peter R. Orszag, told the House Ways and Means Committee yesterday that health care costs will fuel a growing budget deficit and “we cannot close the long-term fiscal shortfall” without bringing them under control. 

All health care spending will probably grow at an average annual rate of 6.1 percent from 2009 through 2019, which is 1.7 percentage points faster than the projected growth in the economy, as measured in gross domestic product, economists said.

 Even as the economy shrank because of the downturn, health care spending grew by 5.7 percent from 2008. Government health care spending grew nearly three times faster than private spending.

Driving much of the cost surge was Medicaid, the federal-state program for low-income people. It grew by nearly 10 percent last year. 

Many long-term care insurance specialists believe that lots of the increase in Medicaid spending is due to the relative ease with which ordinary middle-class people can artificially impoverish themselves down to Medicaid eligible income thresholds. Medicaid currently pays for approximately 50% of long-term care costs in the US. 

This is really scary stuff! If you’re over 55 and don’t own long-term care insurance, you have your head buried in the sand, which won’t help you much if you ever need care.

Sources: Associated Press and Bloomberg News

A recent LIMRA report titled Individual Long-Term Care Sales Survey says sales of individual long-term care insurance (LTCi) policies fell the last quarter of 2008 and the first quarter this year.

This correlates well with my October 2, 2009 blog which documents how ill-informed the public is regarding the realities of needing long-term care and how it is paid for. The MetLife Long-Term Care IQ Survey, reveals that most are not taking appropriate steps to protect themselves from these potentially catastrophic expenses.

Here’s why:

“The government pays today for the vast majority of all expensive long-term care. Medicaid pays for almost half; Medicare, a quarter; several percent come from the VA, and over 10% is nothing more than Social Security “spend-through” of people already on Medicaid.

Therefore, 85 to 90 percent of all expensive long-term care in the USA is paid for by direct or indirect government funding or spend-through of Social Security income by current Medicaid recipients.

In fact, only about 10 to 15 percent of all expensive long-term care is paid for out-of-pocket from personal income or assets.”

The words above came an address given by Steve Moses, President of the Center for Long-Term Care Reform, at The 8th AALTCI Long-Term Care Insurance Producers Summit Kansas City, Saturday, November 14, 2009.

If the government pays for 85 to 90 percent of all expensive care in this country, why bother with long-term care planning? The fact that government-paid care is typically inferior, offers few options, has a bleak future ahead, reduces peoples dignity and often adds undue stress to people and their families is obviously irrelevant to many, as long as the government continues to provide them with a mostly free ride.

If you can understand the quote above you are well on your way to understanding why sales of long-term care insurance continue to languish.

Here’s a quote from an article by David Abel in the October 15, 2009  Boston Globe.

“A $332 million state program that oversees home health care services for about 18,000 elderly and disabled residents is vulnerable to fraud and has employed personal care attendants who have committed felonies, including manslaughter, assault, and threatening to commit murder, according to a report released yesterday by the Office of the State Auditor.”

This article refers to the Massachusetts Medicaid program, which is one of four in the nation that has no requirements for training, education, and criminal background checks for personal care attendants.

Here’s the article: http://www.boston.com/news/local/massachusetts/articles/2009/10/15/home_care_system_leaves_elderly_at_risk_auditor_says/

Why is Medicaid paid care often inferior to what we call “privately-paid” care?

Because Medicaid usually pays less than what it costs to care for patients well. Often, corners must be cut, causing Medicaid-funded facilities to hire fewer qualified people, and pay them less.

If you need care for a lengthy amount of time and you haven’t planned well by purchasing LTC insurance, you could wind up qualifying for Medicaid.

Medicaid crowds out 2/3 to 90 percent of the potential market for private long-term care insurance (Brown and Finkelstein, www.nber.org). That’s a fact. If anyone doubts this, call me.

Health care reform should be good for the long-term care insurance market.

Here’s a quote from“Max’s Mad Mandate,” which ran in theWall Street Journal, September 27, 2009, full article here by subscription or in the newsstand copy.

“The Baucus health bill will break 50 state budgets via Medicaid. . . .

The following comes from The Center for Long-Term Care Reform (CLTCR). I tried, but I can’t write it better than Steve Moses did. Thanks to the CLTCR for letting us share this information.

“Massive new acute care costs could be the straw that breaks the camel’s (Medicaid’s) back. The poor, who genuinely need Medicaid for long-term care, will be hurt most if this happens. The middle class and some of the affluent, who now get long-term care from Medicaid, won’t in the future. They’ll be forced to spend down in ways never before required. They’ll ultimately have to use their home equity. When it gets to that point, long-term care insurance sales will blast off.

What a sad commentary on public policy! It would make so much more sense to save Medicaid LTC for the poor by diverting the middle class and affluent to private LTC insurance. Use the savings from eliminating Medicaid’s massive LTC eligibility loopholes to pay for LTCI tax incentives and education.

Maybe someday logic, evidence and reason will prevail. But for now, it looks like lawmakers will dig the health and LTC financial hole they’re in even deeper. The faster and deeper they dig it, the more middle class and affluent families will need long-term care insurance. So, over the long run, LTCI will help to mitigate the damage of bad public policy.”