Financing Long-Term Care

The current system of financing long-term care in the United States is in very serious trouble. The average cost of a private room is close to $80,000 per year (New York Life, 2007) and is by far the leading catastrophic health care expense. The Centers for Medicare and Medicaid Services (2007) estimates that between 2008 and 2017 national expenditures for nursing home care will rise from about $137 billion to $218 billion. Contrary to popular belief, Medicare does not cover nursing home care but does have limited nursing home and home care benefits for people who need skilled nursing services and who meet other criteria. Private insurance plans pay only around 7% of the costs nationally. About 25% of the expense is paid for directly by nursing home residents. When residents become impoverished (a definition that varies widely from state to state), they become dependent on Medicaid, which pays the bulk of the total.

(In 2005, the total Medicaid expenditures for skilled nursing home care were roughly $59 billion, or 45.4% of the total national expenditure.) Given these expenses and the lack of insurance coverage, how will we be able to finance the long-term health care system?

Several options have been proposed (Feder, Komisar, & Friedland, 2007). Four main strategies are possible:

• A strategy that promotes long-term care insurance that keeps public financing as a safety net. This approach would spread the risk without expanding the demands on federal or state budgets and on taxpayers to pay fully for long-term care. Still, a public safety net would be essential.

• A strategy to expand the public safety net for people with low to moderate incomes, with people from higher-income brackets expected to provide for themselves through private financing. This approach targets the people with the greatest need and the fewest resources.

• A strategy to establish public catastrophic long-term

care insurance and support complementary private insurance to fill the gap along with the public safety net.

This approach would spread the risk and the burden on a greater number of people, reducing the cost of private insurance, but still pricing it beyond the means of many older adults.

• A strategy to establish universal public long-term care insurance that would be supplemented with private financing and a public safety net. This approach spreads the burden over the greatest number of people, thereby addressing the problem

of affordability of private insurance.

Despite the wide range of options, many of them place the burden on individuals to come up with ways of financing their own care. Given the cost, and the fact that millions of Americans do not have access to health insurance, large subsidies from the government will still be needed for long-term care regardless of what the private sector does.

Given that government subsidies for long-term care will be needed for the foreseeable future, the question becomes how to finance them. Under the current Medicaid system, older adults are not protected from becoming impoverished, and in essence are required to have few assets in order to qualify. With the aging of the baby-boom generation, many more people will spend their assets, causing Medicaid costs to skyrocket. If we want to continue the program in its current form, additional revenues will be needed, either in the form of taxes or dramatic spending reductions in other areas of public budgets.

The questions facing us are whether we want to continue forcing older adults to become totally impoverished when they need long-term care, whether we want the government to continue subsidy programs, whether we should do more to encourage those who can afford it to have long-term care insurance, and whether we would be willing to pay higher taxes for better coverage. How we answer these questions will have a profound impact on the status of long-term care over the next few decades.


Table 5.1

Characteristics of People Most Likely
to Be Placed in a Nursing Home

Over age 85 Female

Recently admitted to a hospital

Lives in retirement housing rather than being a homeowner

Unmarried or lives alone

Has no children or siblings nearby

Has some cognitive impairment

Has one or more problems with instrumental activities of daily living

Source: Summarized from Davis and Lapane (2004).

5.1. Figure 5.3 shows the average age, gender, and race breakdown of the typical nursing home in the United States. Note that the characteristics of
the typical nursing home resident are not similar to the population at large, as discussed in Chapter

1. For example, men are underrepresented in nursing homes, as are ethnic minorities. The rea­sons for the lower rate among minorities are not entirely clear; for example, despite more avail­ability of nursing homes for African Americans, they remain less likely to use them (Akamigbo & Wolinsky, 2007). Higher rates of poverty may explain why minorities who live in nursing homes tend to be more impaired than European American residents, in that residents of color delay placement as long as possible (Davis & Lapane, 2004).

What are the health issues and functional impair­ments of typical nursing home residents? For the most part, the average nursing home resident has significant mental and physical problems. This is borne out by the fact that the main reason for placing almost 80% of nursing home residents is significant health problems (AgingStats. gov, 2008). Estimates are that nearly 80% of residents have mobility problems, and more than one third have

mobility, eating, and incontinence problems. In addition, the rates of mental health and cogni­tive impairment problems are high, with between 30 and 50% of residents showing signs of clinical depression, for example.

As you may have surmised from the high level of impairment among nursing home residents, frail older people and their relatives do not see nursing homes as an option until other avenues have been explored. This may account for the numbers of truly impaired people who live in nursing homes; the kinds and number of problems make life outside the nursing home very difficult for them and their fami­lies and beyond the level of assistance provided by assisted living facilities. For these reasons, the deci­sion to place a family member in a nursing home is a very difficult one (Caron, Ducharme, & Griffith,

2006) , and often is made quickly in reaction to a crisis, such as a person’s impending discharge from a hospital or other health emergency. The decision tends to be made by partners or adult children, a finding that generalizes across ethnic groups such as European Americans and Mexican Americans, espe­cially when there is evidence of cognitive impair­ment (Almendarez, 2008; Caron et al., 2006).