Friday, May 7, 2010

Containing Medicaid's Long-Term Care Cost for the Elderly

The Explosive Growth in Medicaid Expenditures

As a joint federal-state program, the growth of Medicaid expenditures has become a major budget issue for federal and state lawmakers alike. Between 1990 and 2003, federal Medicaid expenditures grew at an average annual rate of 19.7 percent. In Minnesota, Medicaid is known as Medical Assistance. In 2007, Medical Assistance expenditures equaled about 17 percent of state spending, ranking 24th among states. The federal government and State of Minnesota share costs for Medical Assistance equally, at the federal minimum of 50 percent. Minnesota’s current budget crisis has exacerbated concerns about the rising cost of Medical Assistance.

Although disabled individuals and the elderly only make up roughly 25 percent of Medicaid recipients, these two groups account for more than 72 percent of Medicaid expenditures nationally for direct medical care in 2004. For example, the average annual cost per Medicaid enrollee (in 1998) was $1,225 per child, $1,892 per adult (age 21-64), $9,558 per disable individual, and $11,235 per elderly adult.

Demographic Trends Affecting Minnesota

While the number of disabled Minnesotans is not expected to change significantly, 1.4 million Baby Boomers will retire over the next 25 years. As Minnesota’s Baby Boom generation ages over the next twenty years, demand for long-term care services funded by Medical Assistance (MA) will increase dramatically. In 2000, there were roughly 600,000 Minnesotans 65 years of age or older. By 2020, this number will climb to nearly one million; by 2030, it will reach over 1.3 million.

A number of factors will mitigate the impact of this wave of retirement on MA expenditures in Minnesota. First, Minnesota has the third lowest poverty rate (approximately 8 percent) of any state in the U.S. Second and closely related, Minnesota has one of the highest per capita incomes in the U.S. Since eligibility for MA is means-tested, these two factors will limit the MA eligibility pool. However, due to the high cost of nursing home care, more than 60 percent of current residents of nursing facilities are MA recipients – even though half of these individuals entered the nursing home as private payers. Third, Minnesota has a relatively high rate of individuals with long-term care insurance at fourteen percent, compared to the national average of less than two percent. Nonetheless, one in four individuals 85 and older will require nursing facility care, and this population is projected to grow by 118,800 over the next 25 years.

Long-Term Care Options and Costs

This demand will put unprecedented strain on the long-term care system in the state, as well as on Minnesota’s state budget. Three long-term care options are offered by MA: Nursing facility care, Elderly Waivers, and Personal Care Assistance services. Of these three, nursing facility care is the most expensive long-term care option. In 2008, nursing facility care cost an average of $4,888 per recipient. (Care was provided for an average of 19,488 recipients at a total cost of $813 million.)

Elderly Waiver (EW) services provide home and community based services to MA enrollees who are at risk of nursing facility placement. EW offers a wide-range of services for individuals who require the level of care provided in a nursing home but choose to reside in the community. EW care is significantly less expensive than nursing facility care, with an average cost per recipient of $2,669 per month in 2009. Enrollment in EW has grown dramatically over the past 15 years, at a rate of nearly 40 percent annually, and is partly responsible for a drop in the number of MA-funded nursing facility residents.

The Personal Care Assistance (PCA) program provides services to people, such as the elderly and disabled, who need help with day-to-day activities to allow them to be more independent in their own home. The PCA program offers assistance with activities of daily living (such as eating, toileting, grooming, dressing, and bathing,) health-related functions, and redirection and intervention for behavioral issues. The PCA program primarily serves individuals with physical disabilities, chronic diseases, and mental illness – but also serves some elderly as well. PCA care is also much more affordable than nursing facility, with a cost per recipient of just over $3,000 per month. (Total expenditures for PCA program services in 2008 exceeded just over $400 million, providing services to approximately 11,000 recipients.)

Impact of Federal Health Care Reform on Medical Assistance Expenditures

Indirect Effects

The federal health reform bill expands eligibility for Medicaid coverage to low-income adults, ages 21 to 64, who have no dependent children and who did not previously qualify for Medicaid coverage with incomes up to 133 percent of the Federal Poverty Guideline (FPG). For states like Minnesota that already cover a large portion of this population under the General Assistance Medical Care (GAMC) and MinnesotaCare programs, the federal government will begin sharing 50 percent of the cost of these programs almost immediately, totaling about $330 million for the current state budget. This level of federal support will continue for three years until 2014, when the federal match will increase gradually from 75 percent in 2014 to 90 percent by 2019. At current costs and enrollment for GAMC and MinnesotaCare, federal matching support would therefore rise to $495 million in 2014 and $594 million by 2019

Direct Effects
The federal health reform creates a new national long-term care insurance program to help seniors pay for home-based care rather than institutionalized care in nursing or assisted living facilities. This long-term care insurance (known as CLASS, from the name of the provision that creates it, the Community Living Assistance Services and Supports Act) will be financed by voluntary payroll deductions. Enrollment in CLASS will be available to full and part-time working adults. CLASS insurance will offer a cash benefit ranging from $50 to $75 per day (the actual cash benefit will depend on the person’s level of impairment) to pay for home-based long-term care services. (CLASS insurance can also be used to help pay for assisted-living or nursing facilities.) Policy makers expect CLASS insurance will help defray the cost of long-term care to Medicaid, but since CLASS insurance will be voluntary, it is difficult to estimate the impact it will have.

Four provisions in the health reform bill attempt to encourage more affordable home-based care. First, the Community First Choice program will offer an additional six percent federal match to the state for individuals with disabilities who receive home-based care covered under Minnesota’s PCA program. Second, the bill removes barriers to providing Medicaid funded home-based care through PCAs for the disabled and senior, including increasing income eligibility and expanding the scope of services covered. Third, the bill creates temporary incentives for states that undertake structural reforms and increase the percentage of individuals receiving home-based care instead on institutional care, with incentives ranging from increased federal matching of 2 to 5 percent. Finally, the bill applies the same protections against impoverishment that are currently provided to spouses of nursing home residents covered under Medicaid to spouses of individuals receiving Medicaid home-based services, such as Elderly Waivers or PCA care in Minnesota

Containing the Growth of Long-Term Care Costs for Minnesota’s Elderly

With 1.4 million Baby Boomers set to reach retirement age in Minnesota over the next 25 years, MA expenditures for long-term elderly care could easily double to $2 billion without concerted efforts by state and federal policy makers to contain these costs. The following policy options could help contain these costs:
  • Recommendation 1: Experiment with a state tax credit for the purchase of long-term care insurance. For example, a $600 maximum annual tax credit with a total lifetime maximum of $12,000 would subsidize 20 to 25 percent of the monthly premium for a 45 year old individual. Since the average length of stay in a nursing facility is 2.4 years, one in four seniors over 85 will require nursing home care, and fifty percent of seniors over 65 will need some other form of long-term care, the state would save approximately $27,000 for each resident induced to purchase private long-term care insurance. (The Money Alert, 2010) A matching federal tax credit would double the cost savings from $15,000 to $30,000. The actual amount of any tax credit could be determined by a more detail statistical analysis to maximize savings to the Medicaid program while still inducing the purchase of private long-term care insurance.
  • Recommendation 2: Continue to move elderly in need of long-term care to lower cost home-based care via the Elderly Waiver or Personal Care Assistance programs (whenever possible). The Minnesota Department of Human Services determines eligibility for long-term care through county social services offices, called a Long-Term Care Consultation, conducted in tandem with a public health nurse. County social service workers should educate and encourage clients in need of long-term care to consider home-based care options, while also considering the elderly person's preferences, wishes and informal supports when making any recommendations.

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