November 28, 2008 The Basics Long-Term Care: Consumers, Services, and Financing Long-term care services for the elderly and for younger populations with disabilities are a significant component of national health care spending. In 2006, long-term care spending was almost $174 billion (almost 9 percent of all U.S. spending on health care), most of it paid by the federal-state Medicaid program. Concern about the financing and delivery of long- term care services is a recurring issue among policymakers. The already substantial public role in long-term care, which presages rapid spending increases as the “baby boom” population ages, along with the potentially enormous costs of long-term care to individuals and families, may lead policymakers to revisit these issues over the next several years. LONG-TERM CARE DEFINED Long-term care refers to a broad range of supportive services needed by people who have limitations in their capacity for self-care because of a physical, cognitive, or mental disability or condition.1 A person’s need for long-term care is generally measured, irrespective of age and diagnosis, by his or her inability to perform basic activities necessary to live indepen- dently and by the need for assistance from another person to carry out these activities.2 Long-term care excludes medical and nursing services to man- age the underlying health conditions that lead to frailty or disability. The need for long-term care can affect people of all ages: the elderly with chronic conditions or those with cognitive impairments, such as Al- zheimer’s disease; working-age adults with inherited or acquired disabling conditions; and children born with disabling conditions. Services may be provided in one’s home and community, through home care and adult day care programs; in residential settings, such as assisted living facilities; or in institutions, such as nursing homes. The intensity and cost of services vary widely, depending on an individual’s functional and health status, the severity of his or her disabilities, and the location in which services are provided. About 10 million adults age 21 and older, almost 5 percent of the total U.S. adult population, have long-term care needs.3 The majority of adults receiving long-term care assistance (58 percent) are 65 years and older, but a substantial proportion (42 percent) are adults between the ages of 18 and national health policy forum Facilitating dialogue. Fostering understanding. The Basics: Long-Term Care November 28, 2008 64.4 The risk of needing long-term care services increases Figure 1 with age. One study estimated that people turning age Long-Term Care Expenditures 65 in 2005 will need long-term care services, on average, by Source, 2006 for three years, although the use of services varies widely among individuals. Many older people receive help Total Spending — $173.6 billion from family and other informal caregivers in their own 3.0% Other Public homes and may not incur large out-of-pocket expenses. $5.1 billion However, for a small proportion of people, paying for long-term care can be a significant burden. About 6 12.1% Other Private percent of people turning age 65 in 2005 can be expected $21.0 billion to incur out-of-pocket expenditures of $100,000 or more 62.6% 22.4% Out-of-Pocket over their remaining lifetimes, and about 12 percent will $38.9 billion likely have expenditures from $25,000 to $100,000.5 In 2007, the average annual cost for nursing home care Medicaid was almost $69,000; for assisted living facility care, it $108.6 billion was almost $36,000.6 For those requiring assistance at home, especially daily assistance, costs may also be high Note: Medicaid spending includes spending for nursing homes, home health services (including hospital-based and freestanding if family support is limited or unavailable. In 2008, the facilities), ICFs/MR, HCBS waivers, and State Children’s Health average national hourly rate for home health aides is Insurance Program spending for freestanding nursing homes and $20 and for homemaker/companions is $18 (although home health services; “other private” includes private long-term rates vary widely by geographic region and payment care insurance, other health insurance and other private spending for nursing homes and home health services; and “other public” source.)7 Paying for long-term care services can exhaust includes all other public spending for nursing homes and home the resources of people with disabilities and may lead health services. Excludes Medicare spending. to Medicaid eligibility. But Medicaid is limited to people Source: Office of the Actuary, Centers for Medicare & Medicaid who meet strict income and asset tests and functional Services, email communication with author. need criteria. LONG-TERM CARE FINANCING Medicaid is the dominant source of payment for long-term care services, followed by out-of-pocket payments by individuals and families. Of all U.S. spending on long-term care, the federal-state Medicaid program is the principal payer. In 2006, Medicaid paid for almost 63 percent ($108.6 billion) of all long-term care spending. Out-of-pocket spending by indi- viduals and families accounted for more than 22 percent ($38.9 billion) of spending. Private insurance and other public sources paid for the balance (Figure 1). Medicare plays almost no role in financing long-term care. Medicare is National Health Policy Forum intended to cover acute and post-acute medical care for people age 65 and Facilitating dialogue. older and for younger populations who meet the Social Security definition Fostering understanding. of disability. The program was not designed to cover long-term care services. 2131 K Street NW, Suite 500 Medicare covers skilled nursing facility (SNF) care following a hospital Washington DC 20037 stay of at least three consecutive days, and only for those who require daily 202/872-1390 skilled nursing and/or rehabilitation services; its SNF payments cover the 202/862-9837 [fax] first 20 days and a portion of costs for an additional 80 days of care. Medicare nhpf@gwu.edu [e-mail] also pays for home health services, including medically necessary, part-time www.nhpf.org [web] National Health Policy Forum | www.nhpf.org 2 The Basics: Long-Term Care November 28, 2008 or intermittent skilled nursing care or physical, speech, or occupational therapy for homebound people. It does not cover home care services for those who need sustained assistance because of a physical or cognitive dis- ability or frailty. For these reasons, Medicare’s financing of these services is not included in the spending amounts presented in this report. Payments for long-term care services represent almost one-third of all Medicaid spending on beneficiaries. In 2007, long-term care services (nurs- ing homes, intermediate care facilities for people with mental retardation [ICFs/MR], home health and personal care services, and services provided through home and community-based services waivers)8 accounted for about 32 percent of all Medicaid expenditures. According to a report by the Office of the Actuary in the Centers for Medicare & Medicaid Services (CMS), Medicaid long-term care spending is expected to increase rapidly over the next 10 years by an average of 8.6 percent per year, a rate faster than the 7.9 percent annual increase predicted for overall Medicaid spend- ing. The report indicates that the projected increase is due to the expected continuing rise in the use and the costs of long-term care, as well as pro- jected increases in enrollment, especially for beneficiaries age 65 and older and those with disabilities.9 Most Medicaid long-term care spending is for institutional care, but in recent years spending for home and community-based care has grown considerably. In fiscal year (FY) 2007, nearly 60 per- cent of all Medicaid long-term care spending was for Figure 2 institutional care (nursing homes and care in ICFs/ Medicaid Expenditures for Long-Term MR). Recent federal and state policy initiatives have Care Services, FY 1997 and FY 2007 emphasized greater use of home and community- based services, the settings most people prefer.10 Total Long-Term Care Spending In FY 1997, 24.2 percent of all Medicaid long-term 1997 2007 care spending was for home and community-based $56.1 billion $101.3 billion services; by FY 2007, it had grown to 41.3 percent Home and (Figure 2). Spending patterns for Medicaid home Community-Based 24.2% 41.7% and community-based services vary widely among Services states, ranging from 72.9 percent of Medicaid long- term care spending in New Mexico to 12.7 percent in Mississippi.11 Also, spending patterns differ by population group: proportionately more is spent Institutional Care 75.8% 58.3% for institutional care for the elderly and younger adults with physical disabilities, less on institutional services for people with mental retardation or devel- opmental disabilities.12 Even though most spending is for institutional care, Note: Institutional spending includes spending for nursing facili- more Medicaid long-term care consumers are served ties and ICFs/MR; HCBS spending includes home health, personal care, and HCBS waivers spending. in home and community-based settings than in Source: Based on data from Brian Burwell, Kate Sredl, and Steve institutions; this is because per capita institutional Eiken, “Medicaid Long-Term Care Expenditures in FY 2007,“ care costs are much higher than those for home and Thomson Reuters, September 26, 2008; report and data available community-based services. In 2002, Medicaid served at www.hcbs.org/moreInfo.php/doc/2374. National Health Policy Forum | www.nhpf.org 3 The Basics: Long-Term Care November 28, 2008 about 1.6 million people with long-term care needs in institutions and about 1.8 million people in home and community-based settings.13 Private long-term care insurance plays a small role in financing long- term care. Relatively few people have purchased private long-term care insurance, although the market has grown in recent years. In 2005, about 7 million long-term care insurance policies were in force.14 Substantial long-term care assistance is provided informally by family and friends. Not included in long-term care expenditures shown in Figure 1 is the substantial amount of informal care provided by family and friends. Despite the large public commitment to financing care, most care received by people with disabilities is provided by informal sources, primarily family and friends, who provide care without compensation. As a way to dem- onstrate the economic value of caregiving, various studies have estimated the imputed “cost” of informal care ranging from tens to hundreds of bil- lions of dollars. The Congressional Budget Office estimated that the value of informal care for the elderly in 2004 exceeded the amount of Medicaid long-term care spending.15 Many policymakers are concerned about the impact that the aging of the baby boom population and increasing longev- ity of younger persons with disabilities will have on the ability of families to assume and/or sustain caregiving roles in the future. Prepared by Carol V. O’Shaughnessy. Please direct questions to coshaugh@gwu.edu. For more information, see related NHPF publications: QQ Carol V. O’Shaughnessy, “Long-Term Services and Supports: Consumers in Charge—Consumer Direction and Money Follows the Person,“ Forum Session, November 7, 2008; available at www.nhpf.org/pdfs_fs/FS_11-07-08_Consumer_ Direction.pdf. QQ Cynthia Shirk, “Shaping Medicaid and SCHIP Through Waivers: The Funda- mentals,” Background Paper, July 22, 2008; available at www.nhpf.org/pdfs_bp/ BP64_MedicaidSCHIP.Waivers_07-22-08.pdf. QQ Carol V. O’Shaughnessy, “Policies for an Aging America: Looking Beyond the Averages,” Forum Session, May 9, 2008; available at www.nhpf.org/pdfs_fs/ FS_05-09-08_AgingDemographics.pdf. QQ Carol V. O’Shaughnessy, “State Long-Term Care Strategies: Approaches to Managing Care and Controlling Costs,” Forum Session, April 25, 2008; available at www.nhpf.org/pdfs_fs/FS_04-25-08_MedicaidManagedLTC.pdf. QQ Carol V. O’Shaughnessy, “Informal Care of the Frail Elderly: Policy and Practices to Support Family Caregivers,” Forum Session, September 21, 2007; available at www.nhpf.org/pdfs_fs/FS_09-21-07_Caregiving.pdf. QQ Cynthia Shirk, “Trading Places: Real Choice Systems Change Grants and the Movement to Community-Based Long-Term Care Supports,“ Issue Brief, May 30, 2007; available at www.nhpf.org/pdfs_ib/IB822_SystemsChange_05-30-07.pdf. QQ Cynthia Shirk, “Rebalancing Long-Term Care: The Role of the Medicaid HCBS Waiver Program,” Background Paper, March 3, 2006; available at www.nhpf. org/pdfs_bp/BP_HCBS.Waivers_03-03-06.pdf. National Health Policy Forum | www.nhpf.org 4 The Basics: Long-Term Care November 28, 2008 ENDNOTES 1. Some of the narrative for this section was adapted from Carol O’Shaughnessy, Julie Stone, Tom Gabe, and Laura Shrestha, Long-Term Care: Consumers, Providers and Payers, Congressional Research Service, Report to Congress, order code RL33919, March 15, 2007; available at http://assets.opencrs.com/rpts/RL33919_20070315.pdf. See this report for more background on long-term care. 2. The need for long-term care services is generally measured by the presence of limitations in a person’s ability to perform activities of daily living (ADLs) or the need for supervision or guidance with ADLs because of mental or cognitive impairments. ADLs generally refer to the following activities: eating, bathing and showering, using the toilet, dressing, walking across a small room, and transferring (getting in or out of a bed or chair). An additional set of criteria, called instrumental activities of daily living (IADLs), measure a person’s ability to live independently at home. IADLs include preparing meals, managing money, shopping for groceries or personal items, performing housework, using a telephone, doing laundry, getting around outside the home, and taking medications. 3. This number has been derived from aggregating data from the following sources: for the number of community-dwelling adults age 21 and over with self-care needs, Rehabilitation Research and Training Center on Disability Demographics and Statistics, 2006 Disability Status Report, Cornell University, Ithaca, NY, 2007, available at www.ilr.cornell. edu/edi/disabilitystatistics/StatusReports/2006-PDF/2006-StatusReport_US.pdf?CFID=104 72&CFTOKEN=34852786; for the number of nursing home residents, National Center on Health Statistics, “2004 Current Resident Tables,” available at www.cdc.gov/nchs/about/ major/nnhsd/ResidentTables.htm; for an approximate number of residents of assisted living facilities, data on estimates of the number of assisted living beds cited in Charlene Harrington, Susan Chapman, and Elaine Miller, Nancy Miller, and Robert Newcomer, “Trends in the Supply of Long-Term Care Facilities and Beds in the United States,” Journal of Applied Gerontology, 24, no. 4 (August 2005), pp. 265–281; and U.S. Administration on Aging, “2006 National Ombudsman Reporting System Data,” available at www.aoa. gov/prof/aoaprog/elder_rights/LTCombudsman/National_and_State_Data/2006/A-1%20 Regl%20sel%20info%20by%20St.xls. 4. Based on data from the National Long-Term Care Survey (1999) for people 65 and older and from the National Health Interview Survey, Disability Supplement (1994) for people age 18 and older, cited in William Spector et al., The Characteristics of Long-Term Care Users, Agency for Healthcare Research and Quality, Publication No. 00-0049, September 2000; available at www.ahrq.gov/RESEARCH/ltcusers/. 5. Peter Kemper, Harriet L. Komisar, and Lisa Alecxih, “Long-Term Care Over an Uncer- tain Future: What Can Current Retirees Expect?” Inquiry, 42, no. 4 (Winter 2005–2006): pp. 335–350. Dollars cited are present value amounts. 6. MetLife Mature Market Institute and LifePlans, Inc., “The MetLife Market Survey of Nursing Home & Assisted Living Costs,” October 2007; available at www.metlife.com/ FileAssets/MMI/MMIStudies2007NHAL.pdf. Amount cited for nursing homes is for a semiprivate room. The annual cost of a private room in 2007 was almost $78,000. 7 MetLife Mature Market Institute and LifePlans, Inc., “The MetLife Market Survey of Adults Day Services & Home Care Costs,” September 2008; available at www.nadsa.org/ docs/MetLife_ADC_Home_Care_Comparison_2008.pdf. 8. Under Section 1915(c) of the Social Security Act, known as the Medicaid home and community-based services waiver authority, states may provide a wide range of home and community-based services, including case management, home care, personal care, adult day care, habilitation, assistive technologies, and respite care for caregivers, among others. 9. Office of the Actuary, 2008 Actuarial Report on the Financial Outlook for Medicaid, Centers for Medicare & Medicaid Services, October 17, 2008; available at www.cms.hhs.gov/Actu- arialStudies/downloads/MedicaidReport2008.pdf. Endnotes / continued ä National Health Policy Forum | www.nhpf.org 5 The Basics: Long-Term Care November 28, 2008 Endnotes / continued 10. Cynthia Shirk, “Trading Places: Real Choice Systems Change Grants and the Movement to Community-Based Long-Term Care Supports,” National Health Policy Forum, Issue Brief 822, May 30, 2007; available at www.nhpf.org/pdfs_ib/IB822_SystemsChange_05-30-07.pdf. 11. Brian Burwell, Kate Sredl, and Steve Eiken, “Medicaid Long-Term Care Expenditures in FY 2007,” Thomson Reuters, September 26, 2008; available at www.hcbs.org/files/145/7 239/2007LTCExpenditures.pdf. 12. Enid Kassner et al., A Balancing Act: State Long-Term Care Reform, AARP Public Policy Institute, 2008; available at http://assets.aarp.org/rgcenter/il/2008_10_ltc.pdf. 13. Anna Sommers, Mindy Cohen, and Molly O’Malley, “Medicaid’s Long-Term Care Beneficiaries: An Analysis of Spending Patterns,” Kaiser Commission on Medicaid and the Uninsured, Issue Paper, November 2006; available at www.kff.org/medicaid/upload/7576.pdf. Institutions refer to nursing homes, intermediate care facilities for people with mental retar- dation (ICFs/MR), mental disease institutions for individuals age 65 and older, and inpatient psychiatric facilities for individuals age 21 and under. Community-based settings refer to home health, personal attendant or personal care services, and home and community-based services waivers. 14. LifePlans, Inc., Who Buys Long-Term Care Insurance? American Health Insurance Plans, April 2007; available at www.ahipresearch.org/PDFs/LTC_Buyers_Guide.pdf. 15. Congressional Budget Office, Financing Long-Term Care for the Elderly, April 2004; available at www.cbo.gov/ftpdocs/54xx/doc5400/04-26-LongTermCare.pdf. Estimates for these services vary widely, depending on the number of caregivers counted, the ages and characteristics of the population being cared for, and the differences in methods used to impute the hourly rates for care provided. One study estimated that the economic value of caregiving ranged from $149 billion to $483 billion. See Peter S. Arno, “Economic Value of Informal Caregiving: 2004,” presentation to the Care Coordination and the Caregiving Forum, Department of Veterans Affairs, National Institutes of Health, Bethesda, MD, Janu- ary 25–27, 2006. Also see Mary Jo Gibson and Ari Houser, “Valuing the Invaluable: A New Look at the Economic Value of Family Caregiving,” AARP, Issue Brief, June 2007; available at http://assets.aarp.org/rgcenter/il/ib82_caregiving.pdf. The National Health Policy Forum is a nonpartisan research and public policy organization at The George Washington University. All of its publications since 1998 are available online at www.nhpf.org. National Health Policy Forum | www.nhpf.org 6