[Background Material and Data on Programs within the Jurisdiction of the Committee on Ways and Means (Green Book)]
[Appendices]
[Appendix B. Health Status, Insurance, and Expenditures of the Elderly, and Background Data on Long-Term Care]
[From the U.S. Government Printing Office, www.gpo.gov]
APPENDIX B - HEALTH STATUS AND EXPENDITURES OF THE ELDERLY AND
BACKGROUND DATA ON LONG-TERM CARE
CONTENTS
Health Status
Causes of Death for the Elderly
Supplementing Medicare Coverage
Medicare Reimbursement and Out-of-Pocket Liabilities of the Elderly
Health Care Expenditures of Medicare Beneficiaries
Projected Drug Spending
Long-Term Care for Persons with Disabilities
Overview
Providers of Long-Term Care
Long-Term Care Spending
Federal Programs That Provide Long-Term Care
Private Long-Term Care Insurance
References
HEALTH STATUS
Although the health status of the elderly has improved in recent
decades, many elderly persons have conditions that require medical
and long-term health care. Most persons 65 years or older have some
form of health insurance. About 97 percent are covered by Medicare
or Medicaid, and most have supplementary coverage. This appendix
reports on the health status, health care expenditures, supplementary
insurance, and long-term care insurance of the elderly.
By various measures, the health status of the elderly population has
been gradually improving over the years. For example, life expectancy
at age 65 has increased from 13.9 years in 1950 to 17.9 years in 2000
(Table B-1). The overall trend since the early 20th century has been
an upward one. Improvements in life expectancy, as measured by
declines in mortality rates, have been greater for females than for
males. Improvements for blacks have been greater than for whites;
however, blacks' life expectancy at birth was still almost 6 years
less than that for whites in 2000. Some morbidity indicators, such
as the prevalence of high blood pressure (hypertension) and high serum
cholesterol, improved among those aged 65-74 years in the 1970s, 1980s
and early 1990s (Table B-2). However, while serum cholesterol readings
have continued their downward trend, the data for 1999-2000 show that
the gains have been reversed for hypertension. More than two-thirds of
both men and women aged 65-74 have elevated blood pressure.
Furthermore, the proportion of overweight seniors has increased
markedly. Under the definition for overweight that was adopted in
1998 by the National Institutes of Health (National Heart, Lung, and
Blood Institute, 1998), the proportion of overweight seniors has
climbed from about 55 percent in the 1971-74 time period to over
70 percent for females and over 77 percent for males in the 1999-2000
time period. Within that group is a large number of people who are
considered obese (33 percent of men and nearly 39 percent of women
aged 65-74).
TABLE B-1--LIFE EXPECTANCY AT BIRTH AND AT 65 YEARS OF AGE, BY
SEX AND RACE, SELECTED YEARS 1950-2000
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Among the elderly, the needs for medical and long-term care services
are substantial and growing. Many of the elderly have one or more
chronic conditions, many of which give rise to the need for
continuing health care. Table B-3 shows the prevalence of several
common chronic conditions among the elderly. About one-third report
having heart disease, nearly 37 percent have arthritis, and 18 percent
report some form of cancer. Over 40 percent report trouble with their
hearing, and 18 percent have trouble with their vision, even with
correction. The prevalence of many chronic conditions is directly
related to age and inversely related to financial status. (Cancer and
hearing trouble are exceptions, being reported by more people with
higher incomes.)
TABLE B-2--SELECTED HEALTH STATUS INDICATORS FOR PERSONS 65-74 YEARS
OF AGE, BY SEX, SELECTED PERIODS 1971-2000
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Self-assessed health is a common method used to measure health
status, with responses ranging from excellent to poor. Over
73 percent of elderly people living in the community describe their
health as excellent, very good, or good; only 27 percent report that
their health is fair or poor (Table B-4). Men are slightly more
likely than women to report very good or excellent health.Family
income is directly related to elderly people's perception of their
health. In 1998, about 45 percent of older people with incomes over
$20,000 described their health as excellent or very good, while only
27 percent of those with incomes less than $20,000 reported excellent
or very good health (National Center for Health Statistics (NCHS),
unpublished data).
Surveys on long-term care indicate that rates of chronic disability
among the elderly have declined significantly (Manton, 2001). Some
demographers, in looking at the reductions in the projected
percentage of those 65 and above who are disabled, are predicting
that older people will not only have increasing longevity, but less
dependency in later life. Others caution, however, that more
research is needed to understand the causes of these improvements
and the implications for future health care costs and demand for
services (Freedman, 2002).
TABLE B-3--SELECTED REPORTED DISEASES AND CONDITIONS AMONG ELDERLY
PERSONS, BY AGE AND POVERTY STATUS, 1998
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
TABLE B-4--SELF-ASSESSED HEALTH STATUS OF THE ELDERLY, BY SEX,
FAMILY INCOME, AND POVERTY STATUS, 1998
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
CAUSES OF DEATH FOR THE ELDERLY
Table B-5 shows the 10 leading causes of death for three
subgroups of the older population. In the United States, nearly two-
thirds (63 percent) of elderly persons die from heart disease, cancer,
or stroke. Heart disease was the major cause of death among the
elderly in 1950, and remains so today despite rapid declines in age-
adjusted death rates from heart disease that are due to improvements
in treatments as well as lifestyle changes. The death rate for
cancer among the elderly, however, rose between 1950 and 1995, due
especially to increases in lung cancer deaths; since 1995, the rate
has decreased slightly (NCHS, 2002a, pp. 52-53, 69). In 2000, heart
disease still accounted for 33 percent of all deaths among persons
65 and older, while cancer accounted for 22 percent of all deaths in
this age group. The third leading cause of death among the elderly-
stroke (cerebrovascular disease)Bhas been decreasing over the past
40 years. In 2000, cerebrovascular disease accounted for only
8 percent of all deaths in the 65 and older age group.Alzheimer's
disease is now the seventh leading cause of death for older people.
Alzheimer's has only been classified as a unique cause of death since
1979.
Reported death rates have increased rapidly as the diagnosis has
gained more acceptance and as diagnostic procedures changed. Recent
large increases in the death rate in the 1998-2000 time period are
hard to interpret because of changes to the coding and selection
rules under the International Classification of Diseases (NCHS,
2002c). New data indicate that Alzheimer's affects approximately
4.5 million Americans at present, including about 1 in 10 persons
over 65 and nearly half of those over age 85 (Alzheimer's
Association, 2003). Death rates from Alzheimer's are also highly
age related (NCHS, 2002c). Presence of Alzheimer's may be masked
by inability to confirm the diagnosis except by autopsy of brain
tissue, although new diagnostic tools are being developed. Future
morbidity and mortality from Alzheimer's disease will increase as
the population continues to age unless new treatments or a cure
are found. By 2050, an estimated 13.2 million Americans could
have the disease (Alzheimer's Association, 2003).
TABLE B-5--DEATH RATES FOR LEADING CAUSES OF DEATH AMONG OLDER
PEOPLE, BY AGE, 2000
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
SUPPLEMENTING MEDICARE COVERAGE
Most beneficiaries depend on some form of private or public
coverage to supplement their Medicare coverage (Table B-6). In 2000,
only about 13 percent of beneficiaries relied solely on the
traditional fee-for-service Medicare program for protection against
the costs of care; an additional 13 percent were enrolled in
managed care organizations. (See Appendix E for a discussion of
Medicare+Choice). The majority of the Medicare population
(56 percent in 2000) have private supplemental coverage. This
private insurance protection may be obtained through a current or
former employer (29 percent in 2000). It may also be obtained through
an individually purchased policy, commonly referred to as a "Medigap"
policy (23 percent had these plans in 2000). Some persons have both
(4 percent in 2000). In addition, a smaller percentage (about
16 percent in 2000) have Medicaid coverage; a small group (2 percent
in 2000) have supplemental coverage from one of a variety of other
public sources (such as the military).
Employer-Based Policies
Employers may offer their retirees health benefits. Several surveys
have attempted to quantify the percentage of employers offering this
coverage. Since each survey uses a different database, the numbers
differ somewhat. However, all show that the number offering such
plans has declined in recent years.
TABLE B-6--TYPES OF SUPPLEMENTAL HEALTH INSURANCE HELD BY MEDICARE
BENEFICIARIES, 2000
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
A survey by Mercer shows that over a 10-year period (1993-
2002) the number of employers (with over 500 employees) offering
health plan coverage to retirees (both current and future retirees)
under age 65 fell from 46 percent to 29 percent, while the number
providing coverage to Medicare-eligible retirees fell from 40 percent
to 23 percent. (Mercer)
A joint study done by The Kaiser Family Foundation and Health
Research and Educational Trust (HRET) shows similar trends. From
1998 to 2003, the percentage of large employers (with 200 or more
employees) offering coverage to all retirees dropped from 66 percent
to 38 percent. Of those offering retiree coverage in 2003,
93 percent offered coverage to early retirees while 78 percent
offered coverage to Medicare age retirees. (Kaiser and HRET).
A 2002 survey of private firms with 1,000 or more workers by Kaiser
and Hewitt Associates (Kaiser and Hewitt) showed that 91 percent of
these employers offered retiree coverage. Of those offering benefits,
74 percent offered new retirees under age 65 (defined as those
retiring on or after January 1, 2002) a choice of two or more health
plans; 60 percent offered a choice of two or more plans to new
retirees age 65 and over. The two most common types of plans offered
to pre-65 retirees were preferred provider organizations (PPOs) and
health maintenance organizations (HMOs). For age 65 and over retirees,
the two most common plan options were indemnity (or managed
indemnity) followed by Medicare+Choice/HMO plans. The surveyed firms
made substantial changes in recent years in response to rising costs.
Forty-four percent increased retiree contributions to premiums,
36 percent increased cost-sharing for retirees; 13 percent terminated
health benefits for future retirees; and 7 percent shifted to a
defined contribution approach. Conversely 17 percent reported adding
benefits or improving coverage.
Medigap
Beneficiaries with Medigap insurance typically have coverage for
Medicare's deductibles and coinsurance; they may also have coverage
for some items and services not covered by Medicare. Individuals who
first purchase a Medigap policy on or after July 30, 1992, select
from one of 10 basic standardized plans, though not all 10 plans are
offered in all states. The 10 plans are known as Plan A through
Plan J. Plan A covers a basic package of benefits. Each of the
other nine plans includes the basic benefits plus a different
combination of additional benefits. Plan J is the most comprehensive.
A change authorized by the Balanced Budget Act of 1997 (BBA 97)
added two high deductible plans to the list of 10 standardized
plans. With the exception of the high deductible feature ($1,650
in 2003), the benefit packages under the high deductible plans are
the same as under Plan F or Plan J. \Reportedly, few insurers are
offering these high deductible plans.
Only three of the standardized plans, Plans H-J, offer prescription
drug coverage. All three plans impose a $250 drug deductible. Plans
H and I cover 50 percent of the next $2,500 in costs up to a maximum
benefit of $1,250 ($2,750 total spending). Plan J covers 50 percent
of the next $6,000 in costs up to a maximum benefit of $3,000 ($6,250
total spending). The premiums for these plans are higher than those
for the other seven Medigap plans, in large measure due to the drug
coverage.
There is wide variation in Medigap premiums for both drug and non-
drug policies nationwide. This reflects a number of factors
including differences in the benefits of Plan A through Plan J,
differences in medical underwriting practices, and differences in
pricing structures. Periodically, Weiss Ratings, Inc., under contract
with CMS, reports on its inventory of Medigap premiums for 65-year
old males (Table B-7). Over the 2-year period 1998-2000, the
average premium increases were 15.5 percent for policies without
drug coverage compared to 37.2 percent for policies with coverage.
The rate slowed substantially in 2002, with only a 2.4 percent
increase recorded for all policies over the previous year. For all
3 years, premiums, and premium increases vary greatly by location.
The law contains certain requirements which guarantee the
ability of beneficiaries to enroll in Medigap plans under certain
specified conditions. These guaranteed issue provisions, outlined
below, were significantly expanded by three recent laws: BBA 1997,
the Balanced Budget Refinement Act of 1999 (P.L.106-113), and the
Medicare, Medicaid, and SCHIP Benefits Improvement and Protection
Act of 2000 (BIPA 2000, P.L.106-554).
Six-Month Open Enrollment-- Federal law establishes an open
enrollment period for the aged. All insurers offering Medigap
policies are required to offer open enrollment for 6 months from
the date a person first enrolls in Part B (generally when the
enrollee turns 65). During this time an insurer cannot deny the
issuance, or discriminate in the pricing of a policy because of an
individual's medical history, health status or claims experience.
This requirement is known as guaranteed open enrollment. If an
individual applies for a Medigap policy after the open enrollment
period, the company is permitted to use medical underwriting. This
means that the company can use an individual's medical history to
decide whether or not to accept the application and how much to
charge for the policy.
TABLE B-7--AVERAGE NATIONWIDE MEDIGAP PREMIUMS FOR A 65-YEAR OLD
MALE, 1998, 2000, AND 2002
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
There is no guaranteed open enrollment period for the non-aged
disabled population. However, when a disabled person turns 65,
that individual has the same open enrollment period as other
aged persons.
Guaranteed Issue--The law guarantees issuance of specified
Medigap policies (without an exclusion based on a pre-existing
condition) for certain persons whose previous supplementary
coverage was terminated. Guaranteed issue also applies to certain
persons who elect to try out a Medicare+Choice plan. In these cases,
individuals are guaranteed issue of specific Medigap plans
(generally A, B, C, or F) that are sold to new enrollees by Medigap
insurers in the state. The nsurer is prohibited from discriminating
in the pricing of such a policy on the basis of the individual's
health status, claims experience, receipt of health care or medical
condition. This right must be exercised within 63 days of
termination of other enrollment. Table B-8 summarizes the
guaranteed issue protections of the law. It highlights the event
that triggers these protections, the time period during which an
affected individual can enroll in a Medigap plan, and the types of
Medigap
plans that are guaranteed.
TABLE B-8--GUARANTEED ISSUE PROTECTIONS
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Pre-Existing Condition Exclusions-- For purposes of Medigap,
pre-existing conditions are defined as those diagnosed or treated
during the 6 months immediately preceding the start of a Medigap
policy. At the time insurers sell a Medigap policy they are
generally permitted to limit or exclude coverage for services
related to a preexisting health condition. Such pre-existing
condition exclusions cannot be imposed for more than 6 months.
However, preexisting limitations may not be imposed at all in
the following cases:
- Any individual who falls into one of the qualifying events
categories discussed above under "Guaranteed Issue." These
include persons whose previous coverage was involuntarily terminated
or persons who elect to try out Medicare+Choice.
- During the first 6-month open enrollment period, if on the
date of application, the individual had health insurance coverage
meeting the definition of "creditable coverage" under the Health
Insurance Portability and Accountability Act. (Note that the
insurer may impose a pre-existing exclusion limitation if the
individual did not have such creditable coverage.)
- An individual who met the pre-existing condition limitation
in one Medigap policy. The individual does not have to meet the
requirement under a new policy for previously covered benefits;
however, an insurer could impose exclusions for newly covered
benefits (for example for prescription drugs if not covered under
the previous policy).
The prohibition applies to persons who had coverage under a prior
policy for at least 6 months. If the individual has less than
6 months prior coverage, the policy must reduce the pre-existing
exclusion by the amount of the prior coverage.
Medicaid
Some low-income aged and disabled Medicare beneficiaries are also
eligible for full or partial coverage under Medicaid. Medicaid is
a federal-state program which provides health insurance coverage
to certain low-income individuals. Within broad federal guidelines,
each state sets its own eligibility criteria, including income
eligibility standards. Persons meeting the state standards are
entitled to full coverage under Medicaid. Persons entitled to full
Medicaid protection generally have all of their health care expenses
met by a combination of Medicare and Medicaid. For these "dual
eligibles," Medicare pays first for services both programs cover.
Medicaid picks up Medicare cost-sharing charges and provides
protection against the costs of services generally not covered by
Medicare (such as long-term care). Perhaps the most important
service for the majority of dual eligibles is prescription drugs.
These dual eligibles typically have comprehensive coverage with only
nominal cost-sharing.
Federal law specifies several population groups that are entitled to
more limited Medicaid protection. These are qualified Medicare
beneficiaries (QMBs), specified low income beneficiaries (SLIMBs),
and certain qualified individuals. QMBs and SLIMBs are not entitled
to Medicaid's prescription drug benefit unless they are also entitled
to full Medicaid coverage under their state's Medicaid program.
Qualifying individuals are never entitled to Medicaid drug coverage
(because, by definition, they are not eligible for full Medicaid
benefits).
The following are the three coverage groups:
- Qualified Medicare Beneficiaries (QMBs)--QMBs are aged or
disabled persons with incomes at or below the federal poverty level.
In 2003, the monthly level is $769 for an individual and $1,030 for
a couple. They must also have assets below $4,000 for an individual
and $6,000 for a couple. QMBs are entitled to have their Medicare
cost-sharing charges, including the Part B premium, paid by the
federal-state Medicaid program. Medicaid protection is limited to
payment of Medicare cost-sharing charges (i.e., the Medicare
beneficiary is not entitled to coverage of Medicaid plan services)
unless the individual is otherwise entitled to Medicaid.
- Specified Low-Income Medicare Beneficiaries (SLIMBs)--These
are persons who meet the QMB criteria, except that their income is
over the QMB limit. The SLIMB limit is 120 percent of the federal
poverty level. In 2003, the monthly income limits are $918 for an
individual and $1,232 for a couple. Medicaid protection is limited
to payment of the Medicare Part B premium (i.e., the Medicare
beneficiary is not entitled to coverage of Medicaid plan services)
unless the individual is otherwise entitled to Medicaid.
- Qualifying Individuals (QI-1s)--These are persons who meet
the QMB criteria, except that their income is between 120 percent
and 135 percent of poverty; the monthly income limit for QI-1 for
an individual is $1,031 and for a couple $1,384. Medicaid protection
for these persons is limited to payment of the monthly Medicare
Part B premium.
Other Coverage
Some beneficiaries with a military service connection may receive
health insurance coverage through Department of Defense or Department
of Veterans Affairs programs. P.L.106-398, the Defense department
authorization bill for 2000 authorized a permanent comprehensive
health care benefit for Medicare-eligible military retirees thereby
making all military retirees eligible for health care within TRICARE,
the military health care system, effective October 1, 2001. Under the
law, Medicare pays first and TRICARE is the secondary payer, subject
to a $300 deductible. Previously, individuals lost their TRICARE
eligibility when they became eligible for Medicare. The law also
authorized, effective April 1, 2001, a comprehensive retail and mail
order pharmacy benefit and a national mail order pharmacy benefit
for all eligible beneficiaries. There are deductibles for use of
non-network pharmacies and co-payments for pharmaceuticals received
from the National Mail Order Pharmacy and from retail pharmacies.
Drug Coverage
Medicare does not cover most outpatient prescription drugs.
Beneficiaries may have access to drug benefits through their managed
care plan or supplemental health insurance plan. In 1998, 73 percent
of the non-institutionalized Medicare population had drug coverage at
some point during the year; the remaining 27 percent had no coverage.
The likelihood that a beneficiary has prescription drug coverage
varies by the source of coverage. Beneficiaries enrolled in HMOs
were the most likely to have drug coverage while those in Medigap
plans were the least likely to have such coverage. (See Table B-9.)
It should be noted that Table B-9 shows the percentage of
beneficiaries who had drug coverage at any point during 1998. Some
beneficiaries do not, however, have drug coverage for the entire
year. Further, the figures do not reflect the extent and depth of
coverage which varies widely by source of coverage.
TABLE B-9--DISTRIBUTION OF NONINSTITUTIONALIZED MEDICARE
BENEFICIARIES, BY TYPE OF SUPPLEMENTAL INSURANCE AND PRESENCE OF
DRUG COVERAGE, 1998
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
In 1998, persons in higher income brackets were more likely to have
drug coverage. This reflects the fact that these persons were more
likely to have drug coverage through a former employer. Persons
below poverty had coverage levels slightly higher than persons just
above poverty. This reflects the fact that many individuals below
poverty were eligible for full Medicaid benefits which include drug
benefits. The lowest levels of coverage were for persons between
100 percent and 175 percent of poverty. These persons are the
least likely to have access to employer-based coverage or Medicaid.
The 1998 number reflects a slight improvement for the low-income
population over previous years.
Medicare+Choice (M+C)--The percentage of M+C enrollees with access to
prescription drug coverage has declined in recent years. In 1999,
65 percent of the Medicare population had access to at least one M+C
coordinated care plan that included prescription drug coverage. In
2003, 50 percent of the Medicare population has access to such a
plan. An additional 10 percent have access through preferred provider
organizations demonstration projects and private fee-for-service
plans. Among persons with access to M+C coordinated care plans,
87 percent in urban counties and 70 percent in rural counties have
access to drug coverage. Beneficiaries can get M+C drug coverage
through a basic plan or a plan with supplemental benefits. In 1999,
84 percent of M+C enrollees in coordinated care plans had drug
coverage through their basic plans; the percentage dropped to
69 percent in 2003.
The scope of coverage available to beneficiaries has been declining.
For example, more plans are limiting coverage to generic drugs only.
In 2002, 30 percent of those with drug coverage in their basic plan
only had coverage for generic drugs; this percentage increased to
44 percent in 2003. One-quarter of those with generic coverage only
were subject to an annual cap (CMS, 2003).
Employer-Based Coverage-- Persons with employer-based coverage
typically have coverage similar to that offered to current workers.
The Kaiser/Hewitt survey of large employers (1,000 or more) showed
that the vast majority of employers that offered retiree health
benefits for those age 65 and over (96 percent) provided coverage
for prescription drugs. Most (80 percent) offered the benefits as
part of their retiree health benefits plan, while a small percentage
(15 percent) offered coverage through a separate, employer-subsidized
stand-alone drug plan. Only one percent offered an unsubsidized drug
discount card or other program. The vast majority of those offering
drug coverage provided unlimited drug benefits, while 11 percent had
a separate drug benefit limit. Of those employers with the largest
number of retirees 65 and over, 31 percent had design features
specific to the drug benefit, such as a separate deductible or
separate out-of-pocket maximum. Ninety-three percent of those large
firms offering retiree drug benefits offered both retail and mail
order coverage. Only 14 percent with a mail order option required
enrollees to use mail order. Sixty-six percent of employers contract
directly with a pharmacy benefit manager (PBM) to administer the plan
that enrolls the largest number of age 65 and over retirees
(Kaiser/Hewitt).
Prescription drug benefits represent a large part of plan expenses
for retirees. As a result, many plans are taking actions to contain
these costs. These include imposing either a two-tiered cost-sharing
structure (one payment for generic drugs and another for brand name
drugs) or three-tiered cost-sharing structure (one payment for
generic drugs, another for brand name drugs with no generic
substitute and a third for brand-name drugs with a generic
substitute).
Medigap--As noted previously, only 3 of the 10 standardized Medigap
plans include drug coverage. A number of observers have concluded
that only those persons who expect to actually utilize a significant
quantity of prescriptions actually purchase such coverage. This is
because there is a significant price difference between premiums for
policies with drug coverage versus those for policies without drug
coverage. This adverse selection tends to further drive up the
premium costs. One analysis of the Medigap market found that about
60 percent of policyholders had no drug coverage. This figure
included the 90 percent of beneficiaries purchasing standardized
plans (i.e., Plans A- J, first purchased on or after July 30,
1992). Three out of four Medigap policyholders with prescription
drug coverage were in prestandard Medigap plans; many of these
plans offer coverage that is even less generous than that available
under standard plans. As of 2003, enrollees in prestandard plans
are at least 76 years old. Since in most states Medigap insurers
can deny issuance of Medigap policies after the open enrollment
period at age 65, persons with prestandard policies who wish to
change plans generally have no alternative except Plan A (if their
current carrier is willing to sell them this) or Medicare+Choice
(if a M+C plan is available in their area) (Chollet).
Medicaid--As noted previously, persons with full Medicaid coverage
generally have access to a prescription drug benefit. However,
QMB-only, SLIMB-only, and QI-1 beneficiaries do not have access to
drug coverage through the Medicaid program.
State Pharmaceutical Assistance Programs--Some Medicare beneficiaries
have coverage through state pharmaceutical assistance programs which
provide financial assistance to low-income persons who do not
qualify for Medicaid. The National Conference of State Legislatures
(NCSL) reports that as of October 2003, 28 states had programs in
operation, with some states having more than one program. The state
programs vary substantially both in design and coverage. Most states
had subsidy programs; while some states operated pharmaceutical
discount programs for the purchase of prescription drugs. Virtually
all states set income eligibility standards for their subsidy
programs. Many subsidy plans required some level of beneficiary
financial participation in the form of premiums, deductibles,
copayments, or a combination of these. The level of coverage also
varied among the States (NCHSL).
MEDICARE REIMBURSEMENT AND OUT-OF-POCKET LIABILITIES OF THE ELDERLY
Tables B-10 through B-12 illustrate for selected years how Medicare
reimbursement, acute health care costs, and out-of- pocket
liabilities of Medicare enrollees respectively have changed. The
years chosen are 1975, 1980, 1985, 1990, 1995, 2000, and 2003.
Constant 2003 dollar values were obtained using the Consumer Price
Index for All Urban Consumers (CPI-U). The fastest growing component
of Medicare reimbursement is for benefits under the Supplementary
Medical Insurance (SMI) Program. For SMI, reimbursements have
increased at an average annual rate of 10.7 percent, while the growth
in total Medicare costs (including enrollees' share of costs) is
8.7 percent (Table B-10). As a result, the share of SMI costs
reimbursed by Medicare increases significantly over the period--
from about 63 percent in 1975 to about 76 percent by 2003. The
growth in Medicare's share is caused by the declining significance
of the SMI deductible, so that more enrollees' costs are eligible
for reimbursement.
TABLE B-10 -- REIMBURSEMENTS AND OUT-OF-POCKET COSTS UNDER MEDICARE,
SELECTED CALENDAR YEARS 1975-2003
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
In the Hospital Insurance (HI) Program, by contrast, the rate of
growth in reimbursement is roughly comparable to the growth in
enrollee's co-payment costs. Consequently, the share of HI costs
reimbursed by Medicare was 93 percent in 1975 and 92 percent in
2003 (Table B-10). Overall, the share of costs reimbursed by Medicare
has increased slightly. The percentage of costs paid by Medicare for
services covered under Medicare was 82 percent in 1975 and 84 percent
in 2003 (Table B-10).
The share of costs paid directly by enrollees is shown in the
third panel of Table B-11. Total direct costs (excluding premiums)
plus Medicare reimbursement equals the total or 100 percent. In
constant dollars, HI co-payments increased the most rapidly between
1975 and 1990. However, between 1990 and 2003, SMI co-payments and
premium costs rose the most rapidly. In contrast, the cost to the
enrollee from balance billing has decreased significantly since
1985--a direct policy result of the participating physician program
and the imposition of lower limits on balance billing (Table B-12 for
deductible amounts and monthly premium amounts under Medicare).
Enrollees spend a larger share of their income for Medicare's
cost sharing and premium charges than they did in 1975 (Table B-11).
In 1975, about 4.3 percent of enrollees' per capita income went to
cover their share of acute health care costs under Medicare. By 1995,
this figure had risen to 9.0 percent. The percentage declined to
6.6 percent in 2000, but rose to 8.4 percent in 2003.
TABLE B-11 -- ENROLLEE COSTS UNDER MEDICARE, SELECTED CALENDAR YEARS
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
TABLE B-12 -- COPAYMENT AND PREMIUM VALUES UNDER MEDICARE, SELECTED
CALENDAR YEARS 1975-2003
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
HEALTH CARE EXPENDITURES OF MEDICARE BENEFICIARIES
Personal health care spending for Medicare beneficiaries totaled
$10,250 per person in 2000 (Table B-13). The figure was higher for
the disabled - $13,247 per capita- than for the aged - $9,784 per
capita.
Chart B-1 shows that spending by public payers accounted for 63.6
percent of spending for the Medicare population in 2000. Medicare,
both fee-for-service and managed care, accounted for 50.3 percent,
Medicaid 12.4 percent and the Department of Veterans Affairs
0.9 percent. Private spending accounted for 36.4 percent of total
spending. Out-of-pocket spending by beneficiaries represented the
most significant portion of private spending. In fact, out-of-pocket
spending by beneficiaries accounted to close to one fifth of total
spending, Chart B-1.
TABLE B-13 -- PER CAPITA DISTRIBUTION OF TOTAL HEALTH EXPENDITURES
OF MEDICARE BENEFICIARIES BY PAYER, 2000
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
CHART B-1--DISTRIBUTION OF EXPENDITURES OF ALL MEDICARE BENEFICIARIES
BY PAYER, 2000
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
CHART B-2--DISTRIBUTION OF EXPENDITURES BY PAYER, TOTAL,
AGED, AND DISABLED MEDICARE BENEFICIARIES, 2000
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
The contribution of different payer groups to total spending showed
different patterns for the aged and disabled (Table B-13 and
Chart B-2). While Medicare accounted for 52 percent of total
spending for the aged, it represented only 40 percent of total
spending for the disabled. Medicaid picked up almost twice as much
of the costs for the disabled as for the aged (21 percent versus 11
percent). Out-of-pocket costs accounted for 21 percent of total
spending for the aged but only 13 percent for the disabled. Other
private spending by insurers and managed care plans represented
only 15 percent of total spending for the aged but 25 percent for
the disabled. Spending by the Department of Veterans Affairs was
comparable for both groups (1 percent of the total).
PROJECTED DRUG SPENDING
The Congressional Budget Office (CBO) has projected drug spending for
Medicare beneficiaries for drugs not covered by the program. This
includes spending by supplemental plans as well as beneficiaries'
out-of-pocket costs. In March 2003, the estimate for the CY2003-2012
period was $1.6 trillion. (Any new Medicare benefit would pick up a
portion of these costs.) Over the CY2003-2012 period, median spending
was estimated to increase from $1,390 in 2003 to $3,439 by 2013. Over
the same 10-year period, mean spending was estimated to increase from
$2,318 to $5,727. (Mean spending is higher than median spending
because mean spending is highly influenced by the relatively small
portion of the population with very high drug costs.) Projection
increases in per capita spending over the period reflect a number of
factors including price increases, utilization changes, and the
inclusion of two high cost years (2011 and 2012, the first years
when the baby boom generation becomes eligible for Medicare).
Drug spending is very unevenly distributed across Medicare
beneficiaries. A relatively small proportion of the population
accounts for a relatively large portion of total spending. CBO
estimates that (excluding M+C enrollees), 10.3 percent of
beneficiaries will have no drug spending in 2003. Slightly more
than half (51 percent) of total drug spending will be for the 15.8
percent of the population spending $4,000 or more in the year.
Approximately 31.7 percent of spending will be for the 7 percent of
the population spending $6,000 or more in the year (see Table B-14).
TABLE B-14--ESTIMATED DISTRIBUTION OF MEDICARE BENEFICIARIES AND
AMOUNT SPENT ON OUTPATIENT PRESCRIPTION DRUGS, 2003
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
LONG-TERM CARE FOR PERSONS WITH DISABILITIES
OVERVIEW
Long-term care refers to a wide range of supportive and health
services for persons who have lost the capacity for self-care due to
illness or frailty. Chronic illness or conditions often result in
both functional impairment and physical dependence on others for an
extended period of time. Major groups of persons needing long-term
care services and supports include the elderly as well as younger
persons with disabilities, including persons with developmental
disabilities, physical disabilities, and mental illness. The
likelihood of needing long-term care assistance occurs more
frequently with advancing age. However, advances in medical care are
enabling persons of all ages with disabilities to live longer. The
demand for long-term care services is expected to increase as the
population ages.
The presence of a chronic illness or condition alone does not
necessarily result in a need for long-term care services. For many
individuals, an illness or a chronic condition does not result in
functional impairment or dependence and they are able to conduct
daily routines without assistance. When the illness or condition
results in a functional or activity limitation, long-term care
services may be required. The range of chronic illnesses and
conditions resulting in the need for long-term care services and
supports is extensive. Unlike acute medical illnesses which may be
solved in a relatively short period of time, chronic conditions last
for an extended period of time and are not typically curable.
Long-term care services include a continuum of health and social
services provided in institutions, in the community and at home.
However, the predominant source of long-term care support for
persons with disabilities is through informal support services
provided by unpaid family and friends. Despite the enormous amount
of care provided by informal sources, long-term care spending - over
$151 billion in 2001 - represents more than 12 percent of all
personal health care spending.
The long-term care system is comprised of multiple types of providers
financed by a myriad of federal health and social service programs
primarily, but also income assistance and housing support programs
to a lesser extent. The principal source of public support for long-
term care is the Medicaid program, chiefly through its coverage of
nursing home care. Over the years, federal and state policymakers
have devoted efforts to expand home and community-based long-term
care services that most people prefer over institutional care. A
significant Supreme Court decision in 1999 (Olmstead v. L.C.) has
sharpened federal policy attention on federal and state programs
that provide this care. The private long-term care insurance market
is a growing option to provide protection against the high cost of
long-term care for some people.
This Appendix presents an overview of long-term care, including
information on current recipients, future need, providers, federal
programs and the private long-term care insurance market.
Measuring the Need for Long-Term Care
The need for long-term care assistance is measured by assessing a
person's need for assistance with activities of daily living (ADLs)
and/or instrumental activities of daily living (IADLs). ADLs are
activities necessary to carry out basic human functions, and include
the following: bathing, dressing, eating, getting around inside the
home, toileting, and transferring from a bed to a chair. IADLs are
tasks necessary for independent community living, and include the
following: shopping, light housework, laundry, taking medication,
telephoning, money management, and meal preparation. IADLs are
sometimes used to measure a person's need for assistance as a
result of mental or cognitive disabilities as well as physical
disabilities.
Recipients of Long-Term Care
About nine million persons over age 18 received long-term care
assistance, either in community settings or in nursing homes. This
includes 5.5 million persons aged 65 and older (in 1999) and 3.5
million persons aged 18-64 (in 1994) (61 percent and 39 percent of
the total, respectively) (see Tables B-15 and B-16). The vast
majority of adults who receive long-term care assistance reside in
the community, not in institutions. About 7.2 million persons aged
18 and older received long-term care assistance in community
settings, representing over 80 percent of all persons receiving
assistance. Of all persons receiving assistance in the community,
just over half are aged 65 and older, and about 47 percent are age
18-64.
Less than 5 percent of persons aged 65 and older - just under
1.7 million persons B received care in institutions in 1999. Less
than one-tenth of one percent of persons age 18-64 received care in
nursing homes in 1994 - about 138,000 persons (see Tables B-15 and
B-16). About another 400,000 persons receive care in residential care
facilities for persons with mental retardation or developmental
disabilities or mental illness (Spector, Pezzin, and Spillman).
The likelihood of receiving long-term care assistance increases
dramatically with age. However, while use of nursing home care
occurs more frequently as a person ages, regardless of age, in 1999,
most older people received long-term care assistance in community
settings rather than in nursing homes, even those 85-94. It is only
among the very old - those persons aged 95 and older - that persons
have about an equal chance of being cared for in an institution or
in the community (see Table B-15).
TABLE B-15--PERSONS AGED 65 AND OLDER RECEIVING LONG-TERM CARE
SERVICES, 1999
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Future Need for Long-Term Care
While some research shows that the incidence of disability among the
older population has decreased over time, the sheer numbers of older
persons in the future will strain private and public resources devoted
to long-term care. The increasing numbers of older persons,
especially those who are in the oldest age categories will affect
public and private financing for care and demand for services from
long-term care service providers. The growth in the older population
will also affect caregiving demands on families who are the primary
source of long-term care assistance.
Experts predict that in the coming decades long-term care services
will be in greater demand due to increased numbers of older persons,
especially those in the oldest age categories. After 2011, the rate
of growth for the population age 65 and older will considerably
outpace the growth of the rest of the nation, and at its peak the
elderly population will be growing eight-times faster than the
population under age 65. This growth will lead to significantly
higher ratios of elderly to non-elderly in the future. Chart B-3
shows the percent increase in the number of the elderly for each
year from 2001-2030 compared to the change in the population under
65. The large increase in the elderly population in 2011 will present
challenges for families.
TABLE B-16--PERSONS AGE 18-64 RECEIVING LONG-TERM CARE SERVICES, 1994
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
In 2010, just before the first of the baby-boom generation
(those born in 1946) turns 65, the U.S. Census Bureau projects that
13.2 percent of the U.S. population will be 65 and over; by 2030, when
the last of the baby-boom generation (those born in 1964) will already
have turned 65, 20 percent of the population will be 65 and older.
Between 2000 and 2030, the number of persons 65 and older will more
than double, from 35 million to more than 70 million persons.
Furthermore, in 2030, 33 million of those people will be 75 and older,
and almost 9 million will be 85 and older (see Table B-17).
CHART B-3--PROJECTED RATE OF GROWTH FROM PREVIOUS YEAR
FOR SELECTED POPULATIONS IN THE UNITED STATES, 2001-2030
TABLE B-17--ELDERLY POPULATION AS A PERCENT OF TOTAL
POPULATION IN THE UNITED STATES, 2030
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
The number of persons with disabilities will grow as the
population ages. According to data prepared for the Department of
Health and Human Services (DHHS), the number of persons receiving
long-term care assistance will increase by over 80 percent from
2005-2035. Users of institutional care (nursing facilities and
alternative living facilities, such as assisted living facilities)
age 65 and older are estimated to increase by about 70 percent over
this same period. Users of home care services are estimated to
increase by 85 percent (see Table B-18). The number of persons
aged 65 and older with at least two or more ADLs is estimated to
increase by over 30 percent from 2000-04 to 2030-34.
TABLE B-18--PROJECTED GROWTH IN THE LONG-TERM CARE POPULATION,
AGE 65 AND OLDER, 2005-2035
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
PROVIDERS OF LONG-TERM CARE
The primary source of long-term care assistance is from
informal caregivers - families and friends of persons with
disabilities who provide care and assistance without compensation.
Estimates of the number of caregivers to persons of all ages
receiving long-term care assistance range from 7 million to 54
million persons, depending upon the population served and the amount
and intensity of care provided. Research has shown that while adults
of all ages provide long-term care assistance, persons in middle to
late middle age are most likely to be caregivers. While women are most
likely to be in the caregiver role, both men and women provide care.
In addition, caregivers often have competing demands - about one-
half are employed and one-third have minor children in the home
(Administration on Aging, August 2002).
Informal Care Provided by Families and Friends
Of the 3.9 million persons5 aged 65 and older who received
long-term care assistance in the community in 1994, nearly 60 percent
relied exclusively on unpaid caregivers, primarily spouses and
children. Only 7 percent relied exclusively on paid services;
slightly more than a third relied on a combination of paid and unpaid
care. Of the 3.4 million persons aged 18-64 who received assistance in
the community, nearly three-quarters of persons relied exclusively on
unpaid caregivers. Only 6 percent relied exclusively on paid services
(see Table B-19).
TABLE B-19--TYPE OF CARE RECEIVED BY PERSONS AGED 18 AND
OVER LIVING IN THE COMMUNITY, 1994
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Formal Care Providers
In addition to the extensive informal care provided by
families and friends, the long-term care services system includes
thousands of formal care providers. They range from institutional
providers, including nursing homes and residential care facilities
for persons with mental retardation and developmental disabilities,
to a variety of agencies and programs that provide a wide array of
home and community-based services. These services include home health
care, personal care, homemaker and chore assistance, adult day care
services, home-delivered meals, transportation, and many others. In
addition, assisted living facilities, adult foster care homes and
other group homes provide both room and board as well as personal
care and other assistance to persons who have lost the capacity to
live independently in their own homes because of their need for
assistance with ADLs or IADLs.
The growth in many formal providers has been influenced by
the availability of federal financing sources. For example, the
growth in the nursing home industry during the last fifty years has
largely been a result of financing available through the Medicaid
program and, to a lesser extent, the Medicare program. Before then,
homes for the aged were supported by state-only funds and through
private resources. On the other hand, home care agencies have a
long history of support from the private sector through charitable
and volunteer organizations, dating from the late 19th century. Like
nursing homes, growth in the home care industry has been influenced
by the availability of federal financing under Medicare and Medicaid.
Adult day care services were modeled after programs that originated
in Europe, and then were later adopted in the U.S. to fit available
financing mechanisms through the Medicaid, Social Services Block
Grant (SSBG), and Older Americans Act programs. A relatively new
model of care - assisted living - has recently become an important
component of the formal long-term care system and is primarily
financed by individuals' own resources - not through public sources.
Nursing Homes--While only a small proportion of persons
receiving long-term care services reside in nursing homes, the
largest proportion of public spending on long-term care is for this
care. The growth in the nursing home industry was influenced by the
creation of benefits under the Medicare, but especially, the Medicaid
programs in 1965. Significant growth in number of nursing homes
occurred during the 1960s - from 1960 to 1970, the number of homes
more than doubled, from 9,582 to almost 23,000, and the number of
beds more than tripled, from 331,000 to more than one million (U.S.
Congress. Senate. Special Committee on Aging). While the number of
homes has fluctuated over the years, the number has declined from the
1970 level. In 2003, there are about 1.8 million beds in more than
16,400 nursing facilities (Centers for Medicare and Medicaid Services,
May 2003).
Residential Settings for Persons with Mental Retardation and
Developmental Disabilities--The early history of services to persons
with mental retardation is characterized by the development of large
state institutions or training schools begun during the latter part
of the 19th century and continuing through the first part of the
20th century. Between 1920 and 1967, institutions quadrupled in size
and peaked to almost 200,000 individuals nationwide in 165 free-
standing state-operated mental retardation institutional facilities
(Braddock, 1998). In 1971, federal financing for intermediate care
facilities for the mentally retarded (ICFs/MR) was authorized under
the Medicaid program; states that were able to meet the federal
requirements governing care for persons with mental retardation in
ICFs/MR shifted their state-financed facilities to the Medicaid
program. Today, although some states are still faced with the legacy
of large state-operated and state-financed institutions, a major
change has occurred toward care in smaller, community-based
residences as well as home-based services for this population.
In 2002, there were an estimated 125,415 distinct residential
settings for persons with developmental disabilities nationwide
(Prouty et. al.).
Home Care-- Home care services comprise a wide array of
services designed to assist persons with disabilities and the frail
elderly to reside in their own homes with appropriate health and
supportive services. Home care services may include nursing,
physical, occupational, and speech therapies, social services, case
management and assessment, personal care, and homemaker/chore
services, among others. Home care may be provided by agencies
certified to participate in the Medicare and Medicaid program and
area agencies on aging operating under the Older Americans Act, as
well as other voluntary organizations. In 1997, there were an
estimated 20,000 agencies that provide home care services (National
Association for Home Care).
Adult day care programs--Adult day care programs provide
health and social services in a group setting on a part-time basis
to frail older persons and other persons with physical, emotional,
or mental impairments who require assistance, supervision and
rehabilitation to restore or maintain optimal functioning. Services
generally provided in adult day care settings include client
assessment, nursing services, social services, therapeutic
activities, personal care, physical, occupational, and speech
therapies, nutrition counseling, and transportation to and from the
center. These programs have grown from a handful of federally-
supported research and demonstration projects in the late 1960s and
early 1970s to more than 3,400 centers in 2003 (Cox).
Assisted Living Facilities--Assisted living facilities are
designed for persons who need some assistance due to functional or
cognitive impairment, but who do not need sustained nursing care. In
general, these facilities provide room and board, personal care and
supportive services while also providing some health-related care.
They have become alternatives to nursing homes and are based on a
philosophy that values consumer independence and choice. However,
unlike nursing homes which receive Medicaid and Medicare funding,
assisted living facilities are primarily financed by residents out
of their own resources. It is estimated that there are about 30,000
assisted living facilities providing care to about one million
persons.
LONG-TERM CARE SPENDING
Of the $1.24 trillion spent on all U.S. personal health care
services in 2001, $151.2 billion, or about 12.2 percent, was spent
on long-term care. This amount includes spending for institutional
care (nursing homes and intermediate care facilities for the mentally
retarded (ICFs/MR)), and a wide range of home and community-based
services, such as home health care services, personal care services,
and adult day care, among others.
Long-term care is chiefly financed through the Federal-State
Medicaid program. Of all U.S. long-term care spending in 2001, the
Medicaid program financed 48.3 percent, or $73.1 billion. After
Medicaid, private out-of-pocket spending is the next primary source
of funding for long-term care. In 2001, out-of-pocket spending for
long-term care was $33.2 billion, representing 22 percent of all
U. S. spending on long-term care. Medicare plays a relatively smaller
role in long-term care than Medicaid and out-of-pocket spending. In
2001, of total long-term care spending, Medicare accounted for 14.2
percent (see Chart B-4).
The spending in Chart B-4 excludes some other spending for
care of persons with disabilities. For example, it does not include
spending for home and community-based services under federal social
service programs such as the Social Services Block Grant (SSBG) and
the Older American Act. It also fails to account for spending for
supportive housing services financed through the Department of
Housing and Urban Development (HUD) programs. It also excludes
spending for state-only funded long-term care programs.
CHART B-4-SOURCES OF LONG-TERM CARE SPENDING, 2001
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
In addition to these costs, spending shown in Chart B-2 does
not take into account the economic value of care provided to persons
with disabilities by uncompensated informal care providers. The value
of informal caregiving is estimated to be quite significant. Placing
a value on unpaid caregiving hours is dependent upon estimates of the
number of persons who need help, the cost of caregiving, and the
number of unpaid hours that are provided. According to one analysis,
the economic value of informal caregiving to adults in 2000 ranged
from $140 billion to $389 billion depending upon the number of
caregivers (24.4-29.2 million), caregiving hours (24-27 billion),
and an imputed value of hourly wages ($5.15 to $12.46) (Arno, 2002).
Another study estimated the imputed value of informal caregiving at
$168 billion based on 18.7 billion of caregiving hours priced at
$9 per hour (LaPlante, Harrington, and Kang, 2002).
FEDERAL PROGRAMS THAT PROVIDE LONG-TERM CARE
Many federal programs assist persons needing long-term care
services, either directly or indirectly through a range of health and
social services, through cash assistance, and through tax benefits.
While Medicaid is the primary source of public financing for long-
term care, other programs, including Medicare, and social service
programs provide assistance to persons who need long-term care
support. No one program, however, is designed to support the full
range of long-term care services needed by persons with disabilities.
Eligibility requirements, benefits, and reimbursement policies differ
among major programs. Many observers indicate that these varying
features often result in a fragmented and uncoordinated service
system.
Many observers indicate that Federal support for long-term
care provides more support for institutional care (primarily through
Medicaid) than for home and community-based care which most people
prefer. A significant 1999 Supreme Court case (Olmstead v. L.C.) has
had important implications for federal and state long-term care
programs. In its decision, the Court stipulated that, under certain
circumstances, institutionalization of persons who could live in
community settings, and desire to do so, violates the Americans with
Disabilities Act (ADA). In the case, physicians had determined that
two patients living in a state psychiatric hospital in Georgia were
able to live in community settings. When the State refused to
transfer them to a less restrictive setting, the patients brought
suit under the ADA. The Court ruled that the state had violated
Title II of ADA which prohibits "unjustified isolation" and that it
was discriminatory to force someone to remain in an institutional
setting when (1) treatment professionals determine that a community
setting is appropriate; (2) the individuals do not oppose the
placement; and (3) the placement can be reasonably accommodated,
taking into consideration the resources of the state and needs of
other persons with disabilities. The Federal government has taken a
number of steps to implement the Olmstead decision, including
issuance of a series of policy guidance letters from DHHS/Centers
for Medicare and Medicaid Services (CMS) and through an Executive
Order issued by President Bush in June 2001 (Executive Order).
The following briefly describes selected major federal
programs. Not discussed are a host of other federal programs dealing
with other aspects of long-term care, including housing assistance
programs through HUD, as well as services administered by the
Veterans Administration (VA).
Medicaid
The largest single public financing source for long-term care
services in the nation is the Federal-State Medicaid program. Medicaid
is administered by States within broad federal guidelines. Medicaid
pays for a wide range of long-term care services for persons who meet
Medicaid's categorical and financial eligibility requirements (see
section on Medicaid eligibility). Medicaid covers services in nursing
facilities, intermediate care facilities for persons with mental
retardation (ICFs/MR), and a wide range of home and community-based
services, including case management, home health care, personal care,
homemaker services, among others.
Nursing Home Care--Medicaid's coverage of long-term care is
driven primarily by its coverage for nursing home care which is the
largest component of Medicaid long-term care spending. The Social
Security Amendments of 1965 required that states cover skilled nursing
facility services and gave these services the same level of priority as
hospital and physician services. People eligible under the State's
Medicaid plan are entitled to nursing home facility care; that is, if
a person meets the State's income and asset requirements, as well as
the State's functional eligibility requirements for entry into a
nursing home, he or she is entitled to the benefit. In 2003, there
are an estimated 1.6 million nursing home beds certified to
participate in the Medicaid program (American Health Care
Association).
Intermediate Care Facilities for the Mentally Retarded
(ICFs/MR)-- Institutional care provided to persons with mental
retardation and developmental disabilities in intermediate care
facilities for the mentally retarded (ICFs/MR) is an optional benefit
under the Medicaid program. All States opt to provide this care under
Medicaid. Services include room and board and a wide range of
specialized therapeutic services to assist persons with mental
retardation and developmental disabilities to function at optimal
levels. Medicaid-certified ICFs/MR must offer "active treatment"7 to
residents. Federal Medicaid law and regulations govern standards of
care that ICFs/MR must provide, including staffing and resident care
requirements and inspection and certification rules. In 2002, there
were 6,623 Medicaid ICFs/MR nationwide serving about 110,600
residents; the average size of these facilities was 16.7 residents
(Prouty et al.).
Home Health Care Services--All States are also required to
provide home health services to persons entitled to nursing facility
coverage under a State's Medicaid plan. Home health services are
nursing services and home health aide services provided on a part-
time or intermittent basis to persons who need assistance for an
illness or condition; services may be provided through home health
agencies or, under certain circumstances, by a registered nurse.
Services also include medical supplies, medical equipment and
appliances suitable for use in the home. States may also choose to
provide optional services, such as physical therapy, occupational
therapy, speech pathology and audiology services.
Personal Care Services--States have the option to cover
personal care services for Medicaid beneficiaries who need assistance
with ADLs and IADLs. Medicaid statute defines personal care as
services furnished to an individual at home or in another location
(excluding hospital, nursing facility or ICF/MR, or institution for
mental diseases) that are authorized by a physician, at state option,
otherwise authorized under a plan of care. Services offered under the
personal care option include assistance with bathing, dressing,
eating, toileting, personal hygiene, light housework, laundry, meal
preparation and grocery shopping. In 2002, 36 States covered personal
care services as part of their state Medicaid plans.
Home and Community-Based Waiver Program--In 1981 Congress
authorized expansion of home and community-based services under
Medicaid. The program, known as the home and community-based waiver
program (authorized under Section 1915(c) of the Social Security Act)
allows the Secretary of the Department of Health and Human Services
(DHHS) to waive certain statutory requirements to assist states in
financing care at home and in other community-based settings for
persons who, without these services, would be in an institution.
States may choose to cover a range of community-based long-
term care services for persons of all ages who meet the state's
eligibility requirements. Services may include personal care
assistance, homemaker/home health aid services, personal care
assistance, adult day care, case management, and respite for
caregivers, and habilitation,9 among others. Spending for the
Section 1915(c) waiver program has increased rapidly since FY1990
when it was $1.2 billion, reaching $16.4 billion in FY2002.
The home and community-based waiver program has been a
significant source of support to care for persons with mental
retardation and developmental disabilities. In FY2002, about three-
quarters of waiver spending was for persons with mental retardation
and developmental disabilities; the balance was spent on other
persons with disabilities, including the elderly and persons with
physical disabilities (Eiken and Burwell). Despite the growth in
the waiver programs, many States have waiting lists for services,
especially for persons with mental retardation and developmental
disabilities.
In January 2000, and in subsequent policy memoranda DHHS
issued guidance to states in the implementation of the Olmstead
decision as it relates to Medicaid home and community-based programs.
(Centers for Medicare and Medicaid Services, January 2000)
Specifically, DHHS indicated that Olmstead applied to all persons
with disabilities and to persons already in institutional settings
as well as those being assessed for institutionalization.
Furthermore, DHHS recommended that States take a number of actions,
including development of comprehensive plans to strengthen community
service systems and serve persons with disabilities in the most
integrated setting appropriate to their needs.
(For more information on Section 1915(c) waiver programs see
the section on Medicaid.)
Medicaid Long-Term Care Spending
In FY2002, Medicaid spent $82 billion on long-term care
services - representing more than one-third of all Medicaid spending
(see Table B-20). In FY2002, of total Medicaid long-term care
services, most - 70 percent or $57.4 billion - was spent for care in
institutions. Of the $57.4 billion spent for institutions, slightly
more than 80 percent was spent for care in nursing facilities, with
the balance for care in ICFs/MR.
While overall long-term care spending increased by 178
percent over the period, the proportion of Medicaid funds spent on
long-term care declined from 42 percent in FY1990 to slightly more
than 35 percent in FY2002. This decline in the proportion of total
spending used for long-term care services is influenced by a number
of factors. These include, for example, the increased share of
Medicaid spending for other services, such as prescription drugs, and
changes in enrollment patterns.
The downward shift in the overall proportion spent for long-
term care is also influenced by the changing patterns of long-term
care service utilization. Despite the large proportion of funds for
institutional care, over the last 12 years, there has been a shift
in how Medicaid funds are used for long-term care. From FY1990 to
FY2002, the proportion of Medicaid long-term care spending devoted
to institutional care declined. In FY1990, almost 87 percent of
long-term care spending was devoted to institutional care; in
FY2002, it had declined to just over 70 percent (see Table B-20).
This is in part due to a decreasing share of institutional spending
used for care in ICFs/MR as states have made greater use of home and
community-based waiver funds to serve persons with mental retardation
and developmental disabilities.
In general, there has been a rather large shift in spending
toward home and community-based care over this period. In FY1990,
slightly more than 13 percent of Medicaid long-term care spending
was for home and community-based care; in FY2002, this proportion
had increased to about 30 percent. This shift is primarily due to
increased spending on home and community-based services under the
Section 1915(c) waiver program which represented almost one-fifth
of Medicaid long-term care spending in FY2002 (see Table B-20).
TABLE B-20--MEDICAID LONG-TERM CARE SPENDING, SELECTED
FISCAL YEARS 1990-2002
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Medicare
The Medicare program covers skilled nursing home and home
health care services for persons who need skilled or rehabilitative
services of relatively short duration. It is not intended to be a
primary funding source for long-term care for persons who need
assistance with chronic conditions. Medicare's role is limited to
financing care in skilled nursing facilities (SNFs) (up to 100 days
after a hospitalization for persons who need continued skilled care),
and home health services for persons who need skilled nursing care
on a part-time or intermittent basis, or physical or speech therapies.
Of the $21.5 billion Medicare spent on long-term care in 2001, about
54 percent was for skilled nursing facility care, and the balance was
for home health care services.
Skilled Nursing Facility Service--Medicare covers SNF
services for beneficiaries who require skilled nursing care and/or
rehabilitation services following a hospitalization of at least
3 consecutive days. A physician must certify that the beneficiary
needs daily skilled nursing care or other skilled rehabilitation
services that are related to the hospitalization, and that these
services, can only be provided on an inpatient basis. Medicare
does not cover SNF care for persons who need care for chronic
conditions or disabilities alone. In 2003, of the almost 1.8
million nursing facility beds nationwide, about 1.2 million were
certified to participate in both the Medicare and Medicaid programs,
and another 63,000 were certified for Medicare only (American Health
Care Association).
Home Health Care Services--Medicare covers home health care
services for beneficiaries who are homebound based on the need for
intermittent skilled nursing care, physical therapy or speech
therapy. Beneficiaries receiving at least one of these services may
also receive, as covered benefits, home health aide services, medical
social work services, and occupational therapy. Services provided
must be medically necessary and carried out under a plan of care
prescribed by a physician. Medicare's home health benefit is not
intended to cover personal care for persons who need care for a
chronic condition or disability alone. In 2001, about 3.5 million
persons qualified for Medicare on the basis of disability received
care from nearly 7,000 Medicare-certified home health agencies
(Centers for Medicare and Medicaid Services, March 2003).
Other Federal Programs
A variety of other Federal programs support long-term care
services. Primarily these are the Older Americans Act and the SSBG
(Title XX of the Social Security Act). Both support a variety of home
and community-based services, such as homemaker and chore services,
home-delivered meals services, transportation, and other services
for persons who have chronic and disabling conditions. While total
spending under these programs is small compared to Medicaid spending
devoted to long-term care, in many communities these programs
represent an important source of support for the frail elderly and
other persons with disabilities by filling gaps in services not met
by Medicaid or Medicare.
The Older Americans Act supports a wide variety of services
for persons age 60 and older through state and area agencies
authorized under Title III of the Act. A majority of its spending for
home and community-based long-term care services is for home-
delivered meals programs. State and area agencies use Title III funds
for home care, adult day, congregate nutrition services, and
transportation among other services. In FY2002, Title III spending
for home-delivered meals, personal care, homemaker, and adult day
care services totaled almost $920 million (Administration on Aging,
2002). In addition, the National Family Caregiver Support program,
authorized in 2000, offers assistance to informal caregivers of the
frail elderly; FY2003 funding is $142 million.
The SSBG authorizes grants to states for a wide range of
services to diverse populations, including children and families as
well as the elderly and persons with disabilities. States are allowed
considerable discretion in their support for social services as long
as services are aimed at achieving a number of goals, including
preventing or reducing inappropriate institutional care through home
and community-based care. Under the program, home and community-based
long-term care services must compete with many other social services
for other population groups, including children and at risk youth.
(In 2001, the largest expenditures categories for SSBG services were
for child protective services and children's foster care).
Many States supplement the Federal Supplemental Security
Income (SSI) cash welfare payments to low-income elderly and disabled
persons to enable them to pay for home and community-based services,
or to reside in non-medical residential services, such as board and
care homes. In addition, certain programs authorized under the
Rehabilitation Act of 1973 provide a range of supportive services to
persons with disabilities to enable them to be employed. The
Department of Veterans Affairs (DVA) provides a wide range of long-
term care services to the Nation's veterans, including nursing home,
domiciliary, home health care, and assistance to caregivers. Finally,
programs administered by HUD support limited assistance to persons
with disabilities through its Congregate Housing Service Programs
(CHSP) and Assisted Living Conversion Program (ALCP), and through
services coordinators who work in multifamily housing projects.
PRIVATE LONG TERM CARE INSURANCE
Private long-term care insurance is considered by some to be
a promising private sector option. This insurance provides persons
needing assistance with ADLs protection against the high cost of
long-term care services without relying on public sector programs
such as Medicaid. Although it is a relatively new insurance product,
the market has grown rapidly. Since 1987, when the Health Insurance
Association of America (HIAA) began surveying the industry, the
market has grown by an average 18 percent per year, reaching more
than 700,000 policies sold in 2001 by 137 companies (with 80 percent
accounted for by the ten largest sellers). HIAA reports that at the
end of 2001, about 7 in 10 policies sold since 1987 remained in force
(based on 77 percent of all policies sold in the individual and group
association market as of the end of 2001) (Health Insurance
Association of America, 2003).
Care in a variety of settings may be covered, including
nursing facilities or assisted living facilities, or the
individual's own home through home health, respite care for
caregivers, homemaker and chore services, and medical equipment,
among others. Some policies will pay relatives for providing care;
others pay only for licensed professionals. Eligibility is based on
limitations in ADLs.
Long-term care policies vary with regard to features. These
include criteria to qualify for benefits; a waiting ("elimination")
period between the onset of qualifying impairments and commencement
of payment; dollar limits on payments and possible inflation
adjustments of the limits; whether payments are a flat daily amount
regardless of expenses or are paid only as reimbursement for approved
expenditures; and the length of time over which benefits may be paid
(such as 1 year, 3 years, or longer).
Long-term care insurance policies may be sold to an
individual, based on that individual's age and health-related
factors, or may be sold to a group; they may also be employer-
sponsored, or be part of a life insurance policy. Of the cumulative
8.3 million policies sold over the period 1987-2001, 80 percent had
been sold to individuals or group associations; about 16 percent
were employer-sponsored with the balance sold as part of life
insurance policies (see Table B-21).
TABLE B-21--LONG-TERM CARE INSURANCE PRODUCTS BY PERCENTAGE OF
POLICIES SOLD AND AVERAGE AGE OF BUYER
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
The age of purchase of policies varies with the type of
product purchased. As shown in Table B-21, in 2001, the average age of
purchase for policies sold in the individual and group association
market was 62 years; the age of purchase in the employer-sponsored
market was 46 years, and as part of life insurance was 66 years.
According to HIAA, the average age of purchasers who buy policies in
the individual market has steadily decreased - decreasing from
age 72 in 1990 to 62 in 2001.
Individual policies are sold with substantial "underwriting"
- meaning the carrier requires detailed information regarding one's
medical history - while group policies may or may not be sold with
full or partial underwriting. Age rating is very important because
the probability of claims is highly correlated with age. Underwriting
is used by insurers to protect against the "adverse risk selection"
that can occur if individuals buy policies when they know or suspect
that they may soon need to make use of the insurance.
Affordability of Long-Term Care Insurance
One of the key issues in considering the role private
insurance can play in long-term care is affordability, and the price
for these insurance policies depends greatly on the individual's age
at the time he or she first purchases the policy - the older the
individual, the higher the premiums. Once the policy is purchased,
premiums generally remain fixed throughout the policyholder's
lifetime. Under certain circumstances, a carrier may seek approval
from state insurance commissioners to raise rates for all
policyholders (in the same class). An unexpected rate increase may
affect a policyholder's desire and ability to continue the policy.
According to HIAA, however, average premiums reported by leading
insurers in 2001 had remained fairly constant compared to premiums
for leading companies in 1999.10
TABLE B-22--AVERAGE ANNUAL PREMIUMS FOR LEADING LONG TERM CARE
INSURANCE SELLERS IN 2001
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
The cost of polices varies depending not only upon age of
purchase, but also policy features. According to an HIAA survey
(based on 11 insurance sellers selling 80 percent of all individual
and group association policies in 2001), the average annual premium
for a policy paying a $100 per day benefit (with a 5 percent
compounded inflation protection, a 20-day elimination period, and
four years of coverage) was $849 if purchased at age 50, rising to
$1,726 if purchased at age 65 and $5,821 at age 79 (see Table B-22;
based on data from eleven insurance sellers having sold 80 percent
of all individual and group policies in 2001).
Very likely, most people would find this product too
expensive if they started considering purchase when already retired;
others may not be able to afford it while still working. Generally
speaking, the prime market for long-term care insurance is for
persons who have average to somewhat above average income levels. At
high levels of accumulated wealth, individuals can bear the
financial risks without purchasing insurance. At low levels of
wealth, insurance is unaffordable. At middle-income levels, many will
find insurance desirable, especially if they are concerned about
providing income or assets for a spouse or passing on their wealth
to their children. Others may be willing to take the chance of
spending down their assets to qualify for Medicaid if necessary.
Employer-based Group Coverage
Affordability could be enhanced if insurance was purchased
at group rates by individuals still in their working years. Even
though most group plans to date have not featured employer
contributions toward the premiums, some research shows that the plans
can be as much as 15 to 30 percent less costly than policies purchased
individually. Employment-based group premiums are lower because: (1)
marketing can be targeted to younger individuals who generally have
lower rates; (2) savings can be achieved through lower administrative
costs and lower commissions; and (3) employers can bargain for
reduced profit percentages and improved benefits. According to the
HIAA, employer-based activity has been growing faster than the
individual market, and accounted for almost one-quarter of policies
sold in 2001 (see Table B-21). These employer- based plans may cover
employees, their spouses, retirees, parents, and parents-in-law.
In 2002, pursuant to the Long Term Care Security Act, P.L.
106-265, the federal government became the largest employer to offer
group long-term care insurance. One of the intended purposes (aside
from increasing the attractiveness of federal employment) is a
possible demonstration effect; that is, encouraging more private-
sector employers to offer such an insurance plan and ultimately
having some impact on public spending. Some 20 million people are
eligible to participate in the federal program, including active and
retired federal employees, their spouses and some relatives. However,
only active employees and their spouses can enroll with minimal
medical qualification, and these only within two months of being hired
or during an initial open season in 2002. In that open season,
265,000 applications were received. The program is administered by
a joint venture of Metropolitan Life and John Hancock Life for an
initial contract period of 7 years.
Tax Treatment of Long-Term Care Insurance
The Health Insurance Portability and Accountability Act of
1996 (HIPAA, P.L. 104-191) established new rules regarding the tax
treatment of long-term care insurance and other long-term care
expenses, effective January 1, 1997. Qualified long-term care
insurance is treated as accident and health insurance, and its
benefits are treated as amounts received for personal injuries and
sickness and for reimbursement of medical expenses actually
incurred. As a consequence, long-term care insurance benefits are
excluded from the gross income of the taxpayer (that is, they are
exempt from taxation). The exclusion for insurance benefits paid
on a per diem or other periodic basis is limited to the greater
of (1) $220 a day (in 2003) or (2) the cost of long-term care
services.
Employer contributions to the cost of qualified long-term
care insurance premiums are excluded from the gross income of the
employee. The exclusion does not apply to insurance provided
through employer-sponsored cafeteria plans or flexible spending
accounts.
Unreimbursed long-term care expenses are allowed as
itemized deductions to the extent they and other unreimbursed medical
expenses exceed 7.5 percent of adjusted gross income. Long-term
care insurance premiums can be counted as these expenses subject to
age-adjusted limits. In 2003, these limits range from $250 for
persons age 40 or less to $3,130 for persons over age 70.
Self-employed individuals are allowed to include long-term
care insurance premiums in determining their above-the-line deduction
(a deduction not limited to itemizers) for health insurance expenses.
Only amounts not exceeding the age-adjusted limits can be counted.
HIPAA also provided definitions for key long-term care
insurance terms:
- Qualified long-term care insurance is defined as a contract
that covers only long-term care services; does not pay or reimburse
expenses covered under Medicare; is guaranteed renewable; does not
provide for a cash surrender value or other money that can be paid,
assigned, pledged as collateral for a loan, or borrowed; applies all
refunds of premiums and all policy holder dividends or similar
amounts as a reduction in future premiums or to increase future
benefits; and meets certain consumer protection standards. Policies
issued before January 1, 1997, and meeting a state's long-term care
insurance requirements at the time the policy was issued are
considered qualified insurance for purposes of favorable tax
treatment.
- Qualified long-term care services are defined as necessary
diagnostic, preventive, therapeutic, curing, treating, mitigating,
and rehabilitative services, and maintenance or personal care
services, which are required by a chronically ill individual, and
are provided according to a plan of care prescribed by a licensed
health care practitioner. However, amounts paid for services
provided by the spouse of a chronically ill person or by a relative
directly or through a partnership, corporation, or other entity will
not be considered a medical expense eligible for favorable tax
treatment, unless the service is provided by a licensed professional.
- Chronically ill persons are defined as those individuals:
(1) unable to perform without substantial assistance from another
individual at least two of the following six limitations in ADLs
for a period of at least 90 days due to a loss of functional
capacity: bathing, dressing, transferring, toileting, eating, and
continence; (2) having a level of disability similar to the level of
disability specified for functional impairments (as determined by
the Secretary of the Treasury in consultation with the Secretary of
Health and Human Services); or (3) requiring substantial supervision
to protect them from threats to health and safety due to severe
cognitive impairment.
A qualified long-term care insurance contract must take into
account at least five of the six ADLs identified above.
HIPAA required that a licensed health practitioner
(physician, registered professional nurse, licensed social worker,
or other individual prescribed by the Secretary of the Treasury)
certify that a person meets these criteria within the preceding
12-month period.
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