This report was produced by Bonnie M. Cramer and Susan Harmuth, October 1, 1998, when they comprised the staff of the Long-Term Care Policy Office in the Department of Health and Human Services. Ms. Cramer is now an Assistant Director with the North Carolina Division of Facility Services and Ms. Harmuth is a Health Systems Analyst at Facility Services. If you have questions about the report you can contact Ms. Harmuth.

Introduction: Baby Boomers and Long-term Care
Who Uses Long-term Care, and Who Pays for It?
How Does North Carolina Stack Up with Other States in Terms of Long-term Care Spending and Service Supply?
Key Steps States Are Taking to Control the Growth of Public Long-Term Care Costs
Improving Access and Personal Responsibility for Those Not Eligible for Medicaid
Conclusion and Next Steps

1	Introduction: Baby Boomers and Long-term Care

Highlights
Summary

Highlights

Long-term care is used mainly by older adults, although children and younger adults with physical or mental disabilities can also need long-term care services. National data indicates that children represent about 3.5% of those needing long-term care, disabled adults age 18 to 64 about 46%, and those 65 and older weigh in as representing about 50% of those needing long-term care services.[1] While this data may not be surprising, it is telling from the standpoint of considering how our rapidly aging society will affect demand for long-term care services.

Of particular concern for North Carolina is the fact that our state’s older population is growing much faster than that of other states. This growth will create unprecedented new demand for both publicly and privately funded long-term care services. Some of the statistics that support this outlook include the following:

• Between 1998 and 2020 North Carolinians age 65 and older will increase by 69% to more than 1.6 million. In contrast, our overall population will grow 24% during this period.
• Those 65+ will grow from 12.8% of the state’s population to 17.5% by 2020 and 21.4% by 2025.
• By 2025 North Carolina will rise from 31st to 11th in terms of states with the greatest percentage of older adults.[2]

Several key factors contribute to this major shift in our state’s older population. One factor is simply that people are living longer. Another is the fact that North Carolina is a very popular place to live. In fact, we are one of only three states in the country expecting to have more than one million persons move in between 1995 and 2025.[3] Many of those coming are older adults. Last, but certainly not least, are aging baby boomers. Baby boomers were born between 1946 and 1964—those currently ages 34 to 52.

Without a doubt, aging baby boomers will have the greatest impact on demand for long-term care services both here in North Carolina and for the nation overall. This is due primarily to the sheer size of this generation. Made up of about 78 million nationwide, North Carolina accounted for approximately 2 million boomers in 1990.[4] In addition to their enormous numbers, there are several demographic trends unique to this group that will affect demand for both publicly and privately financed long-term care services and pose new challenges for the formal long-term care system. For instance:

• Boomers, on average, have fewer children than their parents. This situation, combined with boomers having higher divorce rates than their parents, our highly mobile society, and the fact that more boomers are remaining single, is likely to affect the extent to which boomers will have family available to provide the majority of care they need. It is also important to note, however, that remarriage rates among divorced boomers will also mean boomers will have more stepchildren and step-grandchildren as part of their families.[5] While this now common family dynamic could possibly broaden the potential pool of family caregivers, only time will tell whether these family relationships will translate into willing and available caregivers.
• The comparatively high divorce rate among boomers could also have a negative impact on older boomer women, in particular, in terms of their financial stability and security (e.g., access to a spouse’s pension/social security benefits, adequate health care coverage, etc.).
• Only 8.6% of boomers currently live in poverty (compares to 19.5% for current older population), but another 9% of boomers are near poor having household income of $15,000 or less (1989).[6]
• Only 40% of boomers may have pensions of their own. [7] This situation combined with an extraordinarily low national savings rate (about 4%) has implications for the ability of many boomers to be financially positioned for their retirement years, never mind positioned to pay privately for their long-term care needs.[8]

One final demographic worth noting is the fact that, because of Medicare, very few older adults are without health insurance coverage. On any given day, only 1.1% of North Carolina citizens age 65 and older are without any health insurance coverage. This compares to about 13% for the remainder of the state’s population (1995 data).[9] Older adults rely heavily on Medicare for their health care coverage. In 1996, North Carolina had approximately 1 million Medicare beneficiaries.[10] Although Medicare covers a limited amount of home health and nursing home care following an acute care episode, Medicare does not cover on-going long-term care. In addition, with few exceptions, Medicare does not cover outpatient prescription drugs, unlike approximately 95% of employer sponsored health plans.[11] Keeping the program solvent for baby boomers and subsequent generations is a major concern. Ensuring long-term solvency will invariably mean further restrictions to Medicare coverage to accommodate the financial impact baby boomers will have on Medicare. However, further coverage restrictions to Medicare will likely put more demand on Medicaid and other state administered funding for health and long-term care and increase out-of-pocket costs for Medicare beneficiaries.

Our nation will soon experience unprecedented new demand for long-term care services stemming from aging baby boomers. States are bracing for the inevitable challenges aging boomers will bring to their long-term care systems. North Carolina’s situation is more precarious than most states. By 2025, only ten states will have a higher percentage of older residents than North Carolina. Their sheer numbers, combined with about one in six North Carolina boomers living at or near the federal poverty level, pose special challenges for Medicaid and other sources of state administered public funding for long-term care. Another challenge that North Carolina faces is the need to increase the capacity of boomers to pay for their own long-term care services. Consistent with consumer preference, North Carolina has made significant strides in recent years to increase access to home and community based services, including residential care options, for all consumers. Building on these accomplishments is crucial to being positioned to meet the explosion of new demand for long-term care that will begin to surface in 2011 and last well beyond 2030 when the last of North Carolina’s baby boomers reach age 65.

Highlights
Who Uses Long-term Care?
Who Pays for Long-term Care?
Medicaid Long-term Care Spending
Community Alternatives Program for Disabled Adults
Summary

Highlights

Older adults use long-term care services more than any other age group. In spite of this reality, national data also shows that an overwhelming 79% of older adults have no impairments and live independently. [12] However, 60% of persons who live to be 65 will need long-term care at some point in their lives and 40% can expect to spend at least some time in a nursing home.[13] Due to the extent that older adults use long-term care, combined with the impact our aging society will have on the long-term care system, this paper will focus primarily on this population.

Given the sheer size of North Carolina’s baby boom generation, there is also some heartening news in the fact that disability rates among the nation’s elderly have dropped from 24.9 % with some impairment in 1982 to 21.3% based on 1994 data.[14] This represents an overall drop of 3.6% during over the 12 year period. The majority, about 75%, of older adults with impairments live at home. [15] Of these, about 6% are severely disabled and need help with at least three basic personal care tasks such as eating, bathing, dressing, getting around their house and/or using the bathroom. Approximately 5% of older adults live in institutional settings.[16]

To put the national data into a North Carolina context, impairment data has been applied to state population data for older adults. Estimates are trended forward to show the impact aging boomers will have on the state’s long-term care system over time. All estimates assume no further reduction in disability rates among the elderly population. Some items also include projections of those persons likely to be Medicaid eligible. These estimates are included to illustrate the potential increased burden on Medicaid funded long-term care services and also highlight the fact that the vast majority of those needing long-term care services will not be Medicaid eligible. The latter group represents an opportunity for the state to take steps to increase the capacity of non-poor baby boomers to assume responsibility for their long-term care costs. However, even among those not eligible for Medicaid, there will continue to be those who will not able to pay privately for all the care they need should they need formal long-term care services. The state has made an on-going commitment to help older adults who fall into this category. This commitment will continue to be important as the baby boomers age. One indicator of potential growth in demand for both paid long-term care services as well as unpaid care provided by family and friends is the number of impaired older adults. Projected growth of North Carolina’s impaired older population is reflected in the table below.

While the growth in the number of older adults with some level of impairment is important to consider, more critical is the number of older adults expected to be severely impaired. These are the individuals most likely to rely heavily on the formal long-term care system. Although disability rates are declining, the sheer enormity of the baby boom generation and subsequent increasing number of severely disabled persons will create an explosion of new demand on the long-term care system. As shown below, a 69% increase in the severely disabled older population is anticipated between 1998 and 2020. It is also important to remember this new demand for long-term care services will be coupled with continuing demand on the long-term care system from other populations needing such care including children and disabled adults under age 65.

Due to some of the unique caregiving challenges posed by those living with Alzheimer’s disease or other related dementias it is also worth highlighting the growth in the number of persons living with Alzheimer’s disease in spite of the fact that these individuals are also expected to be included in the above estimates of the impaired and severely disabled. There are widely divergent views on methodologies for making such estimates. As such, a range of estimated disease prevalence may be more helpful. Estimates of prevalence rates among those with moderate and severe cases of Alzheimer’s disease in North Carolina range from a low of about 31,200 in 1998 increasing to about 42,700 in 2010 to a high estimate of about 64,000 in 1998 increasing to about 90,000 in 2010.[17] Neither estimates include persons expected to be living with a mild case of Alzheimer’s disease nor those with other types of dementia.

Long-term care is expensive for both public and private payers. In 1995, nationally, long-term care costs represented about 12% of all out-of-pocket health care costs paid by individuals, inclusive of both home health care and nursing home costs.[18] During this same year, long-term care costs also represented about 14% of all state and local health care spending.[19]

An array of public and private funds are used to pay for long-term care. Based on 1993 national data, the major categories of long-term care funding and representative payment proportion are as follows:

• Families, 42%
• Medicaid, 34%
• Medicare, 19%
• Other state and federal funds, 4%
• Long-term care insurance, 1%[20]

North Carolina makes a major financial investment in long-term care for older and disabled adults. To help illustrate this point, exclusive of Medicare, total public expenditures for persons age 60 and older have grown from $486 million in 1990 to more than $1.19 billion in 1997. When considering both the elderly as well as disabled adults under age 65, it is estimated that North Carolina spent approximately $1.5 billion in public funds for long-term care services in 1996.[21] Support for long-term care services is provided primarily by the Divisions of Medical Assistance, Aging, Social Services, Services for the Blind, Community Health, Vocational Rehabilitation, and the Division of Mental Health, Developmental Disabilities and Substance Abuse Services.

Consistent with the national data above, Medicaid is the major public payer of long-term care services in North Carolina. For instance, of the $1.19 billion spent in public funds for persons 60 and older in 1997, Medicaid accounted for about 82% of these expenditures, up from 72% in 1990. Of the $1.5 billion spent in 1996 for the elderly and the disabled, Medicaid accounted for approximately 90% of these expenditures. In North Carolina, Medicaid covers an array of long-term care services for persons with physical, developmental and/or mental disabilities such as personal care, home health, hospice, nursing home care and home and community care programs for children and adults who would otherwise need institutional care.

Medicaid expenditures for the elderly are heavily weighted toward nursing home care. In North Carolina, nursing home costs represented about 77% of long-term care expenditures. Home and community care followed next comprising about 16% followed by adult care homes at about 4%. In contrast, Medicaid spending for disabled adults is weighted heavily toward providing intermediate level facility based care for the mentally retarded (ICF-MR). In 1997, ICF-MR costs constituted 59% of Medicaid long-term care spending for disabled adults. Here again, home and community based care followed next comprising 21% of long-term care spending. Other major categories of Medicaid covered long-term care included in-patient mental health care and adult care homes.

To be eligible for Medicaid individuals must meet certain income and asset limits. Generally, income eligibility for Medicaid in North Carolina equates to 74% of poverty for persons receiving Supplemental Security Income (SSI). For persons not eligible for SSI, income eligibility equates to about 36% of poverty. Asset limits for both SSI and non-SSI individuals are limited to $2,000 for an individual and $3,000 for a couple. Certain assets such as the individual’s primary residence, one vehicle, pre-paid funeral costs, etc., are excluded from the asset limit calculation.

The table below provides a five-year history of Medicaid spending in North Carolina for long-term care services for both elderly and disabled adults. Long-term care costs accounted for about 41% of all Medicaid spending in 1997. On a positive note, however, the annual percent of growth in Medicaid long-term care spending for the elderly and the disabled dropped from 15% between State Fiscal Years 1995 and 1996 to about 6% between 1996 and 1997.

Expenditures for the Community Alternatives Program for Disabled Adults (CAP-DA) lead Medicaid’s expenditures for home and community based care for persons 65 and older. This program provides a care managed package of home and community based services for severely impaired persons age 18 and older who would otherwise need nursing home care. A total of 8,700 persons participated in this program in 1996-97 at a cost of $112.7 million.[22] Persons 65 and older represented about 78% of North Carolina’s CAP-DA population during this year.[23] It is important to note that states have considerable flexibility with regard to program design. As a result, while the target population is the same, programs vary widely across states in terms of both allowable services as well as average per person annual costs. In North Carolina, about 97% of all CAP-DA waiver service costs in 1996-97 were for in-home aide (90%) and care management services (7%). The remaining 3% was spent on the other seven allowable services. In-home aide and care management have comprised at least 90% of total waiver service costs since 1990-91. A study of North Carolina’s CAP-DA program was conducted in 1996 by the Duke Long Term Care Resources Program. The study looked at the age and impairment profiles of a sampling of CAP-DA participants to determine if the program is effectively targeting the intended population; that is, older and disabled adults with extensive impairment in activities of daily living, are nursing home eligible but could stay at home with help. Study findings published in 1997 confirmed that North Carolina’s CAP-DA program was successful in targeting a severely disabled population.[24]

North Carolina’s current per participant monthly limit for intermediate care level clients, inclusive of CAP-DA services plus all Medicaid home health care costs, is $2,331 per month.[25] This equates to a maximum of $27,972 per year or $76.64 per day. The current maximum for skilled care clients is $3,066 per month.[26] This equates to $36,792 per year and $100.80 per day. It is important to note that North Carolina applies the same monthly cost limit irrespective of whether or not the CAP client actually needs home health services during the month.

The table above shows the total Medicaid costs for CAP-DA clients compared to nursing home clients (inclusive of acute care costs for both categories and waiver and other home care costs for CAP-DA clients). The total average cost for CAP-DA is substantially less than the allowable annual maximum indicated above. This is due in large part to two factors: (1) monthly maximums are based on 95% of the average daily rates paid for skilled and intermediate nursing home care; and (2) annual maximum expenditures assume participation 365 days per year. The actual average length of stay for CAP-DA clients, however, was 270 days. A similar comparison can be made for Medicaid nursing home care (i.e., the current average reimbursement rate for skilled nursing care is $108 per day which equates to $39,460 per year and the average reimbursement rate for intermediate nursing care is $82.13 per day or $29,977 per year, assuming a 365 day stay). This program is an important alternative in North Carolina’s long-term care service arsenal. It serves a limited number of severely impaired persons at a cost, on average, of 82% of nursing home costs. It is important to point out that both groups (CAP-DA and nursing home residents) may have other Medicaid costs that are not included in the long-term care related costs reflected below (e.g., prescription drugs, eyeglasses, dental care, etc.)

Given Medicaid’s role in providing both home and community and facility based long-term care, combined with the fact that long-term care expenditures constituted about 41% of North Carolina’s total Medicaid service expenditures in State Fiscal Year 1997, controlling the growth of Medicaid long-term care costs is crucial to the state’s future economic stability and ability to target public resources to meet other pressing needs.

Highlights
How NC's Medicaid Expenditures for Long-term Care Compare with the Nation as a Whole
---Implications for North Carolina
How NC's Health and Long-term Care Costs for Older Adults Compare with the Nation as a Whole
---Implications for North Carolina
How NC's Resources for Long-term Care Compare with the Nation as a Whole
---Implications for North Carolina
Long-term Workforce Issues
Summary

Highlights

• North Carolina spends about 36% less than the national average on Medicaid long-term care services per elderly recipient. The state also spends 30% less overall on Medicaid spending for the elderly compared to the national average.
• North Carolina spends about 3% more overall for Medicaid expenditures for disabled adults compared to the national average. Costs for intermediate level facility based care for the mentally retarded (ICF-MR) comprise the largest category of long-term care expense for the disabled adult population.
• The state has a comparatively good supply of long-term care services but it cannot be assumed that services or capacity are adequate statewide, especially in rural areas.
• North Carolina’s ratio of Medicaid spending for home and community care (including adult care homes) for the elderly is better than the national average but still heavily weighted toward institutional care.
• Our state has a more tightly controlled nursing home bed supply than the nation overall. This helps keep occupancy rates high, effectively targets the very impaired, and helps control public costs which is important since 82% of nursing home residents get some help from Medicaid.
• With a vacancy rate of about 15%, North Carolina has an over supply of adult care home beds in some portions of market. In spite of a one year moratorium begun in August 1997, as of June 1998, more than 10,300 new beds had been approved. Expansion of adult care home beds has potential cost implications for Medicaid and State County Special Assistance.
• Nurse aides and other aide workers provide much of the paid care needed. Aide shortages and high turnover rates are already a problem. An adequate and stable supply of trained aides is essential to meeting current and future demand for long-term care.
• To meet growing demand for both public and privately funded care and respond to consumer preference, North Carolina needs to further shift the balance toward more home and community care to: support family caregiving and provide lower cost options, thus stretching public funding for long-term care and helping individuals and families assume more personal responsibility for care costs.

Before considering appropriate next steps for North Carolina with respect to long-term care, it is also worth considering how North Carolina stacks up with other states in terms of:

• overall Medicaid spending and spending by setting and population
• per recipient expenditures for health and long-term care (Medicaid and Medicare)
• long-term care provider resources

While these comparisons should not solely drive decisions regarding future direction, such comparisons are valuable from the standpoint of identifying any areas where North Carolina may be out of sync with national trends in a manner that could negatively affect the state’s ability to meet increased need for long-term care services and/or adequately control public long-term care costs.

Overall, North Carolina is not unlike the nation as a whole with regard to the percentage of Medicaid long-term care expenditures made on behalf of the elderly versus other populations. Our state is also not unlike the nation overall with regard to the ratio of long-term care spending for nursing home care versus home and community care (inclusive of adult care home spending). We do spend slightly less than the national average for mental health related long-term care. Our percentage of Medicaid long-term care expenditures for home and community care are somewhat better than the national average and have continued to improve since 1995. This is due in part to instituting categorical Medicaid eligibility for older and disabled SSI recipients (this change had little impact on eligibility of persons seeking institutional care since persons at SSI income and asset levels probably were already able to receive Medicaid nursing home coverage due to how eligibility is calculated for institutional care), allowing Medicaid personal care services for eligible adult care home residents, and the expansion of CAP-DA to all 100 counties. North Carolina should work to further shift the ratio of Medicaid long-term care expenditures for the elderly (and disabled) more toward home and community care and improve access to care to: achieve a better balance of care options; address consumer preference; support family and other informal caregiving; help individuals and families assume more personal responsibility for long-term care costs by developing and providing more lower cost options; and further stretch limited public funding for long-term care services for the Medicaid and non-Medicaid eligible to meet growing demand.

Based on 1995 data, North Carolina spends about 36% less on Medicaid long-term care per elderly beneficiary than the national average. We also spend about 30% less on overall Medicaid spending for elderly individuals but spend about 3% more overall for disabled Medicaid beneficiaries. Overall Medicare payments for elderly and disabled Medicare beneficiaries receiving either home health or nursing home care are also considerably less than the national average—about 26% less for home health recipients and about 14% less for recipients of nursing home care. It is also worth noting that North Carolina’s annual rate of growth for Medicaid long-term care services for the elderly and disabled dropped from about 16% between SFY’s 95 and 96 to 6% in between SFY’s 96-97.[47] One major factor contributing this reduced growth rate was a drop in growth of ICF-MR expenditures for the disabled which dropped from an 8% growth rate between SFY’s 95 and 96 to a growth rate of less than 1% between SFY’s 96 and 97. Significant drops in annual expenditure growth rates for home and community based services (does not include adult care home costs) for both the elderly and disabled were another significant factor. In spite of this progress, North Carolina needs to further improve on ways to provide Medicaid and other publicly funded long-term care services even more efficiently for the older and disabled population to better contain costs and be positioned for growing demand for services. As noted earlier, while Medicare pays for about 19% of all long-term care costs, federal efforts to keep Medicare solvent for future generations will likely mean further restrictions to coverage. This will translate to increased costs for beneficiaries as well as put additional pressure on Medicaid spending for health and long-term care for financially vulnerable individuals.

Based on national data, North Carolina seems to have a comparatively good supply of long-term care services. However, it cannot be assumed that either service availability or distribution is adequate statewide, particularly in rural areas. Another positive indicator is the fact that North Carolina has a more tightly controlled nursing home bed supply than the nation as a whole. This situation contributes to higher occupancy rates and nursing home residents who are more impaired than the national average. Tight control of nursing home growth is, among other strategies, very important to helping to shift the balance more toward home and community care as well as controlling Medicaid long-term care costs given that 82% of North Carolina’s nursing home residents get some assistance from Medicaid.[56] In contrast, however, North Carolina has a higher than average number of residential care beds than the nation as a whole. North Carolina’s high vacancy rates in adult care homes indicate an over supply in some portions of the adult care home market. North Carolina needs to carefully consider the expanding adult care home market, even in spite of the moratorium, and what factors are contributing to a high vacancy rate in some facilities given the potential of increased Medicaid and State/County Special Assistance expenditures in these settings. Other considerations include routinely reevaluating the methodology used to plan nursing home bed growth and considering what steps are appropriate to take to address existing state Medicaid policies that create an institutional bias perhaps unnecessarily driving persons to seek such care when other alternative care options are appropriate and preferable to the consumer.

While not reflected in the data above, another issue North Carolina needs to consider is the shortage and turnover of paraprofessional aide workers. These workers provide about 80% of the paid care needed both at home and in facility settings.[57] Availability of an adequate and stable supply of trained aide workers is essential to meeting future demand for formal long-term care services. The ability to recruit and retain aides is already a concern among home care agencies, adult care homes and nursing homes. To provide some sense of the scope of the aide workforce problem, in each of the last 3 years, turnover rates in North Carolina nursing homes have exceeded 100%.[58] Another indicator of the problem is the fact that there are almost as many inactive (83,216) nurse aides on the state’s Nurse Aide Registry as there are actively employed aides (84,530).[59] This highlights the fact that half of those trained are not employed in their trained field. This is a serious workforce issue for North Carolina. The state has a major stake in this issue given the extent to which public funding supports the delivery of health and long-term care services for vulnerable persons. In addition, the state has some responsibility for seeing that all citizens are able to obtain the quality of care they need to address their health and long-term care needs, regardless of payer source. Key issues related to recruiting and retaining aides include the following:

• low wages; few or no fringe benefits in spite of often physically taxing work

• lack of opportunity for input in care planning for client/patient
• inadequate exposure to type of work to be done during training resulting in many who complete training deciding they are not interested in pursuing this type of work
• no career ladder
• lack of understanding or appreciation from the general public regarding the importance of these workers.

Action is needed to begin addressing this issue in an effective manner in response to current need as well as to have the capacity to meet future demand for long-term care services. Private grant funding could provide the resources needed to make positive progress in this area through efforts such as the following:

• revising and subsequently testing a revised Nurse Aide I curriculum to incorporate more "hands-on" experience
• working with state level associations responsible for providing home and facility based long-term care services to develop and test the effectiveness of financial and/or other incentives (such as specialized training, opportunities for peer support activities, etc.) for aide recruitment and retention. Such efforts should consider the very effective "TEACH" model being used to recruit and retain high quality child day care workers.
• develop consumer and community awareness about this workforce as well as efforts to enhance recognition of their contribution to the long-term care system.
• developing a way to collect automated data to track the extent to which trained aides are leaving the workforce as a way to plan for future actions that may be needed as well as to determine the effectiveness of any incentives or revised training activities that would result from the items listed above.

Summary

Overall, North Carolina stacks up very well with other states in terms of long-term care resources as well as expenditures for both Medicaid and Medicare long-term care related services. Service supply, particularly home and community care options, will need to keep abreast of growing demand and be well distributed statewide since most of those who will need long-term care will be living in the community. Nursing homes and adult care homes will continue to be an essential component of the long-term care continuum for baby boomers and subsequent generations. North Carolina does a better job than most states controlling nursing home bed growth. Adult care home beds are growing rapidly. This fact, combined with vacancy rates that hover around 15%, has implications for Medicaid and State/County Special Assistance costs. While Medicaid expenditures for the elderly are about one-third less than the national average, increasing numbers of vulnerable older adults guarantees that Medicaid spending for long-term care will grow. North Carolina must continue to work to find ways to provide quality services more cost-efficiently.

Highlights
Reducing Medicaid Liability for Long-term Care Costs
---Tightening Asset Transfer Policies for Medicaid Eligibility
---Expanding the Scope of Estate Recovery Efforts
---More Tightly Controlling Medicaid Eligibility, Covered Services and Reimbursement Rates
---Using Moratoriums and/or Requiring Certificates of Need on Development of Nursing Home Beds
---Maximizing Payment by Medicare for Long-term Care Services
---Expanding Home and Community Care Options
Implementing Managed Long-term Care Initiatives to Enhance Cost Efficiency/Effectiveness and Improve Access to Needed Care
Summary

Highlights

As would be expected, the high cost of long-term care and the growing need is of serious concern to states. In response to the problem, states are taking steps in a deliberate effort to constrain the growth of public long-term care costs, particularly Medicaid. Although the majority of persons needing long-term care will not be Medicaid eligible, the sheer growth in the number of older adults will put increased strain on state Medicaid programs and other state administered public funding for long-term care beginning in 2011 and lasting well beyond 2030 when the last of the baby boomers reach age 65.

Key actions being taken by states to constrain the growth of Medicaid spending for long-term care fall into two major strategy areas including:

1. Reducing Medicaid liability for long-term care costs by:

1. Tightening asset transfer policies for Medicaid eligibility
2. Expanding the scope of Estate Recovery Efforts
3. More tightly controlling Medicaid eligibility, covered services and reimbursement rates
4. Using moratoriums and/or requiring Certificates of Need on development of nursing home beds

2. Implementing managed long-term care initiatives to enhance cost efficiency/effectiveness and improve access to needed care[62]

An overview of some of the more prevalent actions being taken by states in each of the areas listed above is provided below. For comparison purposes, a summary of key steps North Carolina has taken or is considering in each of these areas follows the general overview of each area.

Since passage of the Medicare Catastrophic Act in 1988, federal policies have existed to prevent individuals from giving away (transferring) money or property (real or personal) to become eligible for Medicaid long-term care including nursing home care or care provided through the Community Alternatives Program (CAP). Specifically, penalties are imposed for persons who give away assets within 36 months (previously 30 months) of applying for Medicaid funded long-term care. Penalties are also imposed for persons who put their assets into a trust from which they cannot benefit within 5 years of applying for Medicaid funded long-term care. These time frames are commonly referred to as the "look back" period for Medicaid eligibility determination purposes.

The extent to which asset transfers are taking place to access Medicaid covered long-term care is not clear. However, a 1993 study conducted in Massachusetts by the U.S. General Accounting Office (GAO), suggested that about half of the applicants sampled had either converted or transferred assets during the required "look back" period.[63] With regard to these transfers, the GAO study pointed out that asset conversions were the most prevalent type of transfer. This includes actions taken to reduce financial resources by purchasing items that are excluded from consideration for Medicaid eligibility purposes such as pre-paid burial plans, home repairs, and/or purchase of an automobile, regardless of cost. The GAO found the average value of these asset conversions to be about $5,600.[64] In addition, a little over 10% of all applicants reviewed had transferred assets in the prior 30 months (cash and real estate transfers and trusts). The average value of these transfers was about $46,000 and, by and large, these transfers were made to another family member(s). Although the average value of these transfers was $46,000, one in three were valued at $10,000 or less.[65] It is important to note, however, that the GAO findings only applied to the required "look back" period. As such, the study was not able to assess the extent to which persons not yet in need of long-term care may be transferring assets now to ensure their eligibility for Medicaid at some point in the future to avoid sanctions.

Since 1988, Congress has continued to attempt to further reduce the occurrence of asset transfers, conversions and other Medicaid Estate Planning efforts. For instance, the Balanced Budget Act of 1997 included a provision to criminally prosecute attorneys and other paid financial planners who advise their clients about how to transfer assets in order to become eligible for Medicaid funded long-term care. (The provision does not apply to Medicaid eligibility workers, Long Term Care Ombudsmen or other similar types of employees responsible for providing information about Medicaid covered long-term care services.)[66] At least one state (New York) is known to have filed a class action suit challenging the provision. The Justice Department recently announced they would not enforce the provision as they found the language of the provision to be unenforceable as written.[67] However, if asked by Congress, the Justice Department will help draft language that could be enforced thereby further strengthening federal efforts to thwart Medicaid estate planning efforts.[68] It will be important for states to keep abreast of any future activity in this area.

In addition to federal efforts to avoid having persons access Medicaid who could otherwise pay for at least some portion of their own care, states are also taking steps to reduce existing loopholes that enable individuals to transfer or divest their assets to become eligible for Medicaid funded long-term care. While states do not have the flexibility to lengthen the look-back periods, they do have flexibility in other areas. Specifically, states can opt to apply the transfer of assets look back period and penalties to additional long-term care related services provided at home or in other residential facility (e.g., personal care services, home health, hospice, durable medical equipment, private duty nursing).[69] In addition, states have the option to put liens on any real property that is wholly or partly owned by Medicaid eligible nursing home residents who are not expected to return home and where there is no spouse or dependent child(ren) in the home. These types of liens are known as TEFRA (Tax Equity and Fiscal Responsibility Act) liens. This step would prevent the property from being given away or sold without the state first having the opportunity to recoup long-term care costs up to the amount of the person’s equity in the property. As of 1996, fifteen states were known to use TEFRA liens.[70]

North Carolina’s current transfer of asset policies do not go beyond the minimum requirements established by the federal government. However, it is worth noting that prior to implementation of the federal requirements stipulated by the Medicare Catastrophic Act, North Carolina had tougher transfer of asset policies in place.[71] Essentially, sanctions were placed on any countable real or personal assets in excess of those automatically excluded for Medicaid eligibility determination (primary home, one car, pre-paid burial, etc.) for purposes of determining eligibility for any Medicaid covered care (aged, blind, and disabled), not just long-term care. With passage of the federal requirements, this was no longer allowed and North Carolina modified policies to minimally comply with the federal requirements. Interest in re-examining North Carolina’s current asset transfer policy has been recently rekindled as a result of two recent events including:

1. An April 1998 report submitted to the General Assembly by the Department of Health and Human Services (DHHS) examining Medicaid eligibility criteria for long-term care and, more specifically, policy inequities that result in persons choosing institutional care over home and community care. This report outlined policy options the state could pursue to further limit opportunities for individuals to transfer their assets for purposes of becoming eligible for Medicaid funded long-term care. With regard to asset transfer issues, the report identified both the lien option and expanding the array of long-term care related services to which transfer of asset sanctions would apply as described above.

 

2. Publication of the May 1998 report of the Study Commission on Aging. This report detailed the deliberations and recommendations of this body. One recommendation was to increase the Medicaid eligibility level to 100% of poverty for the aged, blind, and disabled to help address the problem of prescription drug affordability for vulnerable older adults. In consideration of the cost of this measure to the state (approximately $57 million in state funds and $10 million in county funds for State Fiscal Year 1999-2000), and to help assure that individuals pay for their own health and long-term care to the extent they are able, the Commission further recommended that the 1998 General Assembly look at ways to strengthen Medicaid recovery and asset transfer policies. With regard to asset transfer issues in particular, the Commission’s report recommended consideration of the following:

• applying the transfer of asset policy to additional long-term care related services
• putting liens on real property of Medicaid nursing home applicants not expected to return home[72]

Expanding the Scope of Medicaid Estate Recovery Efforts

In 1993 the federal government also imposed minimum steps states must make to recover Medicaid long-term care costs from Medicaid beneficiaries. At a minimum, estate recovery efforts must apply to persons age 55 and older receiving nursing home care, care provided in ICF-MR facilities or CAP services. For these populations, recovery efforts must also include related hospital and prescription drug costs. As of 1995, the impact of state estate recovery efforts on reducing Medicaid costs was limited. For instance:

• in 1993, the 10 states with the most aggressive estate recovery programs collected an average of only 1% of their nursing home expenditures.[73]
• in 1995, for the nation as a whole, less than one half of one percent of all Medicaid nursing home costs was collected totaling about $124.8 million.[74]

While this data does not appear promising, it is important to note that as of February 1996, five states indicated they had not as yet operationalized an estate recovery program and numerous other states were reported to be operating at a minimal level.[75] There is some indication that collection ratios have improved somewhat since 1994 in at least some states. Availability and examination of more current data for all states would be useful to determine whether there have been significant increases in the amount of recoveries made nationally and to identify those states with the most effective collection programs and associated recovery policies as well as considering cost/collection ratios.

There are a variety of strategies states can use to increase estate recovery collections including:

• giving Medicaid as high a rank as possible in repayment of claims against estates to increase the likelihood of there actually being any funds remaining in the estate to recoup.
• seeking judgments against the spouse and/or other dependents equal to the amount of Medicaid costs incurred for the beneficiary’s long-term care costs. This will ensure that upon the death of the spouse and/or dependent, or in event they seek to sell any property that was part of Medicaid beneficiary’s estate, the state will have opportunity to recoup Medicaid costs made on beneficiary’s behalf.
• applying estate recovery policies to additional long-term care related services such as personal care services, hospice, home health, etc.
• imposing the broadest definition of "estate" allowed by federal laws for purposes of Medicaid estate recovery to improve the chances of accessing assets deceased beneficiaries for recoupment of Medicaid long-term care costs.
• putting a lien on any real property owned by individuals seeking Medicaid nursing home care who are not expected to return home as is allowed by federal law. Such liens not permitted, however, when certain relatives remain in the home.[76]

In addition to the above policy related strategies, some states are looking to private contractors to handle estate recovery collections. Private contractors conducting these activities typically take some agreed upon portion of collections made. The extent to which these types of efforts improve estate recovery collection ratios for states that have instituted this approach is still unknown.

North Carolina’s estate recovery plan meets, but does not exceed, minimum federal requirements. To give some perspective as to how North Carolina’s recovery efforts compare with the nation as a whole, for State Fiscal Year 1996-1997, estate recoveries totaled .02% of total long-term care spending for the elderly and disabled for that year ($1.46 billion). In terms of dollars owed versus dollars collected, of the $21 million invoiced for repayment during the year, a total of $279,596 or 1.3% was actually collected.[77] This amount increased to 2.3% for 1997-98 during which 27.3 million was invoiced and approximately $840,000 was collected.[78]

In addition to reviewing transfer of asset policies, there also seems to be renewed interest in re-examining our state’s estate recovery policies to determine how these efforts could be strengthened. The impetus for the increased interest in this area stems primarily from the same two factors mentioned above regarding transfer of asset policy:

1. The DHHS report to the General Assembly on options to better address the institutional bias of Medicaid eligibility policy (same report as previously mentioned). The report outlined options the state could consider to enhance estate recovery collections from Medicaid recipients receiving long-term care related services. The options identified included all of the strategies listed above. To maximize the potential impact of some of these options, existing loopholes in transfer of asset policies would also have to be addressed.
2. The May 1998 report of the Study Commission on Aging includes a recommendation that all options open to the state (includes all those outlined above) regarding estate recovery be reviewed in light of experience with recovery efforts under current law and the need to expand Medicaid eligibility to address the issue of prescription drug affordability.

• Legislation to increase the Medicaid eligibility level for the aged, blind and disabled to 100% of poverty addresses this issue by stipulating that the General Assembly consider options to strengthen estate recovery efforts.(House Bill 1147 and Senate Bill 1297)

More Tightly Controlling Medicaid Eligibility, Covered Services and Reimbursement Rates

Without obtaining any federal waiver(s), states have considerable flexibility with regard to determining Medicaid financial eligibility levels, optional services to be covered as well as reimbursement rates paid to entities providing Medicaid covered health and long-term care. Within federal parameters, states can take steps to reduce Medicaid liability by tightening policies in any or all of these areas. Depending upon the action being considered and the state’s existing Medicaid state plan, a state plan amendment(s) may or may not be required for a particular action. There are many possibilities states could pursue in each of these areas. States pursuing such changes need to proceed carefully to effectively overcome potential opposition to these types of actions. Several examples are outlined below to provide some idea of the array of actions that could be taken including:

• for states that cover Personal Care Services as a regular state plan service, since this is an optional service, they could eliminate the service or restrict the settings where this service could be provided (e.g., at home only) and/or the maximum allowable number of hours of personal care services that can be provided on a monthly basis.
• not provide an inflationary increase for a particular service(s) for a given year or provide an inflationary increase less than the Consumer Price Index inflationary rate
• cut the reimbursement rate for a particular service(s). (The 1997 Balanced Budget Act repealed the Boren Amendment which required state Medicaid programs to pay nursing homes rates that were "reasonable and adequate.")

• For Federal Fiscal Year 1997, nursing home inflationary increases for direct care were reduced from a planned rate of 4% to 2.04% for direct costs and from 1.8% to 1% for indirect costs resulting in an annual cost savings to Medicaid of approximately $15 million.
• Based on cost reports for Medicaid home health services, no rate increases were awarded for SFY ‘96-97 (annual cost savings of approximately $1.7 million). For SFY 97-98, home health agencies received the regular inflationary increase.
• Based on 1994 cost reports, reimbursement rates for home health aide services were frozen for SFY 96-97 (as well as all other home health rates); 97-98 rates rebased based on cost reports SFY 97-98 (savings of approximately $1.5 million).[79]

Although not directly long-term care related, North Carolina’s Medicaid program has instituted other measures in an effort to help control overall Medicaid spending. Some key examples include:

• Reducing the amount of inflationary increase provided to hospitals for SFY 97-98 (estimated annual savings of $25 million)[80]
• Implementing various managed care initiatives including:

As already mentioned, Medicaid spending is heavily weighted toward nursing home care. Therefore, the overall supply of nursing home beds in a state has a direct effect on Medicaid nursing home expenditures and subsequently overall Medicaid spending for long-term care. As such, many states view moratoriums on bed construction and efforts to control nursing home bed growth through the use of Certificate of Need (CON) regulations as important Medicaid cost containment tools. The information below reflects current state activity in this area as of July 15th.

• 22 states have a moratorium on additional long-term care beds.
• 37 states and the District of Columbia have Certificate of Need regulations controlling construction of new facilities or the addition of beds in existing facilities.
• 16 of the 37 states currently also have a moratorium on additional long-term care beds[81]

North Carolina controls nursing home bed supply through the Certificate of Need process. There has been considerable discussion over past several years regarding the need to continue the CON process. North Carolina has a relatively low nursing home bed supply compared to the nation as a whole. Given that Medicaid pays for at least some portion of care for 82% of nursing home residents, serious consideration needs to be given to any efforts to eliminate the CON process for nursing homes. (From 1982-1984, North Carolina imposed a moratorium on nursing home bed growth.)

North Carolina imposed a one year moratorium on new adult care home beds effective August 28, 1997. The moratorium, however, did provide for certain exceptions. As of June 5, 1998 more than 10,300 new adult care home beds had been approved in North Carolina.[82]

North Carolina has approximately one million Medicare beneficiaries and is the primary source of health care coverage for older adults. While Medicare does not pay for on-going long-term care, it does cover both limited nursing home and home health care as a result of an acute care episode. Medicare home health changes resulting from the balanced budget act will likely result in increased pressure being put on the Medicaid program (and other state administered long-term care funding). In North Carolina for instance, barring any changes to rescind these provisions, the elimination of venipuncture (blood drawing) as a qualifier for skilled care services as well as both the "Interim Payment System" and the "Prospective Payment System" could result in increased demand for Medicaid personal care or home health services for persons who are eligible for both Medicare and Medicaid (dually eligible). The venipuncture provision will also put increased demand on other funding for in-home aide services such as the Home and Community Care Block Grant and Social Services Block Grant. It is important to note that North Carolina’s Medicaid program has agreed to pay for home health care for persons dually eligible for Medicare and Medicaid for whom venipuncture is the skilled need which triggers the need for home health care.[83]

In addition to the potential impact of Medicare home health changes, states want to make sure that Medicare, and not Medicaid, is billed for health and/or long-term care services covered by Medicare for dually eligible persons. Because a home health agency, nursing home or other provider is often approved to bill both Medicare and Medicaid, billing errors can occur. Inappropriate billing of Medicare costs to Medicaid which are not subsequently discovered and denied, unnecessarily adds to state Medicaid expenditures. States are taking a variety of steps to see that Medicaid is not billed inappropriately for Medicare covered care including:

• educating consumers and health care providers/nursing facilities about what benefits Medicare covers (and under what conditions)
• requiring home health agencies to be certified to provide both Medicaid and Medicare covered home health care services — and encouraging home health agencies to bill Medicare whenever possible for persons who are dually eligible for Medicare and Medicaid
• improving data collection/data analysis systems to identify either prospectively and/or retrospectively, Medicaid costs that should be billed to Medicare.[84]

North Carolina takes a variety of steps in an effort to avoid inappropriate payment of Medicare costs by Medicaid as well as limiting the amount that Medicaid is required to pay for Medicare related nursing home care for persons who are dually eligible for both Medicare and Medicaid. Steps taken include the following:

• North Carolina certifies home health agencies for provision of both Medicare and Medicaid covered home health services. (It is up to each individual agency to submit the agreement which enrolls them as a Medicaid provider in North Carolina.)
• The Division of Medical Assistance reports that their Third Party Recovery Section routinely examines billing records for dual eligibles on both a prospective and retrospective basis. Information systems collect information about other insurance coverage that Medicaid eligibles have (e.g., Medicare). This information along with an array of information systems edits and audits help to reduce the chances of Medicaid inappropriately paying for health care costs that are rightly the responsibility of Medicare.
• Medicaid has responsibility for paying "cross-over" claims for persons dually eligible for Medicare and Medicaid. This means that Medicaid is responsible for paying the amount that Medicare does not cover for days 21 through 100 of a Medicare approved nursing home stay. In these cases, the Division of Medical Assistance pays the Medicaid rate for that facility (skilled nursing care) less the amount received from Medicare. Any remaining balance is "cost settled" by the provider with Medicare through Medicare’s cost settlement process. This has been a Division of Medical Assistance procedure for several years.[85]

Because of the potential benefit state actions have on improving access to home and community based long-term care services for both the Medicaid and non-Medicaid eligible populations, details concerning actions by states in this area are included in Section 5 entitled: "Improving Access and Personal Responsibility for the Non-Medicaid eligible."

Because many states have seen positive results from enrolling certain Medicaid populations in array of managed care models for the delivery of primary and acute care, states are also looking to managed care as an opportunity to better coordinate health and long-term care services, improve access to needed care and better control Medicaid costs. Because the need to improve access to services and better coordinate long-term care services are primary motivations for states in terms of managed care initiatives, details regarding these state initiatives are included in Section 5, "Improving Access to Care and Increasing Personal Responsibility for Care."

North Carolina has already implemented or is considering strategies consistent with national trends to reduce Medicaid liability for long-term care costs and improve cost efficiency and effectiveness. With regard to asset transfer and estate recovery policies in particular, North Carolina still has considerable flexibility to exercise. Further policy restrictions could result in increased estate recovery collections and helping to ensure that persons who are able to pay for at least a portion of their care, do so before turning to Medicaid for help with their long-term care needs. Success of future efforts to control the growth of public long-term care spending must carefully consider demographic, economic, political and other factors that are unique to North Carolina.

Highlights
Developing Managed Care Systems That Better Integrate Health and Long-term Care
---Key Design Models
Expanding Options for Home and Community Care
Increasing Personal Responsibility for Long-term Care through Private Long-term Care Insurance
---Implementing "Long-term Care Insurance Partnership" Programs
---Providing State Tax Credits or Deductions for Long-term Care Insurance Premiums
Offering Group Rate Long-term Care Insurance Benefits to State Employees
---Developing Defined Private Contribution Plans
Summary

Highlights

Steps to control the growth of Medicaid long-term care costs, no matter how successful, cannot be the sole road map for long-term care reform. While there will be more demand for publicly supported long-term care services, the vast majority of aging baby boomers will not be Medicaid eligible. If states are to be well positioned to meet the tremendous new demand for long-term care services that aging boomers will bring, they will also need to take major steps to improve access to long-term care information and services for all consumers whether public or private pay. In addition, states are also taking action to help ensure that baby boomers understand the risk of needing long-term care and are preparing to pay privately for any long-term care they may need to the extent they are able. State efforts in these areas fall into three major areas as outlined below. An overview of what North Carolina is doing in each of these major areas is included:

1. improving access, care coordination and service delivery through managed care models for delivery of long-term care and/or health and long-term care services
2. expanding options for home and community care
3. promoting the purchase of private long-term care insurance.[86]