"Long-term care as we know it is finished…." - interview with Stephen Moses, Director of Research, Long-Term Care, Inc - Interview

Nursing Homes, June, 1996 by Richard L. Peck

An interview with Stephen Moses, Director of Research, LTC, Inc.

There is probably no more articulate spokesperson for privately-financed long-term care than Stephen Moses. Director of Research for a long-term care insurance industry-sponsored "think tank", LTC, Inc., Moses is a frequent speaker at long-term care industry conventions, writes often for industry publications, and is cited regularly by national media. His message: long-term care financing has gone from bad to worse - from almost exclusive reliance on out-of-pocket spending by fixed-income elderly, to dependence on tax-supported programs, principally Medicaid. The solution, in his view, is private long-term care insurance. Now, after years of indecision and the imminent threat of Medicaid block grants, the long-term care industry firmly supports that view. Moses, however, goes beyond simply describing the virtues of private insurance. He delves into the ideological clashes wracking Washington and, for that matter, the world. Long-term care, he says, is wrapped up in an historical sea change. He laid out the range of his views in this recent interview with Nursing Homes Editor Richard L. Peck.

Peck: As of now (late April), it appears as though those long-sought-after tax clarifications for long-term care insurance will be passed by Congress. If so, what is the significance of this?

Moses: The most important aspect of it is that it helps get across the message that government acknowledges that government-financing won't be there and is encouraging purchase of private long-term care insurance. Also, recent Health Insurance Association of America research indicates that 49% of non-purchasers who had been exposed to the product said they would give it a serious second look with tax clarifications. Ultimately, though, I don't think this will affect sales much, because tax uncertainties are not the major reason people don't buy.

Peck: We will get to those in a moment, but first, you seem to favor Medicaid block grants, which are anathemas to many nursing homes. How would you suggest nursing homes look at those?

Moses: I'm not sure how favoring I've been. The important thing is that they would be a step toward getting government out of financing long-term care. I think everyone in the industry would agree: long-term care as we know it is finished. There is change underway, and it's permanent. Nursing homes are going to have to wean themselves off of public money, and many are, whether it's upscaling to subacute care to get the remaining available public dollars, or downscaling to assisted living to get the private dollars. Meanwhile, groups like the American Health Care Association are pushing long-term care insurance very heavily; five or ten years ago, I could barely get them to talk to me about this.

Whether block grants are enacted or not, public money is disappearing. The private money will come either directly from people's pockets, which is very disruptive, or from a third-party resource.

Peck: It is frequently stated that private long-term care insurance will never occupy more than 40% of the market in need. How do you view that?

Moses: That's dead wrong. I could make a case for 75 to 80% of the market. The problem is that the research on affordability, not only by Weiner and Rivlin, but by the industry itself, is based on a false premise. It finds that people will not spend more than 5 to 10% of their disposable income for such policies. If you use U.S. Census data, which count everyone on Medicaid, it's true that affordability goes down. If, as the industry does, you exclude Medicaid recipients, then maybe you get 40%. The false premise, though, is "disposable income." Of course, the elderly are cash-poor. But they are "house-rich."

If you take into account all their assets, not just liquid assets, they're the richest cohort in America. About 77% own homes, and 83% of those own them free-and-clear. Seniors have $1.5 trillion in net equity in their homes. Almost none of this goes to long-term care, and reverse annuity mortgages don't sell, because Medicaid exempts the home - the government will pay. The fact is, there is enough wealth here to solve long-term care financing for this generation and all generations to come; 57% could buy insurance with nothing more than the proceeds of reverse annuity mortgages.

Still another resource is the adult children. Right now they receive a windfall of public dollars when they don't plan ahead. If there were a serious effort toward estate recovery - paying back the public money with proceeds from the estate - the kids would have serious second thoughts. It might behoove them, if necessary, to help Mom and Dad with the insurance premiums, if for no other reason than to protect the estate.

In general, though, people are not educated as yet to these realities.

Peck: But isn't it the perception that many of the elderly and their kids don't have the assets available to afford much of anything?

Moses: There's the recent HIAA research showing that people with combined assets under $30,000 are purchasing policies; they're about one-third of the purchasers. But, sure, let me address that perception you mention. I spent 18 years working for the Federal government - both with the Inspector General's office at HHS and at HCFA - on ways to save the public welfare programs for those who really need them. And even though the private long-term care insurance industry pays my salary, I retain that objective. Part of the problem is that those who can afford to protect themselves don't because there's a gut sense out there that nothing bad is happening. Catastrophic asset spend-down hasn't been found to be widespread in the studies that have been done - 15 to 25% for Medicaid recipients, i.e., for the most part it isn't happening. Medicaid eligibility rules are generous, even in the strictest states, and the lack of estate recovery efforts means that there are no negative consequences of failing to plan.