The Decline and Fall of Long Term Health Care in the USA: Who Will Care and Who Will Pay?

By Bob O’Toole, President Informed Eldercare Decisions, Inc.

In late 2005 and early 2006 three news items highlighted the growing severity of one of the major problems facing an aging America in the 21 st century. USA Today reported "Each year from 2000 through 2004, three of five nursing homes were cited for at least one violation of state or federal fire safety standards. Many of those violations involved relatively minor problems. But about 10%, on average, involved more serious problems, characterized by regulators as those that can cause patients actual harm or put them in immediate jeopardy."

Just a few days earlier Leon Kass, Chairman of the President’s Council on Bioethics wrote the following in the Washington Post: "A crisis in long-term care will soon be upon us. The shortage of caregivers is made worse by our cultural refusal to honor the need for care. As a society, we have preferred to place our hopes in programs that promote healthy aging and in scientific research seeking remedies for incapacitating diseases. We offer little communal support to the millions of Americans-more each decade-who give demanding daily care to aged parents or spouses. Our society has embraced living wills, through which individuals specify how they wish to be treated should they become incapacitated. We are encouraged to believe that if only we execute the proper documents, we can remain in control of our future and avoid unseemly dependencies and indignities. But this ignores our unavoidable need for human presence and care, especially when we can no longer take care of ourselves. Written directives cannot substitute for reliable and responsible caregivers devoted to the daily welfare of the incapacitated person."

In October, 2005 the New York Times reported " Congress returned ...to a major confrontation over spending...prepared to move forward with cuts in popular programs..."It is not going to be an easy job over the next several days and weeks," (Senate) majority leader Frist acknowledged..But, Mr. Frist added, "We need to stick to a rigorous program of fiscal discipline."

The outlook for the spending cuts, which are to be followed by a proposal for up to $70 billion in tax cuts, is uncertain. While the House leaders, under pressure from the conservative wing, endorsed raising the target for $35 billion in cuts approved in the spring to $50 billion after the hurricanes, Senate Republicans have not yet done so, though they are looking for savings above the $35 billion…House leaders are also considering an across-the-board cut in federal spending. The size of that cut has not been decided, mainly because lawmakers are resisting automatic decreases in programs like veterans' health care."

As the Kass Committee’s recent report states, with baby boomers approaching retirement and birthrates down, we are on the threshold of the first-ever "mass geriatric society." Yet precisely as the need for long-term care rises, the number of available caregivers — professional and volunteer — is dwindling, due in part to smaller, less stable families, greater geographical mobility, and the career demands of men and women.

The report, "Taking Care: Ethical Caregiving in Our Aging Society," says what geriatric care managers and other eldercare professionals have known for years. "Our ability to care well for loved ones with dementia depends greatly on economic, social and communal resources available to us, such as affordable insurance for long-term care; respite for caregivers; reliable, reimbursable home care services; faith-based or civic support groups; technologies to assist in giving basic care; and health care providers who deliver continuity of care and oversee medical and social service needs. Incentives, including better training and wages, must be found to increase the supply of nurses and other nonfamilial caregivers.

Yet we must also remember that the challenges of an aging society are finally not economic and institutional but ethical and existential. Against our confidence in mastery and control, we need to remember that old age and dying are not problems to be solved but human experiences that must be faced. In the years ahead, we will be judged as a people by our willingness to stand by one another, not only in the rare event of natural disaster but also in the everyday care of those who gave us life and to whom we owe so much.

Amy Reeves, writing in Investor’s Business Daily, cited the recently published study sponsored by Genworth Financial The researchers surveyed the cost of long-term care nationwide and found that of the 2,000 nursing homes queried the average daily cost of care was $179 a day for a private room, or $65,200 a year. That's up 13% from a year ago. Buck Stinson, president of Genworth's Long Term Care Insurance business, says the cost boils down to two factors: supply and demand, and the difficulties of providing the care.

As bad as conditions are in U.S. nursing homes today, it’s likely to get much worse, sooner than you might think. About two thirds of America’s nursing homes are owned by for-profit corporations. As that term implies, investors want to make a profit. But, as Reeves points out, running nursing homes still isn't a cakewalk. "The industry is very competitive and highly regulated,...it carries with it high extraneous costs and a heavy insurance burden." It's also been hard for long-term care providers to get enough personnel. Nurses and physical therapists are in short supply. About 60% of the cost of providing long-term care goes directly to labor.

Investor’s Business Daily reports that one of the largest nursing home companies, Genesis', had a pretax margin of only 3% last year. That compares with Sunrise Senior Living, (SRZ) which specializes in assisted living, and boasted an 8.2% margin.

It doesn’t take a Ph.D. in economics or a Wall Street MBA to figure out that, as state and federal governments continue to slash funding for Medicaid, private capital will withdraw their funds from nursing homes, which rely on the program for nearly 70 percent of their revenue, and invest their money elsewhere.

While the decline of public funding for long-term care has been going on for more than a decade in our extremely tax averse society, there now seems to be a growing awareness of how poorly prepared our government is to plan for expected disasters. David Brooks, a columnist for the New York Times and a regular commentator for the PBS nightly news called attention to the demographic tidal waves that we know are coming; yet our leaders choose to ignore

"If you want an image that captures what American politics will be like over the next few decades, Brooks wrote back in March of 2005, imagine two waves crashing down upon us simultaneously, each magnifying the damage caused by the other."

"The first wave is the exploding cost of the entitlement programs. The second wave is the ever-increasing polarization of the political class. The polarization will make it impossible to reach an agreement on how to fix the entitlements problem. Meanwhile the vicious choices forced on us by entitlement costs will make the polarization even worse.

The realities of the first wave - the looming fiscal crisis - are pretty well known. According to the Congressional Budget Office, Social Security, Medicare and Medicaid will consume 14 percent of national output in 2030 and 21 percent in 2075 - up from about 8 percent today. Partly as a result, the federal government will have to come up with an extra $50 trillion just to pay for the promises it's made as of today.

"To cover these costs, federal officials will have several options, all of them horrible. If they acted immediately, according to the economists Kent Smetters and Jagadeesh Gokhale, they could increase federal income taxes by 78 percent; they could double payroll taxes; they could cut Social Security and Medicare in half; or they could do some combination."

"Tax increases on that scale would decimate the economy. Benefit cuts would cause pain. Doing nothing would lead to enormous deficits, an immobilized government and stratospheric interest rates. It would mean the end of the United States as a great economic power."

"Over the next several years, the parties will differ violently over what to do about the entitlement problem while doing very little to actually address it…But over time, the entitlements crisis will begin to transform politics. The parties will grow less cohesive. The Democrats are held together by the common goal of passing domestic programs that address national needs - like covering the uninsured. But with all the money going to cover entitlements, there will be no way to afford new proposals. Republicans, meanwhile, owe their recent victories to the popularity of tax cuts. But those will be impossible, too. Both parties will lose a core reason for being."

If Brooks is accurate in his predictions, it seems like the eldercare industry will not be the only one facing a labor shortage. Brooks concludes his column with the following comment: "I wouldn't be surprised if many of today's politicians decided to reorient their careers. I meet too many who are quietly alarmed by the looming fiscal catastrophe and who know that if their party doesn't tackle this problem, it simply won't be relevant to the issue that will dominate politics for years to come."