Finance Committee Research

1. Finance Committee Research May 4, 2009

2. CMS description of waivers • 1115 Research and Demonstration Projects • This section provides the Secretary of Health and Human Services broad authority to approve projects that test policy innovations likely to further the objectives of the Medicaid program. • 1915 (b) Managed Care/Freedom of Choice Waivers • Waivers that allow states to implement managed care delivery systems, or otherwise limit individuals’ choice of provider under Medicaid • 1915 (c) HCBS Waivers • Waives Medicaid provisions in order to allow LTC services to be delivered in community settings.

3. Waivers • An 1115 waiver may signal an innovative stance within the State, and suggests that the State has seized an opportunity to try a new approach. • Some States have opted to use a separate waiver for assisted living, whereas others include services to consumers in assisted living settings within their Aging and Disability waivers. • Generally speaking, the more waivers a State administers, the more likely that administration is diffused across agencies. Research on state management practices for the rebalancing of state LTC systems: Final Report. (2006).

4. Preview of Literature Review • Public and Private LTC Financing: Options for Minnesota • Financing LTC for Minnesota’s Baby Boomers: A report to the MN Legislature • Describes a variety of public and private financing options and offers recommendations for actions to prepare for LTC challenges

5. Long-term care insurance (LTCI) • Private insurance that is purchased before LTC is needed • If care is needed, the insurance policy pays benefits as stipulated in the policy purchased • Policies can be individual or group based • Group LTCI is available through employers or associations

6. LTCI • Pros: • Most recognized and utilized option • Pools the risk of LTC • Targeted specifically at LTC • Cons: • Only one of many risks that younger people must address, and seen as lower priority • Must be purchased before needed

7. Partnership for Long-Term Care Program • The Partnership program couples the purchase of LTC insurance with eligibility for Medicaid coverage of LTC services. • With the purchase of a partnership policy, a consumer who uses up the insurance benefit can become eligible for Medicaid coverage without having to exhaust his or her assets to qualify for such coverage. • MN estimates that the partnership program will save the state $120 million to $150 million by 2030. • Original four states (New York, Connecticut, Indiana, and California)

8. Partnership for Long-Term Care • Pros: • Clarifies and sets level of individual expenditure for LTC and once met, offers “back-end” coverage of remaining LTC costs through Medicaid • Increases consumer protections by setting standards for LTCI policies • Cons: • Requires Congressional action to allow more states to establish program • Medicaid savings unclear

9. Nursing facility benefit in Medigap policies • Medigap policies are insurance plans that seniors on Medicare purchase to cover the co-pays and deductibles within the Medicare program. • These plans are standardized and there are 10 to choose from • It appears that innovative combinations of health insurance and LTC coverage should be encouraged, but not mandated

10. Nursing home care into Medicare-related coverage • Pros • Ideally, this would expand number of seniors with some coverage for nursing home care • Cons • Would damage the Medigap market by making premiums unaffordable for most current policyholders

11. Combining health care and LTC coverage • Private approaches that combine health care and long-term care coverage • Social HMOs are one example of a completely integrated medical and LTC model that does offer standard Medicare benefits, plus LTC and drug benefits. • Similar to Medicare Advantage health plans. Social HMOs receive a monthly capitation payment from Medicare and accept full financial risk for the cost of all medical benefits to which their enrollees are entitled.

12. Combining health care and LTC coverage • Public approaches that combine health care and LTC coverage • In contrast to the limited private plans, several public health insurance options include medical and LTC services for the elderly on Medicaid. • Minnesota Senior Health Options (MSHO) • Began under federal waivers as the first-ever capitated Medicare and Medicaid program for the dual-eligible elderly managed by the state. • Wisconsin and Massachusetts have followed with similar programs. • All of these programs use Medicare and Medicaid funding to provide the full array of Medicare, Medicaid (including community waivers), and substantial benefits that are similar to Medigap plans. • These programs use creative incentives to improve care delivery and chronic care management. • Program for All-inclusive Care of the Elderly (PACE)

13. Health insurance options that include LTC coverage • Pros • Not only pay for LTC, but also have the potential to improve the coordination and management of medical care and LTC, to slow the progression of disability and possibly reduce the need for LTC • The plans have strong incentives to use noninstitutional settings, which consumers prefer, and access to care is frequently improved. • Providers and health plans experience equal or better financial results, and most states experience small decreases in expenditures or expenditures equal to those in their fee-for-service programs. • Cons • Complexity in development • Not available to most elderly on Medicare, but are more available to elderly on Medicaid • Potential providers of these models need to be able to obtain adequate reimbursement through Medicare and Medicaid in order to provide both medical and LTC benefits

14. Health Savings Accounts (HSAs) • Couples a high deductible medical insurance policy with a tax-deductible annual health care savings account. • More of the upfront health care spending decisions are turned over to employees, who use the funds saved tax-free in the HSA (and often supplemented by the employer) to pay for routine health care expenses. • If not used for health care in a given year, the remaining funds can be rolled over into the next year, rather than being lost (as is the case in flexible spending accounts).

15. HSA’s • Pros: • HSAs increase the consumer’s prudent use of money for health care expenses, and heighten their sensitivity to the price of health care services because they are using their own money to pay the bills. • The ability to “rollover” any unspent funds into future years for later use. • The funds are flexible, so they can be used for a wide variety of health care costs as well as LTC expenses, such as LTCI premiums. • Cons: • Medicare beneficiaries are not eligible to contribute to HSAs, so the benefits of HSAs are limited to individuals before they become eligible for Medicare, or to the use of any excess money in their account to pay for health and LTC expenses after they are on Medicare. • HSA funds cannot be used to pay the premiums of Medigap policies. • Further analysis suggests that large numbers of indiciudals would typically have nothing to “rollover” into their retirement years to use for health and LTC spending at that time • Research has found that large numbers of individuals and families expend more each year for health care than what they have in their health spending accounts.

16. Life insurance options that include LTC coverage • Two types of life insurance—permanent and term insurance—and they can both be used for LTC • Provisions that can cover LTC costs include accelerated death benefits, life settlements, single premium life/LTC policies, and viatical settlements. • These provisions use (and thus reduce) the cash value of the policy in order to provide cash for LTC costs. • Experts familiar with both the life insurance and the LTCI market predict that linked benefit policies (life insurance and LTCI) will become more popular and offer a more cost-effective option for clients

17. Life insurance options that include LTC coverage • Pros • Permanent insurance option provides multiple uses through one vehicle—life insurance, LTC coverage, possible loan/savings • The client receives cash that they can use in any way they want to pay for LTC related expenses • The premium is guaranteed or locked in and will not rise, in contrast with LTCI premiums that have experience significant premium increase in recent years. • In a life insurance policy, the client gets a death benefit, a LTC benefit and can also access the cash value of the policy as a loan if needed. If the LTC benefit is never used, clients still get the death benefit. • Cons • LTC coverage more limited than what is available through LTCI or health insurance • The amount of money available may not be adequate to cover needed LTC costs, either because of the low face value of the life insurance policy or lack of features like inflation protection. • The client must continue to pay premiums even when receiving LTC coverage.

18. Reverse Mortgages • Older homeowners can tap the equity of their homes to pay for needed home care services without having to sell the house and move. The amount borrowed through the reverse mortgage need not be repaid until the house is sold or the owner dies.

19. Reverse Mortgages • Pros: • Available to large numbers of older persons • Provide cash that can be used for any purpose • Money is available to people regardless of their insurability and can be obtained relatively quickly • The money received is considered a loan, not income, so it is tax free • Fairly significant consumer protections in place for reverse mortgage buyers • HUD requires that all applicants receive intensive counseling prior to their closing • Cons: • Can be relatively expensive ways to borrow smaller amounts of money, since most of the fees paid are the same regardless of the amount of the reverse mortgage. • Needs to be in a market where home values are high enough to yield sufficient cash back to make it worth the effort and cost to the older homeowner • Many debt-free homes owned by seniors may be in need of extensive repairs or renovation when appraised for purposes of these mortgages. • There also has to be a lender in the community qualified to process reverse mortgages, and that may not be the case in all parts of the state.

20. Family loan or line of credit • Provides a personal, nonsecured loan or line of credit to families who want to help an older relative pay for LTC costs. • This type of loan is most often used by families of potential residents of assisted living or nursing facilities as a way to make immediate move-ins possible. • The senior pays what she/he can out-of-pocket each month, the loan administrator pays the rest to the assisted living provider, while the children/family make monthly payments over time to repay the amount borrowed • The interest rate on the loan is similar to that for other unsecured loans, four percent to seven percent over the prime rate. • The funds can be used for any type of LTC expense • The “Family Payment Plan” is now available in four states

21. Family loan or line of credit • Pros: • Most immediate source of money to pay for LTC • Only used if and when needed • Cons: • Increase debt of adult children especially if proceeds from estate are not available to help repay loan

22. Universal public savings plan • In 2003, Hawaii became the first state to enact a LTC financing program that was intended to ensure universal coverage • This plan (Care Plus Program) was not implemented; vetoed by the Governor of Hawaii

23. Care Plus Program • A universal insurance and savings plan. As such it is the least expensive per person ($120/year) of all the options because the risk of needing LTC is spread across the whole population. • Designed to supplement an individual’s own LTC funding • The program was to be funded through a $10 per month payment that every adult age 25 and older filling a state income tax return would pay • To be eligible for a claim, the beneficiary would need to have two deficiencies in ADLs or a cognitive disability • The program would then make payments of $70 per day for up to 365 days (not necessarily consecutive) after a 30-day deductible • This option is not available in any state at the moment

24. Universal public savings plan • Pros: • Creates a large risk pool and provides benefits to everyone in the pool who needs them • Spreads the risk of paying for LTC across the state’s adult population resulting in a small cost • Everyone in the program receives the same benefit payment, so it is equitable across income levels • Provides flexible money • Protects the public dollars in Medicaid for the truly needy • It was hoped that it would motivate the private LTCI industry to develop affordable plans to wrap around the public benefits • Cons: • All participants are charged the same premium regardless of level of risk or income, so the payments made into the system are somewhat regressive • If LTC needs last more than one year, some participants may not have adequate provision for additional services and may still need Medicaid

25. Long-term care annuity • An example of a combined savings and insurance product where an individual purchases an annuity and along with that, also purchases LTC coverage • When the LTC benefit is triggered, the monthly cash amount is increased over and above the basic annuity, for use in paying LTC costs

26. Long-term care annuity • Pros: • The combination of annuity with a LTC policy that covers individuals against both the risk of outliving their money and the risk of needing LTC • For individuals who have long life expectancies or lots of chronic illness in their families, this type of product offers protection on both fronts • Provides another alternative for certain individuals who may have needs and also have some liquidity in cash or other investments to set up such an annuity. • Unused portions of the annuities can be inherited • Cons: • Current products require substantial investment • Individuals using this option need to have enough assets to fund this annuity and not require that money for other purposes • Few people are aware of this option

27. Final Report for Rebalancing Research Project • In 2003, Congress directed the Centers for Medicare & Medicaid Services (CMS) to commission a study in up to 8 States to explore the various management techniques and programmatic features that States have put in place to rebalance their Medicaid long-term supportive services (LTSS) systems and their investments in long-term support services towards community care. • Arkansas, Florida, Minnesota, New Mexico, Pennsylvania, Texas, Vermont, and Washington participated in the resulting 3-year collaborative study Centers for Medicare and Medicaid Services. New Freedom Initiative: Rebalancing Long-term Care.

28. Final Report for Rebalancing Research Project • The study took place between October 2004 and June 2008 • Among the many products generated are: • 8 baseline case studies for each of the 8 states covering a period up to July 2005 • An 8-state update report, covering the period from August 2005 to July 2006 • 8 final cases studies for each of the 8 states, covering the period until December 2007 • 6 cross-cutting Topic Papers dealing with themes in Rebalancing • 6 Quantitative Chartbooks

29. State LTC systems: Organizing for rebalancing • Integration: The extent to which functions, programs, and populations for LTC in a State are combined or articulated within State organizations • Centralization: The extent to which LTC decisions are made at the state or local levels • Markers of centralization include uniform assessment protocol and procedure; use of State personnel in local areas for assessment and care-planning functions, State ability to re-budget resources across localities, and local understanding of and sharing of State programmatic goals. Kane, R.; Kane, R.; Kitchener, M.; Priester, R.; & Harrington, C. (2006). State Long-Term Care Systems: Organizing for Rebalancing Topics in Rebalancing State Long-Term Care Systems.

30. Conclusions The trend seems to be toward: • Bringing LTC functions together in the same agency • Developing greater articulation among Medicaid LTC programs (including waiver and State Plan services, and institutional and community care services) and between Medicaid LTC programs and other state-operated or state-funded LTC programs. • Integrating programs across multiple groups of consumers • Creating more centralization of long-term care functions across a State Research on state management practices for the rebalancing of state LTC systems: Final Report.

31. “Long-term care rebalancing in other States” Office of Legislative Research • Successful strategies identified • Global budgeting • Consolidated LTC agencies • Single point of entry • Consumer-directed care • Reducing institutional capacity • Nursing home transition and diversion programs • Standardized assessment tool

32. Global Budgeting • The pooling together of state and federal funds for both institutional and home and community-based services into one budget with an overall spending cap. • Promotes flexibility between different programs to promote cost efficiency • Makes it easier to provide care in the appropriate setting for the individual

33. States incorporating global budgeting • Washington • Vermont • Wisconsin • Ohio • New Jersey • Texas

34. Managed Care States to examine • Minnesota • Wisconsin

35. Managed Care Advantages • The payment is fixed and hence predictable (and thus budgetable) • It is presumed to save money (the price is advertised as a discount over what it would otherwise cost, but the actual price may vary dependent on just who enrolls) • It may allow states to accomplish something they could not do directly (e.g. ration services, push for a cheaper mode of care, and avoid bureaucratic conflicts) • The state may already be invested in Medicaid managed care for acute care or behavioral health and perceive clinical advantages for seniors and people with disabilities if acute care and LTSS could be integrated in a single capitated delivery system.

36. Policy approaches to LTC financing • Restrict growth in LTC spending by Medicaid and Medicare • Placing limits on eligibility for Medicaid coverage • Place new limits on income and assets “Financing LTC for the Elderly: Policy Approaches to LTC Financing,” (2004) Congressional Budget Office Paper.

37. Eliminate mechanisms for spending down assets and income • Eliminating the medically needy option for spending down income and assets • Requiring all states to adopt the special income rule, whereby people must have income below a specified ceiling to qualify for Medicaid coverage • Eliminating Miller Trusts as a method for reducing countable income below the ceiling

38. Improve the functioning of the market for private LTCI • Could be made more attractive to consumers by standardizing insurance policies to allow competing policies to be more easily compared • Allow consumers to supplement Medicaid coverage with private policies • Taking steps to remove or lessen Medicaid crowd-out—the dampening effect that the availability of Medicaid’s LTC benefits has on sales of private LTC insurance policies

39. Reducing Medicaid Crowd-out • One method, allow consumers to purchase a policy that supplemented Medicaid coverage and thus obtain the advantages of both private and public financing (Partnership for Long-Term Care). • Partnership for LTC: consumers may purchase private insurance policies to cover the first one to three years of LTC benefits. When their coverage expires, they apply for Medicaid coverage—just as they would have if they had had no coverage—but they do not have to spend down their assets except to the extent that the assets exceed the value of their LTC insurance benefits.

40. Additional areas worth exploring

41. Nebraska LTC Savings Plan Act • Taxpayers are eligible to claim state income tax deductions related to LTC. • State residents can create LTC health savings accounts (HAS). • Withdrawals used to pay for the LTC expenses of anyone age 65 or older or a disabled person who has a medical necessity are not taxed. • Withdrawals to pay premiums on LTC insurance are also not taxed. • Individuals must make contributions under a participation agreement approved by the state treasure. “A guide to LTC for State policy makers: Building private LTC financing options. National Conference of State Legislatures.

42. “Own your own future campaign” • Collaboration between AoA and CMS • Purpose is to increase consumer awareness about LTC and to stimulate consumer planning for future LTC needs • In each participating Own Your Own Future state, a letter from the governor is sent to households with members between the ages of 45 and 70, explaining the campaign and encouraging consumers to request a long-term care planning kit. Also, provide state-specific information and resources.* U.S. Department of Health and Human Services. National Clearinghouse for Long-Term Care Information.

43. Real Choice Systems Change Grants • Person-Centered Planning Implementation Grants • State Profile Tool Grants • “Executive Summary for the Annual Report of System and Impact Research and Technical Assistance for CMS FY2005, FY2006, and FY2007 RCSC Grants”* *Centers for Medicare and Medicaid Services. Real Choice Systems Change Grants.

44. Medicare/Medicaid Integration Program • The purpose of the Medicare/Medicaid Integration Program is to encourage states to integrate Medicaid's long-term care services with Medicare's acute care services through managed care* • The program has funded 14 states that are in various stages of planning, development, and implementation. George Mason University: Center for Health Policy Research and Ethics. Medicaid/Medicare Integration Program

45. Miller Trusts • Can be used to help lower the amount of income going to the nursing home patient so that he/she can qualify for Medicaid and at the same time provide money for the community spouse at home* • Also known as Qualified Income Trust, Income Cap Trust, and Income Assignment Trust Arizona Long-term Care System. www.tucsonelderlaw.com/miller-trusts.htm

46. Money Follows the Person • Money Follows the Person • “A system of flexible financing for long-term services and supports that enables available funds to move with the individual to the most appropriate and preferred setting as the indiviudual’s needs and preferences change.” (CMS) • Systems Change for Community Living Grants Program

47. Thank you! Questions or comments?