Paying for Long-Term Care

As noted above, many states could substantially reduce their long-term care expenses by abandoning cost-plus reimbursements and all its variations. The state should pay for services received rather than paying for the cost of delivering those services. The following are some additional suggestions.

Encouraging Cost-Effective Alternatives. Cost savings could be realized in some cases with home health care services instead of a medical center. However, efficient screening for eligibility would be needed. For example, an individual with disabilities might resist applying for coverage if it implies residence in a nursing home but opt to do so if eligible for home health care. When less costly services also are more attractive, they can have the effect of increasing demand.

Enforce the Asset Tests for Eligibility. The asset tests for eligibility for Medicaid long-term care should work as intended by the legislature. Although legal, establishing Miller Trusts to circumvent income tests for eligibility for Medicaid long-term care is an abuse of legislative intent and is driving up costs.59 If Miller Trusts are not what the legislature intended, the law should be changed. If existing trusts are what were intended, additional statutes should exclude trusts that reduce current income and should set clear income eligibility standards.

Encourage Community Care Rather than Institutional Care. In general, care in a home or small facility is preferable to care in a large institution. At a minimum, no bias towards institutional care should exist. Where comparable services are more cost-effective in the community, services should be provided there.

"We can get better long-term care if we pay for results."

To appreciate the opportunities for reducing costs, consider that Oregon, Washington and Wisconsin expanded home- and community-based care to help control rapidly increasing institutional care expenditures. These states were able to provide services to more people with the available budget. Home- and community-based services have helped them control the growth in overall long-term care spending. For example, between 1982 and 1992 the combined number of beds in Oregon, Washington and Wisconsin declined by 1.3 percent, while total nursing facility beds in the U.S. increased by 20.5 percent.60

Base Payments on Outcomes. In general, it is better to pay for outputs (i.e., quality of care and consumer satisfaction) than for inputs (i.e. beds, staff, etc.). To get results, a payment system should only pay for what is desired. Quality and satisfaction is what recipients and their families want. An index of quality-of-care indicators should be constructed and used to distribute total funds. Three factors could be averaged to create the index. One-third could be based on resolved complaints, one-third on customer satisfaction surveys of patients or their guardians and one third on such performance measures as changes in number and severity of pressure sores (adjusted for acuity level of population), use of restraints, odors, food, etc.61 A facility that scored 50 percent higher on this index than another facility would get a 50 percent larger share of payments (per patient, adjusted for acuity). Nothing improves quality quicker than paying for it.

This recommendation is consistent with a recent National Academy of Sciences report, which recommended that all federal health programs pay providers based on objective assessments of quality for the treatment of 15 health conditions.62