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Financing of the Public Plan

Financing Long Nursing Home
Stays: The Commission Plan
Compared with Current
Law-A Case Example

The recommended social insurance for home and community-based care and the first three months of nursing home care would provide the same protection for the long-term care needs of individuals, regardless of income, that Medicare provides for health care needs. The Commission believes that the federal role for the financing of Medicare is also appropriate for the proposed program and, therefore, recommends that the federal government be financially responsible for the social insurance components of the public plan.

Sally Dowd is 78 years old and needs nursing home care. She has life savings of $30,000 and some equity in her house, which she owns. Her income, from social security and her own and her late husband's pensions, totals $1,800 a month. The nursing home into which she is moving costs $24,000 a year, or $2,000 a month.

The federal and state governments would share the financial responsibility for the part of the program that covers longer nursing home stays. However, to protect states from the sizable costs of expanding their current programs, at the outset states would be required to contribute only the amounts they now spend on Medicaid for long-term care. The federal government would bear the costs of expanded eligibility, services, and payment rates. The states and the federal government would jointly finance annual increases in expenditures similar to the way they share financing under Medicaid. Matching rates could be adjusted to reflect the long-term care needs of a state—as indicated by the size of the state's elderly population.

Current law. Ms. Dowd would be required to "spend down" $28,000 of her assets-14 months' worth of nursing home care—before Medicaid would help pay the cost of her care. She could then retain a $30 a month personal needs allowance (PNA), and would have to contribute $1,770 per month toward the cost of her care. Medicaid would pay the $230 per month balance.

Administering the Public Plan

To promote flexibility to meet the needs of a heterogeneous population, while ensuring equity across states, the Commission recommends that the federal government contract with the states to administer the public plan. The federal government would be responsible for setting guidelines and adequate standards for this administration.

Commission plan. For the first three months of her stay, Ms. Dowd would receive benefits without regard to her income or assets. She would be responsible for coinsurance of $400 a month—20 percent of the cost of the care. If she stays beyond three months, she would contribute more. But her life savings and some of her income would be protected. For one year, she could retain $100 a month for a PNA, and $540 a month (30 percent of her income) to help maintain her home. The remaining $1,160 of her income would go toward the cost of care. If she stayed beyond this period, she would retain only the $100 PNA, with $1,700 per month going toward the cost of care.

As noted above, the federal government would certify the assessment agencies and develop standardized assessment criteria for determining eligibility for home and community-based care and nursing home care under the public plan. In addition, the federal government would establish guidelines for certifying case managers to ensure adequate training and the capacity to undertake the assessment, service allocation, and monitoring functions, and for quality assurance.

Her life savings would never be affected by her participation in the program.

As described previously, the federal government would be responsible for determining the case manager budgets. Provider payment rates for both home and community-based care and nursing home care would also be determined at the federal level. Federal rate determination is intended to ensure payment adequate for access to quality care, efficiently provided, in all parts of the country. For nursing home care, many

states have extensive experience with prospective payment systems, some of which include sophisticated design to reflect resident characteristics and to foster efficient delivery of care. 10 These systems can provide guidance in developing a federal approach.

quate quality in long-term care. For nursing homes, the Commission believes that the recently enacted reforms in requirements for care and in measures for enforcing compliance would provide a firm foundation for quality assurance for broader nursing home coverage.

For home care, the federal government is beginning to experiment with prospective payment methods to replace the cost-based system now in use for Medicare home health care. However, services covered by the Commission's plan would go well beyond the nursing, rehabilitation, and aide services that constitute the bulk of home health care. States providing home and community-based care use a variety of payment methods, including fee schedules or price lists and competitive bidding. Federal guidelines could build on this experience.

For home care, quality assurance mechanisms are less well developed. Inherent in the Commission's design of the home care program are several mechanisms for ensuring quality of care. The federal standards and guidelines the Commission calls for to assess eligibility, as well as certify assessment and case management agencies, are designed primarily to help

sure quality-with a particular emphasis on adequate training. Furthermore, case management itself is an important part of any quality assurance mechanism. In preparing the individual care plan, arranging for services, and conducting periodic reassessments, the case manager frequently develops a personal relationship with the client and family. The case manager thus has the opportunity to monitor the quality of the services being provided formally and informally in the home. The auditing function of the federally certified assessment agency over the case manager decisions provides an additional quality check.

Within these federal guidelines, the Commission recommends that the states be given leeway in administering the public plan. Where long-term care programs already exist, states should build on the current infrastructure for the coordination, management, and delivery of services. In states where the long-term care programs are less developed, the design and implementation of a system would take time. The Commission recommendation provides an opportunity for creativity and experimentation. The Commission expects the standards and guidelines established by the federal government to help less-developed states build their infrastructure to address the unique needs of their communities.

Existing state programs use a variety of providers to deliver home and community-based care services, including agencies, independent contractors employed directly by individuals, and even family caregivers. Given this wide variation, the Commission recommends that the states certify the providers who participate in the public plan, in accordance with federal guidelines.

Federal standards already exist for ensuring the quality of care provided by Medicare home health agencies. Broader standards for certified providers, however, would be needed as the program expands services. Voluntary accreditation programs available through professional or trade associations could help guide the development of standards for home care providers other than home health agencies. Standards are likely to be most effective if they focus on ensuring client participation and clients' rights, use indicators of quality that include both outcome and process measures, monitor personal care and supportive services, and ensure continuity of care and appropriateness of services. 12

A review and appeals process is necessary in order to protect clients' rights to due process with respect to denial and termination of benefits. The Commission recommends that the states be given responsibility for developing a review and appeals process, subject to federal guidelines. Elements from review and appeals processes in current health and disability programs such as Medicare, Medicaid, and Social Security disability could be incorporated into the design of procedures for this new public program. 11

Other mechanisms to ensure quality would also be needed. At the state level, long-term care ombudsman offices mandated by the Older Americans Act are already required to monitor the quality of care in both nursing homes and board and care homes. 13 Ombudsmen are also among the mechanisms some states are using to ensure quality in home and community-based care, and can be encouraged and supported to undertake this task. 14 Other mechanisms could include auditing providers at the point of service, awarding service contracts based on the providers' history of quality service (using past compliance reviews and documented complaints), and establishing quality assurance committees to conduct periodic random reviews of client cases.

Ensuring Quality and Containing Costs

The Commission recognizes that considerable federal and state effort would be required to ensure ade

new program would not replace Medicare's role in covering skilled home health care.

The Commission is also concerned that the longterm care system operate in a way that ensures adequate access to quality care, without excessive costs. Case management budgets are designed explicitly to control expenditures and promote efficient allocation of services. Provider payment mechanisms would similarly be designed to promote efficient service delivery. As noted above, states' experience with nursing home payment provides considerable guidance on how to design payment mechanisms for this purpose, and experience on home care is developing.

Although the Commission does not endorse a specific payment mechanism for nursing homes, it recognizes that access to quality care would require higher rates than many Medicaid programs now pay. Prospective payment mechanisms could be employed to control rates of increase over time. In addition, adequate access could require some increase in the supply of nursing home beds. Over time, the Commission intends that payment methods or other mechanisms be used to ensure an adequate but not excessive supply of beds.

The Commission recognizes that not all individuals who need long-term care would be eligible for benefits under its recommendations. In addition, it recog. nizes that some people who would be eligible for long-term care services might need specialized care that the program would not cover. Most notable in this regard are the developmentally disabled and chronically mentally ill, for whom assistance in basic functions addresses only some critical needs. Consequently, implementation of the Commission recommendations assumes the continuation of services provided by, for example, the veterans' health system, Title III of the Older Americans Act, the Social Services Block Grant, and numerous programs for the chronically mentally ill and developmentally disabled. The case manager would be responsible for coordinating services across programs.

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• Develop outcome measures and national practice

guidelines in long-term care; Improve functional assessment tools to target

services better to populations in need of care; • Examine how to enhance the quality of long-term

care including integration of services and case

management; • Evaluate the implementation of home and com

munity-based care.

care and nursing home care ($15 billion and $16.8 billion, respectively). For nursing home care, the floor of protection against impoverishment would cost an estimated $11.3 billion; broader protection for short stays would cost an additional $5.5 billion. For younger severely disabled, most of whom live in the community, almost all new spending ($9 billion out of a total $11 billion) would go to home and communitybased care. The costs of phasing in the program are shown in Table 4-2.


For the elderly, data allow a more detailed look at the difference the program would make to people using long-term care. Under the new program, 2 million severely disabled elderly people at home are estimated to use care-double the number who now use paid care. For the 1 million who would have purchased their own care in the absence of the public program, out-of-pocket savings are estimated to be $900 million-about $1,000 per user.

The Commission's recommendations provide a blueprint for developing a national long-term care system. Home and community-based care, now limited in most communities and virtually nonexistent in many, would be available and affordable. The choice between care at home or care in an institution would increasingly depend on people's needs and preferences, rather than their resources. People who need nursing home care for short periods would have their resources preserved intact to return home. No one would have to fear impoverishment from ending life in a nursing home. People would contribute to the costs of care for all services subject to their ability to pay, and would have broader access to private insurance to cover those costs.

Under current programs, roughly 1 million people are expected to enter nursing homes during 1990, almost 40 percent of whom will receive no public support. Because more people would have access to better nursing home care under the Commission's program, the number of people using a nursing home is

All Americans would be beneficiaries of the new public program, for it provides everyone-most especially the elderly and their families-peace of mind in the face of long-term care needs.

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But we cannot build a system that ensures adequate service to people who need it merely by shifting around the dollars we spend today. Long-term care is expensive. Nursing homes cost over $2,500 per month, and home care can exceed $60 a visit. Substantial new expenditures would be required to provide more people better services. People likely to purchase care under current rules would face substantially lower out-of-pocket expenses, however. And new purchasers would share expenses with the public program, so that their burdens would be limited.

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If the program were in place today, it would serve 4.4 million people at a net new federal cost of $42.8 billion-$24 billion for care at home and $18.8 billion for nursing home care (see Table 4-1).17, 18, 19 About three-quarters of total spending would go to the elderly, about a quarter to people under age 65.




For the severely disabled elderly, new federal spending would be split almost evenly between home






SOURCE: For elderly, Lewin/ICF estimates using the Brookings/ICF Long-Term Care Financing Model; for nonelderly, Commission staff estimates.

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