Division of Aging, North Carolina Department of Human Resources,
for the North Carolina General Assembly
March 1996
Long term care services can be expensive whether provided at home, in a nursing home or other residential facility. To provide some perspective on costs, as of March 1996, North Carolina's maximum reimbursement rate for one year of Medicaid funded skilled nursing home care was $38,850. Because neither Medicare nor Medicare supplement policies are intended to cover ongoing long term care, many older and disabled adults and their families (and future older adults) worry about how they will pay for long term care services should such services be needed.
Long term care costs are also a concern for federal, state, and local officials. Public officials worry about escalating public expenditures for long term care, particularly Medicaid, and the potential for even greater costs as the baby boom generation ages. Medicaid, by default, is the major public payer for long term care for the elderly and disabled. Nationally, state Medicaid budgets have grown approximately 10 percent per year since 1992 and represented about 19.4 percent of total state spending nationally in 1994. During this same time period, North Carolina's Medicaid budget has grown 14.5 percent annually. In North Carolina, Medicaid expenditures represented about $3.5 billion or 23 percent of the state's total authorized budget for 1994-95. Long term care expenditures represent about 42 percent ($1.5 billion) of North Carolina's Medicaid expenditures. Interestingly, while older and disabled adults account for only one-quarter of North Carolina's Medicaid enrollees, they represent about two-thirds of all Medicaid expenditures. Congress, the National Governors' Association and the President are negotiating as to what action should be taken to reduce the growth of Medicaid expenditures.
In response to the aging of the baby boom generation, combined with inevitable reductions in the growth of the Medicaid program and concerns that Medicaid has become a "middle class" entitlement for long term care, the federal government and individual states are taking and/or considering actions to provide incentives for the purchase of private long term care insurance. While purchase of private long term care insurance is not appropriate for everyone, it is viewed as one way to increase personal responsibility for payment of long term care, thus potentially reducing reliance on Medicaid and other public funding sources. While this paper focuses on private long term care insurance, there are other options for private payment of long term care costs such as: financial planning to be self-insured against this risk; reverse mortgages; conversion of life insurance policies; and possible use of Medical Savings Accounts if federal and/or state changes implemented include long term care insurance premiums as an allowable medical expense.