Why Cost Shifting At Nursing Homes Hurts Everyone

Relatively few people (5% of those aged 65 and above) wind up needing long-term nursing-home care in old age. But for those who do, the costs can be horrendous. The average charge to private payers is currently close to $ 30,000 a year -- enough to bankrupt most families in short order.

One of the most distressing aspects of this situation is that those who have the assets to pay for such care are being significantly overcharged. In an article in the latest issue of the New England Economic Review, economist Jane Sneddon Little of the Federal Reserve Bank of Boston notes that in 27 of 34 states for which data are available, private daily charges for nursing-home care exceed medicaid reimbursement rates by an average of 36%. Little's analysis data indicate that in most states, the one-third of private nursing-home residents who aren't eligible for medicaid are actually paying for 20% to 30% of the long-term care received by medicaid patients.

Such cost-shifting, Little argues, is inherently unfair and counterproductive. By increasing the already heavy burdens of those private payers who are unfortunate enough to require such care themselves, the practice hastens the painful day when they exhaust their savings and move onto medicaid. It also tends to encourage families to hide assets to avoid depleting their savings. And by muddying the cost picture, it impedes efforts to control medicaid costs.

A better policy, Little believes, would be for states to require nursing homes to charge public and private payers the same rates (as Minnesota already does). Fees that reflect the true costs of services would be fairer to private patients. They also would make it easier for regulators to spot inefficiencies and curb the explosive rise in medicaid spending.

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