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Private Pay Nursing Home Residents Pay More
Jan L. Warner & Jan Collins

Question: I have been helping my father find a nursing home for my mother who suffered a stroke and needs 24/7 care. I was surprised to learn that if my parents paid privately for her care, they would be charged one rate, but if she qualified for Medicaid (which would not happen until almost all of their assets are gone), the facility would charge a lower rate for the same care. Since the doctors say my mother has a long life expectancy, and since my father is relatively young (71), I am concerned about how my father will survive financially if most of their money goes toward her care. It seems very unfair for my parents to be penalized with higher rates that will deplete their assets faster. Can anything be done about the vast difference in rates so that we can "ration" what they have in order to provide for both of my parents as long as possible?

Answer: On average, those who don’t qualify for Medicaid pay more than the Medicaid reimbursement rates. And, with Medicaid and Medicare rates being cut because of budget deficits, we predict that private pay rates will continue to increase even more rapidly. Obviously, the higher the private pay rates, the faster family resources will disappear, resulting in financial devastation more quickly.

The difference in rates is caused by "cost shifting" -- a practice similar to the manner in which hospitals shift costs from Medicare and Medicaid patients (for whom rates are set by the government) to private patients and private insurers in order to make up for the shortfall. Unfortunately, private pay patients lack the significant bargaining power of Medicare and Medicaid.

In establishing Medicaid rates for each nursing facility, state government regulators establish reimbursement based on what they consider to be the facility's actual costs of operation. This means that each facility will have a different Medicaid reimbursement rate. Some nursing homes complain that the reimbursement formula used to determine Medicaid rates is overly restrictive because it does not include expenses that the regulators deem to be unnecessary. But since Medicaid pays for the majority of nursing home beds in the United States, in today's health care climate, this means tough rate negotiations.

No matter the reason, cost-shifting by health care providers means greater expense to the private pay end user, health insurance carriers, and those with long-term care insurance – i.e., you and me. You don’t have to be an MBA to figure out that by paying higher private pay rates, family resources will be exhausted more quickly, thus moving the private pay patient onto the Medicaid rolls faster. This vicious cycle will continue to place greater burdens on already strapped Medicaid budgets. And with continuing reductions in what Medicaid and Medicare pays, there will be even greater cost shifting --- meaning that our health and long-term care insurance premiums will continue to rise astronomically.

It is indeed unfortunate that state and federal governments have for decades ignored the clear warning signs of the health needs of our aging population and have painted themselves – and us – into a corner. Health care costs are on a runaway train. Case in point: With interest rates in the basement, have you seen any reduction in the cost of health care or prescription drugs?

Since your parents did not do any planning for this contingency, their options may be very limited. We suggest that you contact an experienced attorney in your locale to help you and your parents create the best plan available that will stretch their dollars the farthest.

Note: Medicare vs. Medicaid. The public and some attorneys often confuse Medicaid and Medicare. Medicare is the federal health insurance program that pays for hospital and physician services for Social Security recipients and certain other individuals regardless of financial need. Medicare doesn’t pay for nursing home care except in very limited circumstances, and then for only a limited time in limited amounts. Medicaid, on the other hand, is a joint federal and state program for individuals with certain medical needs who are financially needy, and as such, is a major provider of nursing home services.

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