Pressure on state government funding

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By Jon Shreve | 01 April 2007

In the coming decades, many Americans will not have a way to pay for long-term care services. As the population is aging, the need for long-term care services is exploding. However, as the need for services increases, government funding will not be able to keep up, undermining a critical component of the nation’s health care delivery system.

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Today, roughly two-thirds of nursing home residents are covered by Medicaid , but this payment system is already hamstrung and is getting more precarious. Medicaid reimbursement rates are low, typically only 72 percent of the amount paid by private payers and commercial insurance. These rates are often inadequate to cover the expenses incurred by the facilities. However, Medicaid cannot increase its reimbursement to providers because both the Federal government and individual state governments are experiencing overwhelming budget crises and are looking for ways to reduce Medicaid spending. Medicaid accounts for 17 percent of state budgets, second only to education. Chart 1 presents the breakout of general state fund expenditures for 2004.

Medicaid covers two types of populations for long-term care: those who are poor, and those who are made poor by the costs of long-term care (or who move their assets to become eligible for Medicaid). We would expect the second group to be largely made up of former middle class workers, and this is the group which would be most helped by group long-term care coverage.

This describes the population of government workers. About 15% of the workforce is in the public sector. In 2002, there were 21.0 million government-employed workers, made up of 2.7 million federal workers, 5.1 million state workers, and 13.2 million employed by local governments. Providing or offering benefits to government workers will not only relieve some of the Medicaid burden, it will also put pressure on other employers to provide similar benefits. It is only then that a substantial reduction in future long-term care costs funded by Medicaid can be realized.

More employers, especially those in the public sector, have been making long-term care insurance available to their employees. However, the approach that is used fails to meet objectives of providing a safety net to employees, largely because few employees choose to participate. True group benefit principles, similar to what is seen with retiree medical coverage or pension plans, should be applied to long-term care coverage for the benefits to truly take hold as an employee benefit.

State governments are uniquely positioned, as both large employers and as the holders of Medicaid purse strings, to take the lead toward implementing a solution to the long-term care crisis. And, as caretakers of the financially stressed Medicaid system, they should be especially motivated to do so.

Why is true group long-term care so important?

  • Many Americans will have no way to pay for long-term care services when they are needed.
  • Insurance for long-term care will not become widespread if only available on an individual basis, which means that the change will need to come first from employers.
  • Group coverage needs to include employer contributions to make it affordable to employees and vesting to make it affordable to employers.


i. Centers for Medicare and Medicaid Services, Health Care Industry Market Update, (May 20, 2003).

ii. David C. Grabowski, “A Longitudinal Study of Medicaid Payment, Private-Pay Price and Nursing Home Quality”, International Journal of Health Care Finance and Economics 4, 5 26, 2004.

iii. BBO Seidman, LLP, A Briefing Chartbook on Shortfalls in Medicaid Funding for Nursing Home Care prepared for the American Health Care Association, (July 11,2002).

iv. U. S. Department of Labor, Bureau of Labor Statistics, Employment, Hours, and Earnings from the Current Employment Statistics survey (National), Retrieved June 3, 2004, from

v. Federal Government Civilian Employment By Function: March 2002 Payroll in whole dollars, Retrieved June 2, 2004, from

State Government Employment and Payroll Data: March 2002, Retrieved June 2, 2004, from

Local Government Employment and Payroll Data by State and By Function: March 2002, Retrieved June 2, 2004, from