APPENDIX B. HEALTH STATUS, INSURANCE, AND EXPENDITURES OF THE ELDERLY,
                 AND BACKGROUND DATA ON LONG-TERM CARE

    Although the health status of the elderly appears to have
been improving in recent decades, many elderly persons have
conditions that require medical and long-term health care,
sometimes in substantial amounts. Nearly all elderly persons
have some insurance that protects them, at least partially,
from the expenses arising from health care use. Many are well
insured for their acute care needs--that is, for hospital and
physician services. Others face greater risk of high out-of-
pocket expenditures. This appendix reports on the health
status, health insurance, and health care expenditures of the
elderly.

                             HEALTH STATUS

    By various measures, the health status of the elderly
population has been improving over the years. For example, life
expectancy at age 65 has increased from 13.9 years in 1950 to
17.2 years in 1989 (see table B-1). The improvements in life
expectancy--or, alternatively, the declines in mortality
rates--have been greater for females than for males. Morbidity
indicators--such as the incidence of high blood pressure--also
improved among those aged 65 to 74 years between the early
1960's and the late 1970's (see table B-2).

 TABLE B-1.--LIFE EXPECTANCY AT BIRTH AND AT 65 YEARS OF AGE, BY SEX, BY RACE, UNITED STATES, SELECTED YEARS
                                                  1900-90
                                      [Remaining life expectancy in years]
----------------------------------------------------------------------------------------------------------------
                                                         At birth               At 65 years          At birth
                                                 ---------------------------------------------------------------
                      Year                         Both           Female   Both           Female
                                                  sexes    Male           sexes    Male           White    Black
----------------------------------------------------------------------------------------------------------------
1900\1\\2\......................................    47.3    46.3    48.3    11.9    11.5    12.2    47.6  \3\33.
                                                                                                               0
1950\2\.........................................    68.2    65.6    71.1    13.9    12.8    15.0    69.1    60.7
1960\2\.........................................    69.7    66.6    73.1    14.3    12.8    15.8    70.6    63.2
1970............................................    70.9    67.1    74.8    15.2    13.1    17.0    71.7    64.1
1980............................................    73.7    70.0    77.4    16.4    14.1    18.3    74.4    68.1
1984............................................    74.7    71.2    78.2    16.8    14.6    18.6    75.3    69.7
1985............................................    74.7    71.2    78.2    16.7    14.6    18.6    75.3    69.5
1986............................................    74.8    71.3    78.3    16.8    14.7    18.6    75.4    69.4
1987............................................    75.0    71.5    78.4    16.9    14.8    18.7    75.6    69.4
1988............................................    74.9    71.5    78.3    16.9    14.9    18.6    75.6    69.2
1989............................................    75.3    71.8    78.6    17.2    15.2    18.8    76.0    69.2
Provisional data:
    1988\2\.....................................    74.9    71.4    78.3    16.9    14.8    18.6    75.5    69.5
    1989\2\.....................................    75.2    71.8    78.5    17.2    15.2    18.8    75.9    69.7
    1990\2\.....................................    75.4    72.0    78.8    17.3    15.3    19.0    76.0    70.3
----------------------------------------------------------------------------------------------------------------
\1\Death registration area only; includes 10 States and the District of Columbia.
\2\Includes deaths of nonresidents of the United States.
\3\Figure is for the all other population.

Source: National Center for Health Statistics, Health, United States, 1989, Hyattsville, Maryland: Public Health
  Service, 1990.


 TABLE B-2.--SELECTED HEALTH STATUS INDICATORS FOR PERSONS 65-74 YEARS OF AGE, BY SEX, 1960-62, 1971-74, AND
                                                  1976-80
                                             [Percent of population]
----------------------------------------------------------------------------------------------------------------
                                 Both sexes                       Male                         Female
     Health status     -----------------------------------------------------------------------------------------
       indicator         1960-62   1971-74   1976-80   1960-62   1971-74   1976-80   1960-62   1971-74   1976-80
----------------------------------------------------------------------------------------------------------------
Borderline or definite
 elevated blood
 pressure\1\..........      73.8      70.3      63.1      65.9      65.4      62.0      80.3      74.1      63.9
Definite elevated
 blood pressure\2\....      48.7      40.9      34.5      40.5      36.4      33.3      55.4      44.4      35.5
High-risk serum
 cholesterol levels\3\      37.3      31.3      27.2      20.8      19.9      18.1      50.8      40.0      34.3
Overweight\4\.........      34.6      31.5      32.7      23.8      23.0      25.2      43.3      38.0      38.5
----------------------------------------------------------------------------------------------------------------
\1\Borderline or definite elevated blood pressure is defined as either systolic pressure of at least 140 mmHg or
  diastolic pressure of at least 90 mmHg or both based on a single measurement.
\2\Definite elevated blood pressure is defined as either systolic pressure of at least 160 mmHg or diastolic
  pressure of at least 95 mmHg or both based on a single measurement.
\3\High-risk serum cholesterol levels are defined by age-specific cut points of the cholesterol distribution.
  For 40 years of age and over, high risk is greater than 260 milligrams/deciliter. Risk levels defined by NIH
  Consensus Development conference statement on lowering blood cholesterol, December 10, 1984.
\4\Overweight is defined for men as body mass index greater than or equal to 27.8 kilograms/meter\2\, and for
  women as body mass index greater than or equal to 27.3 milograms/meter\2\. These cut points were used because
  they represent the sex-specific 85th percentiles for persons 20-29 years of age in the 1976-80 National Health
  and Nutrition Examination Survey.

Source: National Center for Health Statistics, Health, United States, 1985, DHHS Pub. No. (PHS) 86-1232, pp. 76-
  79. Data are based on physical examinations of a sample of the civilian, noninstitutionalized population.

    Despite the trend toward improved health status of the
elderly, their needs for medical and long-term care services
remain substantial. First, greater life expectancy postpones
the probable need for terminal illness care. (About two-thirds
of the deaths in the United States are of the elderly. A recent
study found that the 6 percent of Medicare beneficiaries who
died in 1978 accounted for 28 percent of Medicare
expenditures.\1\) Second, many of the elderly have one or more
chronic conditions, many of which give rise to the need for
continuing health care. Table 3 shows the incidence of several
common chronic conditions among the elderly. Nearly half report
having arthritis, about 40 percent report high blood pressure,
and almost 30 percent report heart disease. The incidence of
many chronic conditions is directly related to age and
inversely related to family income.
---------------------------------------------------------------------------
    \1\J. Lubitz and R. Prihoda, ``The Use and Costs of Medicare
Services in the Last Two Years of Life,'' Health Care Financing Review,
Volume 5, 1984, pp. 117-131.
---------------------------------------------------------------------------

    Self-assessed health is a common method used to measure
health status, with responses ranging from ``excellent'' to
``poor.'' Nearly 71 percent of elderly people living in the
community describe their health as excellent, very good, or
good, compared with others their age; only 29 percent report
that their health is fair or good (see table B-4).
    Income is directly related to one's perception of his or
her health. About 26 percent of older people with incomes over
$35,000 described their health as excellent compared to others
their age, while only 10 percent of those with low incomes
(less than $10,000) reported excellent health.

   TABLE B-3.--SELECTED CHRONIC CONDITIONS PER 1,000 ELDERLY PERSONS, BY AGE AND FAMILY INCOME, 1988
----------------------------------------------------------------------------------------------------------------
                                                                    Age                  Family income
                                                             ---------------------------------------------------
                 Chronic condition                     All                      Less   $10,000  $20,000  $35,000
                                                     elderly   65-74  75 and    than      to       to      and
                                                                       over   $10,000  $19,999  $34,999    over
----------------------------------------------------------------------------------------------------------------
Arthritis..........................................      486     445     550      608      452      471      397
Cataracts..........................................      168     118     246      183      174      131      150
Hearing impairment.................................      315     274     381      308      364      259      314
Deformity or orthopedic impairment.................      161     151     177      182      179      136      140
Hernia of abdominal cavity.........................       58      54      64       72       67       46       51
Diabetes...........................................       92      95      88       98      101       76       71
Heart disease......................................      296     272     334      346      324      269      257
High blood pressure................................      373     373     374      472      396      345      321
Emphysema..........................................       38      36      41       52       48       34    (\1\)
----------------------------------------------------------------------------------------------------------------
\1\Sample size is too small for reliable estimate.
Source: U.S. Department of Health and Human Services, National Center for Health Statistics, Vital and Health
  Statistics: Current estimates from the National Health Interview Survey, 1988, Series 10, No. 173, October
  1989.


             TABLE B-4.--SELF-ASSESSED HEALTH STATUS OF THE ELDERLY, BY FAMILY INCOME, 1989
                                                  [In percent]
----------------------------------------------------------------------------------------------------------------
                                                                               Self-assessed health status\2\
                                                      All      All health --------------------------------------
                 Characteristic                    persons\1\   status\3\  Excellent   Very
                                                  (thousands)                         good    Good  Fair    Poor
----------------------------------------------------------------------------------------------------------------
All persons 65\4\...............................     29,219       100.0       16.4     23.1   31.9   19.3    9.2
Sex:
    Men.........................................     12,143       100.0       16.9     23.2   30.8   18.4   10.7
    Women.......................................     17,076       100.0       16.1     23.0   32.8   20.0    8.1
Family income:
    Under $10,000...............................      5,612       100.0       10.3     19.4   29.7   25.0   15.6
    $10,000 to $19,999..........................      8,002       100.0       14.8     21.7   33.9   21.1    8.5
    $20,000 to $34,999..........................      5,242       100.0       20.2     25.7   32.5   15.7    5.9
    $35,000 and over............................      3,484       100.0       26.0     26.8   30.3   11.7    5.1
----------------------------------------------------------------------------------------------------------------
\1\Includes unknown health status.
\2\Excludes unknown health status.
\3\The categories related to this concept result from asking the respondent, ``Would you say--health is
  excellent, very good, good, fair, or poor?'' As such, it is based on the respondent's opinion and not directly
  on any clinical evidence.
\4\Includes unknown family income.

Note.--Percentages may not add to 100 percent due to rounding.

Source: National Center for Health Statistics. ``Current Estimates from the National Health Interview Survey,
  1989.'' Vital and Health Statistics Series 10, No. 176 (October 1990). Data are based on household interviews
  of the civilian, noninstitutionalized population.

                   CAUSES OF DEATH FOR THE ELDERLY\2\

    In the United States, about 7 out of every 10 elderly
persons die from heart disease, cancer, or stroke. Heart
disease was the major cause of death in 1950, and remains so
today even though there have been rapid declines in death rates
from heart disease since 1968, especially among females. Death
rates from cancer continue to rise in comparison to heart
disease, especially deaths caused by lung cancer (chart B-1).
In 1988, however, heart disease accounted for 40 percent of all
deaths among persons 65+, while cancer accounted for 21 percent
of all deaths in this age group.\3\ Even if cancer were
eliminated as a cause of death, the average life span would be
extended by less than 2 years because of the prevalence of
heart disease. Eliminating deaths due to heart disease, on the
other hand, would add an average of 5 years to life expectancy
at age 65, and would lead to a sharp increase in the proportion
of older persons in the total population.\4\
---------------------------------------------------------------------------
    \2\This entire section is from Aging America: Trends and
Projections, 1987-88 edition.
    \3\National Center for Health Statistics. ``Annual Summary of
Births, Marriages, Divorces, and Deaths: United States, 1985.'' Monthly
Vital Statistics Report Vol. 34, No. 13 (September 1986).
    \4\National Center for Health Statistics. ``United States Life
Tables Eliminating Certain Causes of Death.'' U.S. Decennial Life
Tables for 1979-81 Vol. 1, No. 2 (forthcoming).
---------------------------------------------------------------------------

   CHART B-1. DEATH RATES FOR LEADING CAUSES OF DEATH FOR PEOPLE AGE
                             75-84: 1950-89

<CHART B-1>

    The third leading cause of death among the elderly--stroke
(cerebrovascular disease)--has been decreasing over the past 30
years. Reasons for this dramatic decline are not fully
understood. Part of the decline may be attributable to better
control of hypertension. Better diagnosis and improved
management and rehabilitation of stroke victims may also be
related factors.\5\ In 1988, cerebrovascular disease accounted
for only 8 percent of all deaths in the 65+ age group.
---------------------------------------------------------------------------
    \5\National Center for Health Statistics. Health, United States,
1985. DHHS Pub. No. (PHS) 86-1232, Washington: Department of Health and
Human Services, December 1985.
---------------------------------------------------------------------------

    Table B-5 shows the 10 leading causes of death for three
subgroups of the older population.
    The factors which have led to reductions in mortality may
or may not also lead to overall improvements in health status.
If Americans continue to live only to about age 85, control of
life-threatening disease could produce a healthier older
population. But, if the life-span is increased dramatically in
future years beyond age 85, the onset of illness may only be
delayed, without an actual shortening of the period of illness.

 TABLE B-5.--DEATH RATES FOR TEN LEADING CAUSES OF DEATH AMONG OLDER
                        PEOPLE, BY AGE: 1988
               [Rates per 100,000 population in age group]
------------------------------------------------------------------------
         Cause of death             65+      65-74     75-84       85+
------------------------------------------------------------------------
        All causes..............     5,105     2,730     6,321    15,594
                                 ---------------------------------------
Diseases of the heart...........     2,066       984     2,543     7,098
Malignant neoplasms.............     1,068       843     1,313     1,639
Cerebrovascular diseases........       431       155       554     1,707
Chronic obstructive pulmonary
 diseases.......................       226       152       313       394
Pneumonia and influenza.........       225        60       257     1,125
Diabetes........................        97        62       125       222
Accidents.......................        89        50       107       267
Atherosclerosis.................        69        15        70       396
Nephritis, nephrotic syndrome,
 nephrosis......................        61        26        78       217
Septicemia......................        56        24        71       199
All other causes................       717       359       890     2,330
------------------------------------------------------------------------
Source: National Center for Health Statistics. ``Advanced Report of
  Final Mortality Statistics, 1988.'' Monthly Vital Statistics Report
  Vol. 39, No. 7, Supplement (November 28, 1990).

  MEDICARE REIMBURSEMENT AND OUT-OF-POCKET LIABILITIES OF THE ELDERLY

    Tables B-6 through B-8 illustrate for 6 selected years how
Medicare reimbursement, acute health care costs, and out-of-
pocket liabilities of Medicare enrollees have changed. The
years chosen are 1975, 1980, 1985, 1990, 1995, and 2000
(projected values). Constant 1990 dollar values were obtained
using the CPI-U.
    The fastest-growing component of Medicare reimbursement is
for benefits under the Supplementary Medical Insurance (SMI)
program. For SMI, reimbursements increase at an annual rate of
13.3 percent, while the growth in total costs (including
enrollees' share of costs) is 11.3 percent (see table B-6). As
a result, the share of SMI costs reimbursed by Medicare
increases significantly over the period--from about 64 percent
in 1975 to about 74 percent by 1990. Through 1985, the growth
in Medicare's share is due to the declining significance of the
SMI deductible, so that more enrollees' costs were eligible for
reimbursement.
    In the Hospital Insurance (HI) program, by contrast, the
rate of growth in reimbursement is slower than the growth in
enrollee's copayment costs. Consequently, the share of HI costs
reimbursed by Medicare has decreased from 93 percent in 1975 to
91 percent in 1990.
    Overall, the share of costs reimbursed by Medicare has
increased slightly. The percentage of costs paid by Medicare
for services covered under Medicare was 82.2 percent in 1975
and 83.4 percent in 1990 (see table B-6). The other side of
this--the share of costs paid directly by enrollees--is shown
in the third panel of table B-7. Total direct costs plus
Medicare reimbursement equals the total or 100 percent.

       TABLE B-6.--REIMBURSEMENTS AND OUT-OF-POCKET COSTS UNDER MEDICARE, SELECTED CALENDAR YEARS
                                     [Incurred costs per HI or SMI enrollee]
----------------------------------------------------------------------------------------------------------------
                                                                                                         Annual
                                                                                                         growth
                                                    1975    1980     1985     1990     1995     2000   1975-2000
                                                                                                       (percent)
----------------------------------------------------------------------------------------------------------------

                                                                         In current dollars

                                                  --------------------------------------------------------------
Hospital insurance:
    Reimbursement................................    $458    $906   $1,539   $1,959   $3,027   $4,385        9.5
    Copayments...................................      34      66      117      188      246      329       9.5
                                                  --------------------------------------------------------------
      Total......................................     492     972    1,656    2,146    3,273    4,714       9.5
                                                  ==============================================================
Supplementary medical insurance:
    Reimbursement................................     184     402      763    1,298    1,951    3,309       12.2
    Copayments...................................      83     138      246      394      544      864        9.8
    Balance-billing..............................      22      56       87       68       42       67       4.6
                                                  --------------------------------------------------------------
      Total......................................     289     597    1,096    1,760    2,537    4,240      11.3
                                                  ==============================================================
Total Medicare reimbursement.....................     642   1,308    2,302    3,257    4,978    7,694       10.4
Total costs under Medicare.......................     781   1,569    2,752    3,906    5,810    8,954       10.2

                                                              ------------------------------------------------------------------------------------------
                                                                                                In constant 1990 dollars

                                                              ------------------------------------------------------------------------------------------
Hospital insurance:
    Reimbursement............................................      1,065        1,439        1,870        1,959        2,589        3,221           4.5
    Copayments...............................................         79          104          143          188          210          242          4.6
                                                              ------------------------------------------------------------------------------------------
      Total..................................................      1,144        1,543        2,012        2,146        2,800        3,463          4.5
                                                              ==========================================================================================
Supplementary medical insurance:
    Reimbursement............................................        428          639          927        1,298        1,669        2,431           7.2
    Copayments...............................................        193          220          299          394          465          635           4.9
    Balance-billing..........................................         51           89          106           68           36           49         -0.2
                                                              ------------------------------------------------------------------------------------------
      Total..................................................        672          947        1,332        1,760        2,170        3,115          6.3
                                                              ==========================================================================================
Total Medicare reimbursement.................................      1,493        2,077        2,797        3,257        4,258        5,752           5.5
Total costs under Medicare...................................      1,816        2,490        3,344        3,906        4,970        6,578          5.3
                                                              ==========================================================================================
Percent of costs paid by Medicare............................       82.2         83.4         83.6         83.4         85.7         85.9          0.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note.--1995 values are projected. The CPI-U was used to obtain constant dollars.

Source: Congressional Budget Office (February 1993 baseline).


                  TABLE B-7.--ENROLLEE COSTS UNDER MEDICARE, SELECTED CALENDAR YEARS
                                     [Incurred costs per HI or SMI enrollee]
----------------------------------------------------------------------------------------------------------------
                                                                                                         Annual
                                                                                                         growth
                                                  1975     1980     1985     1990     1995     2000    1975-2000
                                                                                                       (percent)
----------------------------------------------------------------------------------------------------------------
                                                                       In current dollars

                                               -----------------------------------------------------------------
HI copayments.................................      $34      $66     $117     $188     $246      $329        9.5
SMI copayments................................       83      138      246      394      544       864        9.8
Balance-billing...............................       22       56       87       68       42        67       4.6
                                               -----------------------------------------------------------------
      Total direct costs......................      139      260      451      649      832     1,260        9.2
Premium costs.................................       80      110      186      343      553       728       9.2
                                               -----------------------------------------------------------------
      Total enrollee costs....................      219      371      637      993    1,385     1,988       9.2
                                               =================================================================
Enrollee per capita
  income\1\...................................    5,158    8,431   12,767   15,454   19,141    23,074       6.2
                                               -----------------------------------------------------------------
                                                                    In constant 1990 dollars

                                               -----------------------------------------------------------------
HI copayments.................................       79      104      143      188      210       242        4.6
SMI copayments................................      193      220      299      394      465       635        4.9
Balance-billing...............................       51       89      106       68       36        49      -0.2
                                               -----------------------------------------------------------------
      Total direct costs......................      323      413      547      649      712       926        4.3
Premium costs.................................      187      175      226      343      473       535       4.3
                                               -----------------------------------------------------------------
      Total enrollee costs....................      510      588      773      993    1,185     1,461       4.3
                                               -----------------------------------------------------------------
Enrollee per capita
  income\1\...................................   11,998   13,386   15,513   15,454   16,374    16,951        1.4
                                               -----------------------------------------------------------------

                                                 Percent of costs under Medicare paid by enrollees, by source of
                                                                             payment

                                               -----------------------------------------------------------------
HI copayments.................................      4.3      4.2      4.3      4.8      4.2       3.7       -0.7
SMI copayments................................     10.6      8.8      8.9     10.1      9.4       9.6       -0.4
Balance-billing...............................      2.8      3.6      3.2      1.7      0.7       0.7      -5.2
                                               -----------------------------------------------------------------
      Total direct costs......................     17.8     16.6     16.4     16.6     14.3      14.1       -0.9
Premium costs.................................     10.3      7.0      6.8      8.8      9.5       8.1      -0.9
                                               -----------------------------------------------------------------
      Total...................................     28.1     23.6     23.1     25.4     23.8      22.2       -0.9
Enrollee-paid costs as a percent of enrollee
 per capita income\1\.........................      4.3      4.4      5.0      6.4      7.2       8.6        2.9
----------------------------------------------------------------------------------------------------------------
\1\From Current Population Survey, adjusted for underreporting.

 Note.--1995 values are projected. The CPI-U was used to obtain constant dollars.

Source: Congressional Budget Office (February 1994 baseline).

    In constant dollars, HI copayments have increased the most
rapidly between 1975 and 1995. However, between 1990 and 1995,
premium costs are expected to rise the most rapidly due equally
to copayments and premiums. In contrast, the cost to the
enrollee from balance-billing has decreased significantly since
1985--a direct policy result of the participating physician
program and the imposition of lower limits on balance billing.
See table B-8 for deductible amounts and monthly premium
amounts under Medicare.
    Enrollees are spending an increasing share of their income
for health care. In 1975, about 4.3 percent of enrollees' per
capita income went to cover their share of acute health care
costs under Medicare. By 2000, enrollees will have to pay an
estimated 8.6 percent of their per capita income to cover their
share of costs under Medicare.
    Although direct household spending for health care by
elderly households, that is households headed by a person 65 or
older, as a share of household income has increased since the
early 1970's, it has remained relatively stable in recent
years. Chart B-2 illustrates direct household spending for
health care as a percentage of household income before taxes
for elderly and nonelderly households for years 1984 through
1992. In 1992, direct household spending for health care as a
percentage of household income for elderly households was 11.9
percent, on average, up slightly from 10.6 percent in 1984.
Over the same period, nonelderly households spent around 3.5
percent of their household income for health care.

           TABLE B-8.--COPAYMENT AND PREMIUM VALUES UNDER MEDICARE, SELECTED CALENDAR YEARS
----------------------------------------------------------------------------------------------------------------
                                                                                                         Annual
                                                                                                         growth
                                                   1975     1980     1985     1990     1995     2000   1975-2000
                                                                                                          (in
                                                                                                        percent)
----------------------------------------------------------------------------------------------------------------

                                                                        In current dollars

                                                ----------------------------------------------------------------
Hospital insurance:
    Hospital deductible........................      $92     $180     $400     $592     $720     $916        9.6
Supplementary medical insurance:
    Annual deductible..........................       60       60       75       75      100      100        2.1
    Monthly premium\1\.........................     6.70     9.20    15.50    28.60    46.10    60.70       9.2
                                                ----------------------------------------------------------------

                                                                     In constant 1990 dollars

                                                ----------------------------------------------------------------
Hospital insurance:
    Hospital deductible........................      214      286      486      592      616      673        4.7
Supplementary medical insurance:
    Annual deductible..........................      139       95       91       75       86       73       -2.5
    Monthly premium\1\.........................    15.57    14.61    18.83    28.60    39.43    44.59       4.3
----------------------------------------------------------------------------------------------------------------
\1\The 1980 SMI monthly premium amount is the average of values for the first and second halves of the year.

Note:--Values after 1990 are projected. The CPI-U was used to get constant dollars.

Source: Congressional Budget Office (February 1994 baseline).

CHART B-2. DIRECT HOUSEHOLD SPENDING FOR HEALTH CARE AS A PERCENTAGE OF
             HOUSEHOLD INCOME BY TYPE OF HOUSEHOLD, 1984-92

<CHART B-2>

           ANALYZING TRENDS IN MEDICARE SPENDING, 1967-98\6\

    Between 1980 and 1985, total Medicare spending for hospital
inpatient services grew at an annual rate of 14.6 percent. The
estimated growth rate for 1985 to 1992 is 6.8 percent. The
difference in these rates is due to changes in four separate
trends: Medicare enrollment, admissions per enrollee, real
expenditures per admission, and the general rate of inflation.
---------------------------------------------------------------------------
    \6\The following section borrows heavily from a memorandum prepared
by Sandra Christensen, of the Congressional Budget Office, February 4,
1991. Updated April 1992.
---------------------------------------------------------------------------

    Reduced inflation contributes to the lower rate of growth
in total Medicare inpatient spending. General inflation is
estimated at 3.9 percent per year from 1985 to 1992, compared
with 5.6 percent for 1980 to 1985. The growth rate for 1985 to
1992 would thus be about 1.7 percentage points higher at the
previous rate of inflation.
    Real Medicare inpatient spending per enrollee removes the
effects of changes in Medicare enrollment and general inflation
from total Medicare inpatient spending (see table B-9). Since
both enrollment and prices are almost always increasing, the
growth of real per enrollee spending is slower than the growth
of total spending. Real inpatient spending per enrollee grew at
an annual rate of 6.4 percent between 1980 and 1985, and the
estimate for 1985 to 1992 is 0.1 percent. The difference in
these rates is due to changes in admissions per enrollee and
real expenditures per admission.
    The number of Medicare enrollees grew at an annual rate of
1.7 percent between 1980 and 1985, and the estimate for 1985 to
1991 is about the same. Medicare enrollment thus makes no
contribution to the observed difference in spending growth
between the early and late 1980's.
    The trend in admissions per enrollee did change, however.
In 1984, Medicare's peer review organizations were set up to
monitor inpatient cases for appropriateness of treatment and
site of care. Simultaneously, admission rates among the
Medicare population--which had been increasing through 1983--
began to decline. Although admission rates inched up again
after 1987, rates in 1989 for people age 65 or more (a proxy
for the Medicare population) were still only 85 percent of
rates in 1983. Perhaps Medicare's preadmission approval
requirements for certain procedures, coupled with retrospective
payment denials for care deemed inappropriate, encouraged
physicians either to forgo some elective procedures for their
Medicare patients or to move them to the outpatient sector. It
should be noted that admissions for the non-Medicare population
decreased for each year since 1981. Given this trend, some
credit for lower admissions rates must go to changes in
practice patterns and other factors not associated with
Medicare policy.
    A reduction in real expenditures per admission makes the
greatest contribution to decreased spending growth. This
decline is primarily due to smaller increases in payment rates
under PPS since the very large increases in the first 2 years
(1984 and 1985). At the previous rate of increase in Medicare
expenditures per admission, the estimated growth in total
inpatient spending between 1985 and 1991 would be 12.0 percent
per year, rather than 5.1 percent. The estimated real growth in
spending per enrollee would have been 6.4 percent per year,
rather than -0.3 percent.
    Costs in hospital outpatient departments have dropped
relative to the previous trend, indicating that hospital
inpatient costs have not simply been shifted to the outpatient
sector. Savings relative to trend for hospital outpatient and
home health services may in large part reflect unsustainably
large rates of growth during the trend period from 1975 through
1980. Introduction of a new payment methodology (a blend of a
fixed rate and the hospital's costs) for certain surgical
procedures performed in outpatient departments tended to reduce
costs somewhat, but this effect was partially offset by the
shift of services from the inpatient sector. During the 1980s,
Medicare's administrative agents implemented stricter standards
for determining coverage of home health services (tending to
reduce costs), but increased demand for services from patients
discharged earlier from hospitals than they would have been
prior to the prospective payment system would have worked to
increase Medicare's spending for home health.
    Growth in spending for physicians' services has not slowed
as much as hospital spending relative to previous trends
despite the disproportionate impact on physicians of budget
reconciliation bills. Apparently, growth in the volume of
physicians' services has accelerated by enough to offset some
of the enacted reductions in payment rates. Although not all of
this growth was in response to fee cuts, growth in the volume
of services was enough to completely offset the fee freeze in
place from 1984 through 1986, but was insufficient to offset
entirely the effects of subsequent fee cuts for ``overvalued''
procedures.
    Spending for skilled nursing facilities (SNFs) increased
significantly. During the period from 1975 through 1980, real
spending per enrollee for SNFs was falling. This trend was
reversed during the 1980s. In 1988, growth in SNF spending
accelerated sharply because of a revision in the manual used by
administrative agents to determine Medicare coverage that
greatly relaxed the definition of covered care to make it
conform with legislative language. Growth in SNF spending
further accelerated in 1989 under provisions of the Medicare
Catastrophic Coverage Act, which briefly eliminated the
requirement for a hospital stay prior to a covered SNF stay and
which reduced the copayments required of enrollees for SNF
stays.
    Table B-9 shows Medicare spending per enrollee in constant
1990 dollars where the CPI-U has been used to obtain constant
dollars. The first column includes both Medicare benefits and
administration. All other columns include spending on benefits
only.

                                 TABLE B-9.--REAL SPENDING PER ENROLLEE
                                    [Fiscal years, in constant 1990 dollars]
----------------------------------------------------------------------------------------------------------------
                      Medicare                       Hospital              HH &              Physician  Hospital
    Fiscal years      Bft+Adm    HI Bft    SMI BFT  inpatient     SNF     Hospice    OPD       & Lab    Inp+OPD
----------------------------------------------------------------------------------------------------------------

                                         ESTIMATES BY THE HEALTH CARE FINANCING ADMINISTRATION

                     -------------------------------------------------------------------------------------------
1967................       648       470       134        449        18         4         3        130       451
1968................       974       669       264        599        62        10         8        254       608
1969................     1,138       792       293        721        62        12        13        276       735
1970................     1,155       768       327        712        48        13        17        306       728
1971................     1,194       818       315        779        32        12        21        289       800
1972................     1,269       872       331        841        25        12        26        300       867
1973................     1,244       861       324        831        23        12        25        294       856
1974................     1,292       878       337        845        24        17        36        292       881
1975................     1,479     1,030       382        989        27        21        54        321     1,043
1976................     1,615     1,108       431      1,061        28        30        67        353     1,128
1977................     1,756     1,208       484      1,156        28        35        80        393     1,236
1978................     1,877     1,289       516      1,237        26        39        90        413     1,327
1979................     1,941     1,317       557      1,264        25        42        98        445     1,362
1980................     2,051     1,386       600      1,333        23        44       107        480     1,439
1981................     2,216     1,501       650      1,447        21        46       117        521     1,563
1982................     2,414     1,637       715      1,563        22        56       138        574     1,702
1983................     2,565     1,710       795      1,620        24        66       152        642     1,772
1984................     2,654     1,755       835      1,659        23        74       151        682     1,810
1985................     2,876     1,921       885      1,821        22        80       159        725     1,980
1986................     2,924     1,880       978      1,781        22        78       192        785     1,973
1987................     3,002     1,829     1,110      1,735        23        72       215        894     1,950
1988................     3,036     1,787     1,180      1,688        25        75       227        952     1,915
1989................     3,133     1,845     1,215      1,691        75        81       241        972     1,932
1990................     3,328     1,976     1,282      1,780        85       112       258      1,021     2,039
1991................     3,303     1,918     1,315      1,695        70       155       267      1,047     1,962
1992................     3,561     2,147     1,337      1,840        98       212       293      1,041     2,133
                     -------------------------------------------------------------------------------------------

                                             ESTIMATES BY THE CONGRESSIONAL BUDGET OFFICE

                     -------------------------------------------------------------------------------------------
1993................     3,734     2,286     1,371      1,889       134       264       319      1,050     2,208
1994................     3,993     2,439     1,477      1,971       160       311       351      1,124     2,322
1995................     4,216     2,546     1,593      2,032       171       345       387      1,204     2,419
1996................     4,421     2,624     1,720      2,078       178       371       430      1,287     2,507
1997................     4,865     2,926     1,860      2,307       198       424       476      1,381     2,782
1998................     5,117     3,036     2,002      2,392       203       444       527      1,472     2,919
1999................     5,410     3,176     2,154      2,510       207       463       588      1,562     3,098
2000................     5,729     3,327     2,323      2,638       211       483       660      1,659     3,298
                     -------------------------------------------------------------------------------------------

                                               AVERAGE ANNUAL GROWTH RATES (In percents)

                     -------------------------------------------------------------------------------------------
1975-80.............       6.8       6.1       9.5        6.1      -3.4      16.3      14.7        8.4       6.7
1980-85.............       7.0       6.7       8.1        6.4      -0.7      12.5       8.3        8.6       6.6
1985-90.............       3.0       0.6       7.7       -0.4      31.0       7.1      10.2        7.1       0.6
1990-95.............       4.8       5.2       4.4        2.7      15.0      25.2       8.4        3.3       3.5
1995-2000...........       6.3       5.5       7.8        5.4       4.2       6.9      11.3        6.6       6.4
----------------------------------------------------------------------------------------------------------------
Notes.--Column 1 includes both benefits and administrative costs. All other columns include only benefits. The
  CPI-U was used to obtain constant dollars.

Source: Congressional Budget Office (February 1994).

    From 1975 to 1985, total real spending per enrollee grew at
an annual rate of 7.0 percent. From 1985 to 1990, there was a
dramatic decline in the real growth rate in HI expenditures per
capita due mostly to a drop in the inpatient hospital growth
rate. This growth rate fell from 6.4 percent to -0.3 percent
between the first 5 years of the 1980's and the subsequent
years. While the outpatient growth rate increased slightly, the
total real hospital spending growth rate declined from 6.5
percent annually to 0.7 percent between 1980 to 1985 as
compared with 1985 to 1990. This decline in the hospital
spending growth rate results in a 3.9 percentage point
reduction in the total Medicare spending growth rate--a decline
of 56 percent.
    If the total growth rate in Medicare spending continued
between 1985 and 1990 at the same 7.0 percent rate exhibited
between 1980 and 1985, total Medicare costs per enrollee would
be $4,282 in 1991, or almost $1,000 per enrollee more than the
actual estimate. This would imply additional Medicare spending
of about $34 billion in that year.

             TOTAL HEALTH CARE EXPENDITURES FOR THE ELDERLY

    Expenditures for personal health care services for the
elderly nearly quadrupled between 1977 and 1987, rising from
$43 billion to an estimated $162 billion (see table B-10).
    Government programs (Federal and State) account for two-
thirds of estimated 1987 spending for the aged (see table B-
10). The most significant of these programs is Medicare which
pays for nearly half of the aged's health bill. Medicaid funds
about 12 percent of the expenditures.

Health insurance coverage of the elderly

    Table B-11 shows the sources of health insurance coverage
for the noninstitutionalized population aged 65 and over in
1992. Over 95 percent of the aged population was enrolled in
Medicare, and more than three-quarters of the Medicare
enrollees had some form of supplemental coverage. Beneficiaries
with incomes below the Federal poverty level were least likely
to have supplemental coverage; those who had such coverage were
more likely to rely on Medicaid. Higher income groups were more
likely to obtain supplemental coverage through individually
purchased medigap policies or through employer-based plans. Of
those with incomes greater than 200 percent of the poverty
level, 41.3 percent had employer coverage, compared to just 5.4
percent of those below poverty. (It should be noted that the
Current Population Survey (CPS), on which table 11 is based,
does not distinguish between primary and secondary sources of
coverage. Some of the individuals reporting both Medicare and
employer-based plans relied on the employer plan as their
primary insurer, with Medicare functioning as a secondary
payer.) About 3.6 percent of the elderly had more than oneP

 TABLE B-10.--PERSONAL HEALTH CARE EXPENDITURES FOR PEOPLE 65 YEARS
 OF AGE OR OVER, BY SOURCE OF FUNDS AND TYPE OF SERVICE, 1977, 1984, AND
                                1987
                        [In millions of dollars]
------------------------------------------------------------------------
                                        Type of service
  Year and source of  --------------------------------------------------
        funds            Total                         Nursing    Other
                         care    Hospital  Physician    home      care
------------------------------------------------------------------------

         1977

Total................    43,425    18,906      7,782    10,696     6,041
Private..............    15,669     2,319      3,323     5,424     4,603
  Consumer...........    15,499     2,263      3,320     5,352     4,564
    Out-of-pocket....    12,706       927      2,147     5,264     4,368
    Insurance........     2,793     1,336      1,173        88       195
  Other private......       170        56          3        72        39
Government...........    27,756    16,587      4,458     5,272     1,438
  Medicare...........    19,171    14,087      4,158       348       578
  Medicaid...........     6,049       733        232     4,453       631
  Other government...     2,536     1,767         68       470       230

         1984

Total................   119,872    54,200     24,770    25,105    15,798
Private..............    39,341     6,160      9,827    13,038    10,316
  Consumer...........    38,875     5,964      9,818    12,856    10,237
    Out-of-pocket....    30,198     1,694      6,468    12,569     9,467
    Insurance........     8,677     4,270      3,350       287       770
  Other private......       466       196          9       182        79
Government...........    80,531    48,040     14,943    12,067     5,482
  Medicare...........    58,519    40,524     14,314       539     3,142
  Medicaid...........    15,288     2,595        467    10,418     1,808
  Other government...     6,724     4,920        162     1,110       532

         1987

Total................   162,000    67,900     33,500    32,800    27,800
Private..............    60,600    10,100     11,900    19,200    19,500
Government...........   101,500    57,900     21,600    13,600     8,300
  Medicare...........    72,200    47,300     20,300       600     4,100
  Medicaid...........    19,500     3,300        500    11,900     3,700
------------------------------------------------------------------------
Source: Office of Financial and Actuarial Analysis, Health Care
  Financing Administration as reported in Waldo, Daniel R., and Helen C.
  Lazenby. ``Demographic characteristics and health care use and
  expenditures by the aged in the United States: 1977-84.'' Health Care
  Financing Review, Fall 1984 No. 1, p. 1; and Waldo, Daniel R. et al.
  ``Health Expenditures by Age Group, 1977 and 1987.'' Health Care
  Financing Review, Summer 1989, Vol. 10, No. 4 and errata reprint Fall
  1989, Vol. 11, No. 1, p. 167.


 TABLE B-11.--SOURCES OF HEALTH INSURANCE COVERAGE FOR THE NON-INSTITUTIONALIZED ELDERLY, BY RATIO OF INCOME
                                              TO POVERTY, 1992
                                            [Population in thousands]
----------------------------------------------------------------------------------------------------------------
                                                Individuals with family income--                     Total
                                   -----------------------------------------------------------------------------
                                    Under 100 percent   100-199 percent     200 percent of
                                        of poverty         of poverty       poverty or more
                                   ----------------------------------------------------------  Number    Percent
                                    Number   Percent   Number   Percent    Number    Percent
----------------------------------------------------------------------------------------------------------------
Total Medicare....................   3,819       95.9   8,647       98.0    17,238      95.4    29,704      96.2
  Medicare only...................   1,381       34.7   2,597       29.5     2,700      15.0     6,678      21.6
  Medicare plus:
    Private supplement............     961       24.1   3,395       38.5     5,739      31.7    10,095      32.7
    Employer coverage.............     214        5.4   1,323       15.0     7,459      41.3     8,996      29.1
    Medicaid......................   1,099       27.6     855        9.7       413       2.3     2,367       7.6
    CHAMPUS.......................      45        1.1     179        2.0       228       1.3       452       1.5
    2 or more supplements.........     120        3.0     298        3.4       698       3.9     1,116       3.6
Insured through non-Medicare plan
 only.............................      42        1.0      89        1.0       678       3.8       809       2.6
Uninsured.........................     122        3.0      85        1.0       150       1.0       356      1.2
                                   -----------------------------------------------------------------------------
      Total.......................   3,983      100.0   8,822      100.0    18,065     100.0    30,870    100.0
                                   =============================================================================
Percent of all elderly............               12.9               28.5                58.5               100.0
----------------------------------------------------------------------------------------------------------------
\1\Sample size too small for reliable estimates.

Source: CRS analysis of data from the March 1993 Current Population Survey.

source of supplemental coverage, such as both employer and
individual medigap coverage, or both medigap and Medicaid. This
figure does not include individuals who obtained multiple
policies from a single basic coverage source, such as those who
purchased more than one private medigap policy.
    About 1.2 million elderly persons did not report Medicare
coverage in 1992. Of these, 809,000 had coverage from some
other source. An estimated 25 percent of these are Federal
annuitants who are covered through the Federal Employees Health
Benefits Program (this estimate is based on unpublished data
from the Office of Personnel Management). Approximately 356,000
persons aged 65 or over were without health insurance coverage
in 1992.

                   BACKGROUND DATA ON LONG-TERM CARE

    The phrase ``long-term care'' refers to a broad range of
medical, social, personal, supportive, and specialized housing
services needed by individuals who have lost some capacity for
self-care because of a chronic illness or condition. Chronic
illnesses or conditions often result in both functional
impairment and physical dependence on others for an extended
period of time. Major subgroups of persons needing long-term
care include the elderly and nonelderly disabled, persons with
developmental disabilities (primarily persons with mental
retardation), and persons with mental illness. This section of
appendix B focuses on the elderly long-term care population.
    The range of chronic illnesses and conditions resulting in
the need for supportive long-term care services is extensive.
Unlike acute medical illnesses, which occur suddenly and may be
resolved in a relatively short period of time, chronic
conditions last for an extended period of time and are not
typically curable. Although chronic conditions occur in
individuals of all ages, their incidence, especially as they
result in disability, increases with age. These conditions may
include heart disease, strokes, arthritis, osteoporosis, and
vision and hearing impairments. Dementia, the chronic, often
progressive loss of intellectual function, is also a major
cause of disability in the elderly.
    The presence of a chronic illness or condition alone does
not necessarily result in a need for long-term care. For many
individuals, their illness or condition does not result in a
functional impairment or dependence and they are able to go
about their daily routines without needing assistance. It is
when the illness or condition results in a functional or
activity limitation that long-term care services may be
required.
    The need for long-term care by the elderly is often
measured by assessing limitations in a person's capacity to
manage certain functions or activities. For example, a chronic
condition may result in dependence in certain functions that
are basic and essential for self-care, such as bathing,
dressing, eating, toileting, and/or moving from one place to
another. These are referred to as limitations in ``activities
of daily living,'' or ADLs. Another set of limitations, which
reflect lower levels of disability, are used to describe
difficulties in performing household chores and social tasks.
These are referred to as limitations in ``instrumental
activities of daily living,'' or IADLs, and include such
functions as meal preparation, cleaning, grocery shopping,
managing money, and taking medicine. Limitations can vary in
severity and prevalence, so that persons can have limitations
in any number of ADLs or IADLs, or both.
    Long-term care services are often differentiated by the
settings in which they are provided. In general, services are
provided either in nursing homes or in home and community-based
care settings. Nursing home care includes a wide variety of
services that range from skilled nursing and therapy services
to assistance with such personal care functions as bathing,
dressing, and eating. Nursing home services also include room
and board. All of these services are considered to be formally
provided services, in that they require persons to pay the
facility for care that is provided.
    Home and community-based care also includes a broad range
of skilled and personal care services, as well as a variety of
home management activities, such as chore services, meal
preparation, and shopping. Home care services can be provided
formally by home care agencies, visiting nurse associations,
and day care centers. Home care is also provided informally by
family and friends who are not paid for the services they
provide. In contrast to nursing home care, which by necessity
is formally provided care, most home and community-based care
is provided informally by family and friends. Research has
shown that more than 70 percent of those elderly persons living
in the community and needing long-term care assistance rely
exclusively on nonpaid sources of assistance for their care.

The long-term care population

    Chart B-3 shows that an estimated 10.6 million persons of
all ages require assistance with one or more ADLs or IADLs.
About two-thirds of this total, or 7.1 million persons, are
elderly. This is about one-quarter of the nation's elderly
population.
    Another 3.5 million persons under the age of 65 are limited
in ADLs and/or IADLs. Some of these persons have congenital or
developmental conditions such as cerebral palsy or mental
retardation. Others are disabled from traumatic accidents or
the onset of chronic conditions such as multiple sclerosis.\7\
It should be noted that these estimates do not adequately
measure the need for long-term care among young children, since
ADL and IADL limitations are not appropriate measures of their
disabilities.
---------------------------------------------------------------------------
    \7\A Call for Action, p. 91.
---------------------------------------------------------------------------

    Chart B-3 also indicates that the great majority of persons
with ADL and/or IADL limitations live in the community. Of the
total disabled population, 84 percent live in the community.
The nursing home population amounts to only 16 percent of the
total, with the elderly by far the greatest share of this
group.
    Based on the projected growth of the elderly population in
the future, major increases can be anticipated in the number of
persons needing assistance with ADL and/or IADL limitations.
Currently 32 million persons are 65 years of age and older.
That number is expected to double to about 66 million by the
year 2030. The 85+ population, the group at greatest risk of
needing and using long-term care services, is expected to
increase from 3.3 million persons in 1990 to 8.1 million in
2030.\8\ One study has estimated that the number of elderly
needing assistance with ADLs and/or IADLs will grow from 7.1
million to 13.8 million by 2030, and the number requiring
nursing home care will grow from 1.5 million to 5.3 million by
that year.\9\
---------------------------------------------------------------------------
    \8\U.S. Senate, Special Committee on Aging. ``Aging America: Trends
and Projections.'' November 1989. Sen. Prt. 101-59, p. 4.
    \9\A Call for Action, p. 108.
---------------------------------------------------------------------------

       CHART B-3. PERSONS WITH ADL AND/OR IADL LIMITATIONS, 1990

<CHART B-3>

                    THE NURSING HOME POPULATION\10\
---------------------------------------------------------------------------

    \10\This material is drawn largely from ``Characteristics of
Nursing Home Residents and Proposals for Reforming Coverage of Nursing
Home Care,'' by Richard Price, Richard Rimkunas, and Carol
O'Shaughnessy, CRS Report for Congress, No. 90-471 EPW, September 24,
1990.
---------------------------------------------------------------------------

Demographic characteristics

    Analysis of the 1985 National Nursing Home Survey (NNHS)
shows that the great majority of nursing home residents are 65
years of age and older. In 1985, 88 percent of residents were
65 years of age and older, and 12 percent were under the age of
65. As the top half of table 12 indicates, less than 5 percent
of the total elderly population in the country were residents
of nursing homes on any given day in 1985, and 0.1 percent of
the under 65 population were residents in that year.
    Although in the aggregate less than 5 percent of the total
elderly population was in a nursing home on any given day in
1985, younger and older age groups of the elderly show very
different rates of utilization. Table B-12 and chart 4 show
that about 1 percent of the 65-74 age group and about 6 percent
of the 75-84 age group resided in nursing homes in 1985. For
the very old, those 85 and older, however, the incidence rate
increases dramatically. In 1985, 22 percent of the 85 and older
group resided in nursing homes. This group accounted for 40
percent of total nursing home residents, and 45 percent of the
elderly nursing home population.

    TABLE B-12.--NURSING HOME RESIDENTS AS A PROPORTION OF TOTAL
                 POPULATION, BY AGE AND SEX, 1985
      [All nursing home and U.S. population estimates in thousands]
------------------------------------------------------------------------
                                               All residents
                                  --------------------------------------
               Age                   Nursing
                                    home pop.    U.S. pop.     Percent
------------------------------------------------------------------------
Under 65.........................          173      210,197          0.1
65 to 74.........................          212       17,009          1.2
75 to 84.........................          508        8,836          5.7
85 and older.....................          597        2,695         22.1
65 and older.....................        1,317       28,540          4.6
                                  --------------------------------------
    Total........................        1,490      238,737          0.6
------------------------------------------------------------------------



                                                                Males                         Females
                                                   -------------------------------------------------------------
                        Age                                                         Nursing
                                                     Nursing   U.S. pop.  Percent  home pop.  U.S. pop.  Percent
                                                    home pop.
----------------------------------------------------------------------------------------------------------------
Under 65..........................................         89    104,623      0.1         84    105,574      0.1
65 to 74..........................................         81      7,475      1.1        132      9,534      1.4
75 to 84..........................................        141      3,293      4.3        367      5,543      6.6
85 and older......................................        112        769     14.6        485      1,926     25.2
65 and older......................................        334     11,537      2.9        984     17,003      5.8
                                                   -------------------------------------------------------------
    Total.........................................        423    116,160      0.4      1,068    122,577      0.9
----------------------------------------------------------------------------------------------------------------
Note.--Figures are based on the number of current nursing home residents and U.S. Census Bureau estimates of the
  resident population. Figures do not reflect the likelihood of any individual being in a nursing home; rather
  these estimates indicate the percent of the total population that resided in nursing homes at a given point in
  time in 1985.

Source: Estimates prepared by CRS using the 1985 National Nursing Home Survey, Current Resident File, and U.S.
  Bureau of the Census, Current Population Report, United States Population Estimates, by Age, Sex and Race:
  1980 to 1987, series P-25, No. 1022, March 1988. These estimates are subject to limitations of the data and
  methods employed.

    Chart B-4 also illustrates that, among each of the age
groups of the elderly, women were more likely to reside in
nursing homes than men. For the elderly as a whole, women were
twice as likely to be residing in nursing homes in 1985 as men
(6 percent of women as opposed to 3 percent for men). The
difference for men and women is particularly striking in the
75-84 and 85 and older age groups. Higher incidence rates for
women, largely the result of longer life expectancies for
women, mean a nursing home population that is predominately
female. Chart B-5 indicates that 72 percent of nursing home
residents were female in 1985.

    CHART B-4. SHARE OF RESIDENT POPULATION IN NURSING HOMES, 1985

<CHART B-4>

      CHART B-5. DISTRIBUTION OF CURRENT RESIDENTS, BY SEX, 1985

<CHART B-5>

    Studies have shown that persons without spouses are more
likely to enter nursing homes than persons with spouses.\11\
Because many disabled persons often require a great deal of
assistance, spouses are often the only person outside of
nursing homes able to provide such intensive care. Chart B-6
indicates that, at admission, only 16 percent of nursing home
residents were married. Of the remaining, 56 percent were
widowed, 18 percent had never been married, and about 8 percent
were either divorced or separated.
---------------------------------------------------------------------------
    \11\``Financing of Long-Term Care.'' Submitted to the Assistant
Secretary of Planning and Evaluation, U.S. Department of Health and
Human Services. Contract No. HHS-100-86-051, September 30, 1988. p. I-
9.
---------------------------------------------------------------------------

    Chart B-7 shows that, among the elderly, the proportion of
residents who were married at admission decreases with age, and
the proportion who were widowed increases.

  CHART B-6. DISTRIBUTION OF CURRENT RESIDENTS, BY MARITAL STATUS AT
                            ADMISSION, 1985

<CHART B-6>

 CHART B-7. PERCENT OF CURRENT RESIDENTS, MARRIED AND WIDOWED, BY AGE,
                                  1985

<CHART B-7>

Number and type of ADL limitations of nursing home residents

    Chart B-8 presents data on the number of limitations in
ADLs exhibited by nursing home residents of all ages in 1985.
This figure shows that nursing home residents have substantial
functional limitations. Seventy-eight percent of residents
needed the assistance of others in two or more ADLs. Almost 55
percent of the nursing home population was severely impaired
with four or more ADLs.
    Chart B-8 also shows that slightly more than 20 percent of
nursing home residents were judged to have no, or only one,
activity limitation. A review of the diagnosis classifications
of residents by their number of ADLs shows that residents whose
primary diagnosis was a mental disorder were disproportionately
represented among the total number of residents who had no
activity limitation. About 35 percent of those with no ADLs had
a mental disorder as their primary diagnosis. Mental disorders
include a wide range of disabilities, including dementias,
psychoses, and mental retardation. Persons with mental
disorders but without limitations in ADLs may be residents of
nursing homes because they require supervision or because of
the unavailability of other housing and social service
arrangements in the community.

     CHART B-8. DISTRIBUTION OF CURRENT RESIDENTS BY NUMBER OF ADL
                           LIMITATIONS, 1985

<CHART B-8>

    Chart B-9 presents data on the extent to which nursing home
residents have various kinds of limitations in ADLs. The most
frequently found limitation among residents was bathing, with
88 percent of residents needing the assistance of another
person. The least prevalent ADL was in eating, with slightly
more than one-third of residents needing assistance with this
ADL. About three-quarters of residents needed assistance to
dress and two-thirds needed assistance in getting out of a bed
or chair (transferring). About half of all residents needed the
assistance of others in getting to the toilet or in caring for
an ostomy bag or catheter.
    In developing measures of functional limitations,
researchers have found an ordered regression in functional
abilities as part of the natural aging process. Loss of
functioning begins with activities which are most complex and
least basic, such as bathing or dressing. Functions which are
least complex and most basic, such as feeding oneself, are
retained longer. That is, persons are most able to retain their
ability to feed themselves, but are less likely to retain their
ability to bathe or dress without the assistance of others.\12\
In addition, persons who are the most severely impaired are
least likely to be able to eat independently, and therefore are
more likely to have limitations in all the other ADLs. This
ordered regression in stages of functioning is reflected in the
nursing home population. As shown in chart B-9, higher
proportions of residents needed assistance in bathing or
dressing than those who needed assistance in eating.
---------------------------------------------------------------------------
    \12\Katz, Sidney and Amechi Akpom. ``A Measure of Primary
Sociobiological Functions.'' International Journal of Health Services,
Vol. 6, No. 3, 1976.
---------------------------------------------------------------------------

CHART B-9. PERCENT OF RESIDENTS REQUIRING ASSISTANCE OF ANOTHER PERSON
                     IN PERFORMING ACTIVITY, 1985

<CHART B-9>

Nursing home length of stay

    The profile of nursing home residents presented above
suggests a fairly homogeneous population: largely very elderly,
female, widowed, and very disabled. However, an examination of
length-of-stay patterns among the nursing home population
suggests a more diverse group of persons using care than might
be suggested by demographic data alone.
    Analysis of discharge data from the NNHS shows at least two
major users of nursing home care, as illustrated in charts B-10
and B-11. Chart B-10 portrays the distribution of persons
discharged from nursing homes in 1984-85, according to their
length of stay. Chart B-11 shows the distribution of days of
care used by all discharged residents. It should be noted that
the discharge file of the NNHS does not provide a comprehensive
picture of the use of nursing home care by a single group of
persons over time. As a result, estimates based on discharge
survey data must be considered very general orders of magnitude
of lengths of stay in a nursing home.
    Chart B-10 shows that most nursing home stays are
relatively short. About 52 percent of persons discharged from
nursing homes had stays of less than 90 days and about 63
percent of persons discharged had stays of less than 6 months.
In contrast, 27 percent of persons discharged had long stays of
1 year or longer, and 17 percent had stays of 2 years or
longer.
    The distribution of total days of care used by discharged
residents is strikingly different. Chart B-11 shows that
persons with stays of less than 3 months accounted for only 4
percent of days of care. Those with stays of less than 6 months
accounted for 8 percent of all days. On the other hand, persons
with stays of 2 or more years accounted for about 73 percent of
all discharge days. In other words, persons with short stays
accounted for the majority of persons discharged from nursing
homes, but very few of the days of care used. Those with long
stays accounted for relatively few of those persons discharged
from nursing homes, but the bulk of days used.

  CHART B-10. DISTRIBUTION OF DISCHARGED RESIDENTS BY LENGTH OF STAY,
                                1984-85

<CHART B-10>

CHART B-11. DISTRIBUTION OF TOTAL DAYS USED BY DISCHARGED RESIDENTS, BY
                        LENGTH OF STAY, 1984-85

<CHART B-11>

Status of nursing home residents following discharge

    Chart B-12 shows the distribution of residents by their
status following discharge. In 1984-85, the largest share of
persons--about 50 percent--were discharged from the nursing
home to a hospital or other health care facility, including
nursing homes (about 7 percent were discharged to another long-
term care facility). About 28 percent of discharges were due to
death in the nursing home. About 22 percent of the residents
were discharged to the community. This mortality rate and the
rate of return to the community may be conservative estimates.
For example, 10 percent of those discharged from nursing homes
to other health facilities died in these other facilities.
Others are likely to have returned to the community.

CHART B-12. DISTRIBUTION OF DISCHARGED RESIDENTS BY LIVING ARRANGEMENT
                       AFTER DISCHARGE, 1984-85

<CHART B-12>

The community-based long-term care population

    Chart B-13 below showed that the great majority of persons
with ADL and/or IADL limitations live in the community. Almost
9 million persons of all ages, or 84 percent of the total
population with ADL and/or IADL limitations, live in the
community. The elderly represented almost 63 percent of this
total.
    Chart B-13 shows the number and percent of elderly persons
living in the community with ADL limitations by type of
limitation, as of 1984.\13\ A total of 3.7 million elderly
persons living in the community, or 14 percent of the total
elderly population, reported some limitation in their ability
to bathe, transfer, dress, toilet, or eat. The prevalence of
these ADLs forms a hierarchy similar to that shown above in
chart B-8 for the nursing home population. The most prevalent
limitation was in bathing, with 10 percent of the elderly
reporting difficulty with this ADL. The least common was in
eating, with 2 percent of elderly persons reporting difficulty.
---------------------------------------------------------------------------
    \13\Rowland, Diane. ``Measuring the Elderly's Need for Home Care,''
Health Affairs, winter 1989, vol. 8, p. 42.
---------------------------------------------------------------------------

 CHART B-13. PERCENT OF ELDERLY IN THE COMMUNITY WITH ADL LIMITATIONS,
                      BY TYPE OF LIMITATION, 1984

<CHART B13>

    Chart B-14 indicates that 54 percent of the elderly
population with any kind of ADL limitation in 1984 had two or
more ADLs. This was about 2 million persons. Almost 22 percent
has 4 or 5 limitations. The severity of impairment is not
uniform in the disabled population. Among the 2 million persons
with two or more ADLs, 1.1 million reported some difficulty and
0.9 million reported a lot of difficulty or inability to
perform at least two ADLs.\14\
---------------------------------------------------------------------------
    \14\Rowland, p. 43.
---------------------------------------------------------------------------

 CHART B-14. DISTRIBUTION OF ADL'S AMONG NONINSTITUTIONALIZED ELDERLY
          POPULATION HAVING ONE OR MORE ADL LIMITATIONS, 1984

<CHART B14>

    Studies have shown that the great bulk of care provided to
persons living in the community with ADL and/or IADL
limitations is provided informally by family and friends who
are not paid for the care they provide. Chart B-15 indicates
that 70 percent of severely disabled elderly persons receiving
long-term care in the community relied solely on informally
provided care. Only 3 percent relied only on formal or paid
care.
    More than 7 million spouses, adult children, other
relatives, friends, and neighbors provided unpaid assistance to
disabled elderly persons in 1984.\15\ Seven out of ten informal
caregivers bear the major responsibility for care provided, and
one of three is a sole provider. Three-quarters of all
caregivers are female--wives and daughters of persons needing
care. Research has shown that caregivers often reduce their
work hours, take time off without pay, or quit jobs because of
elder caregiving responsibilities. In addition, many caregivers
are themselves elderly--one-quarter are between the ages of 65
to 74 and another 10 percent are 75 or older.
---------------------------------------------------------------------------
    \15\A Call for Action, p. 93-95. This discussion draws heavily on
this report and research published by Robyn Stone, et al., ``Caregivers
of the Frail Elderly: A National Profile,'' The Gerontologist, vol. 27,
1987.
---------------------------------------------------------------------------

    Use of formal, paid services by elderly persons living in
the community is related to various characteristics of this
group.\16\ Differences in functional status have been found to
be strongly related to use of formal home and community-based
care, with the likelihood of using any formal service
increasing as levels of impairment increase. Age is also linked
to the use of formal services, largely explained by the fact
that age is associated with decreasing functional status. In
general and in each age group of the elderly, more women use
formal home and community-based care services than men. This is
related to the longer life expectancies of women. Persons
living alone are more than twice as likely to use formal
services as compared to those living with other persons. In
addition, the amount of money spent on home care services has
been found to be directly related to income; that is, out-of-
pocket expenses for home care increase substantially as median
family income increases.\17\
---------------------------------------------------------------------------
    \16\This material is drawn largely from Short, Pamela and Joel
Leon, ``Use of Home and Community Services by Persons Ages 65 and Older
with Functional Difficulties,'' National Medical Expenditure Survey,
Research Findings 5, Department of Health and Human Services, Agency
for Health Care Policy and Research, September 1990, p. 7-9.
    \17\Liu, Korbin, Kenneth Manton, and Barbara Liu, ``Home Care
Expenses for the Disabled Elderly,'' Health Care Financing Review.
Winter 1985, vol. 7, No. 2, p. 55.
---------------------------------------------------------------------------

  CHART B-15. SOURCE OF HOME CARE SERVICES FOR THE SEVERELY DISABLED
                       ELDERLY POPULATION, 1989

<CHART B-15>

Public and private spending for long-term care

    Table B-13 indicates that sizable public and private funds
are being spent on long-term care services. For two major
categories of long-term care services, nursing home and home
care, total national spending amounted to almost $107.8 billion
in 1993. This total is for all age groups using long-term care.
By far the greatest portion of spending is for nursing home
care. About $75 billion, or 70 percent of the total, was spent
for nursing home care in 1993.
    Public programs paid about 60 percent of the Nation's total
nursing home bill. Medicaid payments accounted for almost all
of this amount. Medicaid is the Federal-State health program
for the poor and for those who have become poor as the result
of incurring large medical care expenses. In 1993, Medicaid
spending for nursing home care amounted to 48 percent of total
national nursing home spending.
    Table B-13 shows that private spending accounted for about
$30 billion, or the remaining 40 percent of national spending.
Nearly all private spending for nursing home care was paid
directly by consumers out-of-pocket with income and/or
accumulated resources. Private insurance coverage for long-term
nursing home care is very limited, with private insurance
payments amounting to 0.1 percent of total spending for nursing
home care in 1993.
    Spending for home health care services amounted to $33
billion, or 30 percent of the total. Public programs accounted
for about 72 percent of total home health care spending. Out-
of-pocket payments accounted for almost all of private
spending, private insurance again being very limited for this
care. Most home and community-based care, as discussed above,
is provided by family and friends who are not paid for the
services they provide.

Major Federal programs supporting long-term care

    Five programs represent the major source of Federal
financial support available for nursing home and community-
based long-term care--Medicaid, Medicare, the Social Services
Block Grant (SSBG), the Older Americans Act, and the
Supplemental Security Income (SSI) program. None of these
programs supports the full range of long-term care services.
Certain programs provide health services but exclude social
services. Others provide strictly social services. Some have
income eligibility requirements, others do not.
    Medicaid is the Nation's major program of financial support
for long-term care, principally because of its coverage of
nursing home care. Medicaid payments for nursing home care
(excluding nursing homes for the mentally retarded) amounted to
about 27 percent of total Medicaid spending in fiscal year
1991. Comparatively little funding is devoted to home and
community-based care. Coverage of both nursing home and home
and community-based services is restricted to those persons who
have limited income and assets. In general, Medicaid rules
limit eligibility to those persons who qualify for cash welfare
assistance or who incur large health care expenses that deplete
their income and assets.\18\
---------------------------------------------------------------------------
    \1\\8\Most States extend Medicaid eligibility to persons who
qualify for welfare benefits under the Supplemental Security Income
(SSI) program. SSI requires that persons have assets that do not exceed
$2,000 and income that does not exceed $446 per month in 1994.
---------------------------------------------------------------------------


 TABLE B-13.--ESTIMATED LONG-TERM CARE SPENDING FOR ALL AGE GROUPS,
                          BY SOURCE, 1993
                         [Dollars in billions]
------------------------------------------------------------------------
                    Source of spending                          Amount
------------------------------------------------------------------------
Nursing home care:
    Medicaid...............................................        $36.3
    Medicare...............................................          5.7
    Other Federal..........................................          1.0
    Other State............................................          2.5
    Out-of-pocket payments and other.......................         29.6
    Private insurance......................................          0.1
                                                            ------------
      Total................................................         75.2
                                                            ============
Home health care:
    Medicaid...............................................          7.4
    Medicare...............................................         10.1
    Other Federal programs.................................          1.6
    Other State............................................          4.5
    Out-of-pocket payments and other.......................          8.9
    Private insurance......................................          0.1
                                                            ------------
      Total................................................        32.6
                                                            ------------
      Total long-term care expenditures....................        107.8
------------------------------------------------------------------------
Source: Office of the Assistant Secretary for Planning and Evaluation,
  Office of Disability, Aging, and Long-Term Care Policy, Department of
  Health and Human Services.

    Medicare, the Federal health insurance program for the
elderly and disabled, is focused primarily on coverage for
acute health care costs and was never envisioned to provide
protection for long-term care. Coverage of nursing home care,
for instance, is limited to short-term stays in certain kinds
of nursing homes, referred to as skilled nursing facilities,
and only for those persons who demonstrate a need for daily
skilled nursing care following a hospitalization. Many persons
who require long-term nursing home care do not need daily
skilled nursing care, and therefore, do not qualify for
Medicare's benefit. As a result of this restriction, Medicare
paid for about 7.6 percent of the Nation's expenditures for
nursing home care in 1993.
    For similar reasons, Medicare pays for only limited amounts
of community-based long-term care services, primarily through
the program's home health benefit. To qualify for home health
services, the person must be in need of skilled nursing care on
an intermittent basis, or physical or speech therapy. Most
chronically impaired persons do not need skilled care to remain
in their homes, but rather nonmedical supportive care and
assistance with basic self-care functions and daily routines
that do not require skilled personnel.
    Three other Federal programs--SSBG, the Older Americans
Act, and the SSI program--provide support for community-based
long-term care services for impaired elderly persons. The SSBG
provides block grants to the States for a variety of home-based
services for the elderly as well as the disabled and children.
The Older Americans Act also funds a broad range of in-home
services for the elderly. Under the SSI program, the federally
administered income assistance program for aged, blind, and
disabled persons, many States provide supplemental payments to
the basic SSI payment to support selected community-based long-
term care services for certain eligible persons, including the
frail elderly. However, since funding available for these three
programs is limited, their ability to address the financing
problems in long-term care is also very limited.

Spending down for Medicaid coverage of nursing home care

    As discussed above, the Medicaid program is the major
public source of support for the cost of nursing home care. Its
spending for nursing home care is driven largely by its
coverage of persons who are not initially poor but who become
poor by depleting their assets on the cost of care. At an
average cost of $35,000 a year, nursing home costs can quickly
deplete the resources of an elderly individual, especially
after prolonged stays, and these costs also exceed the monthly
income of most persons. The depletion of financial resources on
the cost of care and the movement from private payment for care
to Medicaid coverage is referred to as the ``spend-down''
process. In 1991, Medicaid nursing home payments for elderly
persons who spent down amounted to 60 percent of total Medicaid
payments for all services for all elderly beneficiaries.\19\
---------------------------------------------------------------------------
    \19\Spending down under Medicaid is a two-step process. First
persons must meet the resources or assets test. The term ``resources''
generally refers to liquid assets such as cash on hand, savings and
checking accounts, stocks and bonds, etc. In order to become eligible
for Medicaid, the value of the individual's available resources must be
less than a State-determined dollar standard, usually $2,000 for an
individual without a spouse, the level used for the SSI program.
Certain items, such as the house, are excluded as countable resources
under SSI and Medicaid rules. Second, after an individual has depleted
virtually all accumulated resources on the cost of nursing home care,
or has transferred resources (for less than fair market value) prior to
the time when eligibility could be denied because of the transfer,
income standards are then considered. Most States have no absolute
upper limit on income for applicants residing in nursing homes. These
States have what are known as medically needy programs. As long as the
applicant's current monthly income is insufficient to cover medical
expenses, including the cost of care in the nursing home, the applicant
can become eligible for Medicaid. Other States use a special income
level to determine eligibility for persons residing in nursing homes.
Like the medically needy, these persons have income in excess of cash
welfare program standards. By Federal law, the special income level
used by States can be no more than three times the basic SSI payment
level, or $1,302 in 1993. This rule is known as the ``300 percent
rule.''
---------------------------------------------------------------------------

    Numerous studies have looked at Medicaid spend-down in the
last 5 years. A recent review of these studies, ``A Synthesis
and Critique of Studies on Medicaid Asset Spenddown'' by Adams,
Meiners and Burwell, found that they generally use two
different measures of Medicaid asset spenddown.\20\ One method
measures the percentage of persons originally admitted to
nursing homes as private payers who eventually convert to
Medicaid prior to final discharge. This method is a measure of
the risk to individuals of spending down to Medicaid over the
course of their lifetimes, given the probability they enter a
nursing home as private payers.
---------------------------------------------------------------------------
    \20\This material draws heavily on Adams, E. Kathleen, Mark
Meiners, and Brian Burwell, ``A Synthesis and Critique of Studies on
Medicaid Asset Spenddown,'' Office of the Assistant Secretary for
Planning and Evaluation, Department of Health and Human Services,
January 1992.
---------------------------------------------------------------------------

    A second method of measuring Medicaid spenddown examines
the percentage of Medicaid residents of nursing homes who were
not eligible for Medicaid when they were originally admitted.
This method can be useful in capturing the proportion of State
Medicaid expenditures for nursing home care that is accounted
for by those who spend down.
    The review of spenddown studies, which use several
different national and State-level data bases, found widely
varying estimates of spenddown as measured by these two
methods. According to the review, the critical factor
explaining differences among these studies is the length of
time that persons are studied. The proportion of persons
spending down during a single stay is much lower than the
proportion of persons who spend down over their entire
lifetime, since half or more of persons using nursing home care
have multiple stays. In general, studies using national data
tend to show lower estimates of spenddown than do State studies
that tend to observe people over longer time intervals.
    The review of spenddown studies found that between 20 and
25 percent of persons who originally enter nursing homes as
private payers convert to Medicaid before final discharge. For
this method of measuring spenddown, not enough State studies
exist to determine the extent to which spenddown rates vary
from State to State.
    On the other hand, estimates of spenddown as measured by
the percentage of Medicaid residents of nursing homes who were
not eligible for Medicaid when they were originally admitted
vary considerably across States, reflecting variations in
Medicaid eligibility policies across the States as well as
other factors. Studies measuring spenddown according to this
method have found spenddown rates of 27 percent for Michigan,
31 percent for Wisconsin, and 39 to 45 percent for Connecticut.
    Spenddown studies have also examined the length of time it
takes for persons to spend down after nursing home admission.
The results of these studies reveal that of those people who
spend down, the majority spend down within a year of nursing
home admission. This finding suggests that most people who
spend down have limited assets when they first enter a nursing
home.
    Certain State studies also show that people who spend down
to Medicaid spend more time on Medicaid after converting to
Medicaid coverage than they spend as private payers prior to
conversion. The studies show that Medicaid-paid days account
for at least 65 to 75 percent of all nursing home days used by
those who spend down. However, the research also shows that,
once eligible for Medicaid, people who spend down pay a greater
proportion of total nursing home costs, through contributions
of their income they are required to make before Medicaid makes
its payment, than persons who are eligible for Medicaid at
initial admission. As a result, people who spend down account
for a somewhat lower percentage of total Medicaid expenditures
than their percentage of Medicaid-covered nursing home days.

Private long-term care insurance

    Private long-term care insurance is generally considered to
be the most promising private sector option for providing the
elderly additional protection for long-term care expenses.
Long-term care insurance is a relatively new, but rapidly
growing, market. In 1986, approximately 30 insurers were
selling long-term care insurance policies of some type and an
estimated 200,000 persons were covered by these policies. By
1987, a Department of Health and Human Services Task Force on
Long-Term Care Insurance found 73 companies writing long-term
care insurance policies covering 423,000 persons. As of
December 1992, the Health Insurance Association of America
found that more than 2.9 million policies had been sold, with
135 insurers offering coverage. (Note that this is a cumulative
total of policies sold; fewer persons would be covered, due to
failure to pay premiums because of death, a change in income, a
decision not to continue coverage, etc.)
    Although growth has been considerable in a short period of
time, the private insurance industry has approached this
potential market with caution. Insurers are concerned about the
potential for adverse selection in long-term care insurance,
where only those persons likely to need care actually buy
insurance. In addition, they point to the problem of induced
demand for services that can be expected to be generated by the
availability of new long-term care insurance. With induced
demand, sometimes also referred to as moral hazard, individuals
decide to use more services than they otherwise would because
they have insurance and/or will shift from nonpaid to paid
providers for their care. In addition, insurers are concerned
that, given the nature of many chronic conditions, persons who
need long-term care will need it for the remainder of their
lives, resulting in an open-ended liability for the insurance
company.
    As a result of these risks, insurers have designed policies
that limit their liability for paying claims. Policies have
been medically underwritten to exclude persons with certain
conditions or illnesses. They have contained benefit
restrictions that limit access to covered care. Policies also
limit the period of coverage they offer, typically to a maximum
of 4 or 5 years. In addition, most plans provide indemnity
benefits that pay only a fixed amount for each day of coverage
service. If these amounts are not updated for inflation, the
protection offered by the policy can be significantly eroded by
the time a person actually needs care. Today payment amounts
can generally be updated for inflation, but only with
significant increases in premium costs.
    These design features of long-term care insurance raise
issues about the quality of coverage offered purchasers of
policies. The insurance industry has responded to some of these
concerns by offering new products that provide broadened
coverage and fewer restrictions. One of the key issues
outstanding in the debate on the role private insurance can
play in financing long-term care is the affordability of
coverage. The Health Insurance Association of America has
reported that policies paying $80 a day for nursing home care
and $40 a day for home health care with inflation protection
and a 20-day deductible period and a 4-year maximum coverage
period had an average annual premium in December 1992 of $1,597
when purchased at the age of 65 and $5,334 when purchased at
the age of 79. Many elderly persons cannot afford these
premiums.
    The insurance industry believes that affordability of
premiums can be greatly enhanced if the pool of persons to whom
policies are sold is expanded. The industry has argued that the
greatest potential for expanding the pool of persons buying
coverage and reducing premiums lies with employer-based group
coverage. Premiums should be lower in employer-based group
coverage because younger age groups with lower levels of risk
of needing long-term care would be included, allowing insurance
companies to build up reserves to cover future payments of
benefits. In addition, group coverage has lower administrative
expenses.
    As of December 1992, 506 employers offered a long-term care
insurance plan to their employees. These employer-based plans
covered over 350,000 employees, their spouses, retirees,
parents, and parents-in-law.
    But just how broadly based employer interest is in a new
long-term care benefit is unclear at the present. Many
employers currently face large unfunded liabilities for retiree
pension and health benefits. Also, many employers have recently
experienced substantial increases in premiums for their current
health benefits plans. Very few employers contribute to the
cost of a long-term care plan. Most employers require that the
employee pay the full premium cost of coverage. In contrast,
the majority of medium and large sized employers pay the full
premium cost of regular health care benefits for their
employees.