A recent state-wide survey of Virginia citizens conducted by the Center for Survey Research at Virginia Tech reported that 52 percent of older Virginians (age 60 and older) were very satisfied with their health status. An even larger percentage (57 percent) voiced strong satisfaction with the quality of their health care. These results paint a reassuring portrait of the health conditions of the commonwealth's older residents. Yet, the optimism reflected in these returns must be tempered by the realization that only 28 percent expressed the same level of satisfaction with the cost of their care, and that political support is growing to change significantly the manner in which health care for our older citizens is financed and delivered. Concerns about the cost of health care and the rising crisis over public financing of health care for older Americans should give pause to all Virginians.

Health-care reform and cost containment are now a major part of contemporary political discourse in the United States. The parts of the debate of keen interest to older Americans are proposals designed to improve the fiscal health of Medicare and to restructure the administration and financing of Medicaid. These two public health insurance programs have come under review and criticism as we struggle as a nation with the realities of a large federal deficit and a history of high rates of increases in health-care costs. Resolution of the Medicare fiscal crisis will certainly require adjustments in the current system, adjustments that will obviously have implications for the cost and quality of health care for older Americans. In the case of Medicaid, any fundamental changes in the program's structure could substantially reduce the accessibility to long-term care.

The consequences of any reorganization of Medicare and Medicaid are clearly important to older Virginians. However, we believe the eventual resolution of this policy dilemma will influence all citizens of the commonwealth, regardless of age. When public funds are limited, the need to make difficult choices between 'desirable' goods--for example, schools versus health care, roads versus higher education, and long-term care versus acute care--creates a dynamic that can precipitate inter-generational conflict--the 'good' of the children versus the 'good' of the aged. The potential longer-term harm from inter-generational finger pointing makes it imperative that the political discourse over Medicare and Medicaid be informed debate.

MEDICARE

Most Virginians would agree, we believe, that Medicare has greatly improved access to health care for its older citizens. Since its adoption in 1964, Medicare has been a principal source of reimbursement to hospitals (Part A) and to physicians (Part B) for health services provided to the elderly. Currently, Medicare reimbursement covers nearly half of the average health care cost for the elderly recipient (approximately $2,500 per person in 1994).

Advocates for the elderly acknowledge the importance of Medicare in sustaining access to care but also note some important limitations of the current program. Medicare coverage for long-term care is minimal, limited to skilled nursing-home care only. Also, despite recent efforts to add medication expenses to the list of covered services, medication costs, which are a substantial continuing cost for those with chronic illness, are not reimbursable. As a consequence of such coverage gaps, the out-of-pocket health-care costs for older Americans increased by 90 percent between 1987 and 1994, while the income of elderly households grew by only 28 percent. For many older residents, these 'out-of-pocket' costs constitute a major barrier to obtaining the quality of care necessary to sustain a healthy quality of life.

Despite important gaps in coverage, the current Medicare debate is not focused on extending services, but rather on how best to retain existing coverage in light of the serious financial exigencies of the program. Reimbursements for Part A Medicare costs are drawn from the Medicare Trust Fund, the reserve fund supported by payroll contributions. In 1994 the trust fund paid out roughly $300 more in benefits than it received in payments, and the gap between revenues and outlays is increasing. If deficit withdrawals from the fund increase as predicted, the fund will be insolvent by the year 2002.

Insolvency of the Medicare Trust Fund is not a new issue. As recently as 1993, policies were adopted to make the trust fund financially secure until 2002. Previous insecurity in the trust fund was prompted primarily by the rapidly rising inflation rate within the health-care sector. Health-care inflation is still a problem, although it is abating somewhat, but the current crisis is made more acute because the size of the Medicare-eligible population will increase substantially as the 'baby boomers' reach eligibility.

This aging of the population is becoming evident in Virginia. From 1990 to 1995, the number of residents age 65 years and older increased by 6.9 percent, while the number of residents age 85 and older increased by 23.1 percent. The growth of the older resident population is nearly twice the rate for the commonwealth's population as a whole. Of particular importance is growth in the 85 and older segment since this group is the principal consumer of health-care services. As its size grows, the consumption of Medicare and Medicaid resources will expand if some changes in the current system of reimbursement are not forthcoming.

For older Virginians--indeed for all older Americans--resolution of the trust fund gap is paramount to sustaining existing levels of access to acute-care services. Moreover, if acute-care needs of older Virginians are not adequately addressed, one can expect long-term care costs to increase at even higher rates. A moderate increase in the payroll tax dedicated to Medicare would be a solution; however, an increase is currently not politically feasible. Moreover, a modest increase in payroll contributions--one that might be politically acceptable--would only provide a short-term solution unless it is accompanied by significant savings in future health costs. In lieu of increasing the payroll contributions, either current costs must be dramatically lowered, alternatives to Medicare developed, or both.

Some obvious 'painless' targets for cost savings in Medicare exist. Administrative costs are higher than expected based on industry norms because of the fragmented way Medicare claims are managed. More cost-effective modes of delivery--managed care, for example--and increased controls on technology and high-cost medical care could also provide some cost relief. At issue is whether cost savings from these reforms would be sufficient to save the trust fund and whether managed care delivery systems provide the necessary quality of care, a subject of on- going debate and examination. If savings from these strategies are insufficient, more draconian cuts or major restructuring of Medicare would be required.

The current proposal to restructure our system of financing health care for elderly citizens is the Medical Savings Accounts (MSAs) initiative. As proposed in the 105th Congress, MSAs would give individuals an alternative to contributing to Medicare in their employment years. In essence, Medicare would become an option rather than an entitlement. Medical Savings Accounts, like IRAs (Individual Retirement Accounts), present a tax-advantaged means of accumulating money to pay for health-care costs upon retirement. Contributions to MSAs and all interest accrued to the account would be exempt from taxation. Use of funds to pay for accepted medical practices, including the premium on long-term care insurance, would not be taxed. Penalties would be imposed, however, if funds were used as ordinary income for persons under the age of 59, although for others that would be permitted without penalty.

Currently, some businesses offer to employees insurance options patterned after MSAs, so some history exists on which to base performance estimates. Experiences in the private sector indicate that MSAs would be preferred over Medicare for wealthier and healthier Americans. The savings from MSAs over the long term--at least ten years--exceed the value of even conventional savings options for those who itemize deductions, who have few health-care expenses for the first ten years of the program, and who can afford some out-of-pocket health expenses. For lower or moderate-income families, no clear gains occur. The consequence of the differential benefits of MSAs, according to critics, would be that the insurance pool for Medicare would increasingly comprise higher-risk, lower-income workers. Since medical outlays would be greater because the higher risk component of the pool is larger and since contributions to the trust fund would be less as higher wage workers opt for MSAs, the solvency of the trust fund would, in fact, be in greater jeopardy over the long run by permitting MSAs as an alternative to Medicare.

Whichever approach to the Medicare financing problems is implemented, it will have profound consequences for Virginia's older residents for years to come. At a minimum we can anticipate greater use of managed care for Medicare recipients (with tough quality oversight by the government), higher co-payments, lower reimbursement levels to providers, and tightening of controls on high-cost medical intervention. We will likely see some restructuring of the program, be it MSAs or some other option. What is sobering, however, is that even if the status quo is maintained, the financing of medication for chronic illness or provision of most types of long-term care will continue to be excluded from the Medicare benefits package.

MEDICAID

Political initiatives to restructure Medicare have gained center stage on the national political scene in the past two years. Yet, in terms of potential impacts on older Virginians, proposed reorganization and refinancing of Medicaid could be more telling. In Virginia, as in most states, Medicaid is the most important public source of funding for long-term care, particularly the reimbursement for nursing home care. Today, the majority of revenues to nursing homes in the commonwealth comes from Medicaid payments on behalf of elderly who are defined as medically needy.

Some sense of the critical role of Medicaid in financing elderly health services is gleaned from figures published by the Department of Medical Assistance Services (DMAS), the state agency responsible for administering Medicaid. In 1995 approximately 642,000 Virginians received services through Medicaid. Of those, 13 percent were persons 65 years of age or older. If services to the blind and disabled (many of whom are elderly) are included, the percentage is still modest--28 percent.

The number of recipients, however, masks the importance of the program to Virginia's older citizens and the source of the policy debate over Medicaid. Payments to elderly Medicaid recipients averaged $6,649 in 1995, whereas the averages for children and adults with children were only $668 and $1,765 respectively. Expenditures for services for the elderly are, on the average, over ten times the amount spent on children and nearly four times that for other adults. If payments to elderly, disabled, and blind are considered jointly, they constituted nearly 70 percent of all Medicaid funds in 1995. This level of reimbursement is directly attributable to payments to nursing homes from Medicaid on behalf of older Virginians.

The role Medicaid has in funding long-term care comes with significant political costs. Medicaid expenditures and their annual rate of increase have raised budgetary red flags in Richmond as well as in Washington, D.C. Because of the required matching of federal and state funds for the program, any increase in Medicaid expenditures places serious strains on federal and state budgets. In the 1996-1998 Virginia budget, for example, expenditures for health services, primarily Medicaid, rank second behind education (Figure 1). Little comfort can be found in the state's historic trends either. From 1985 to the current budget, Medicaid expenditures from the state's general fund have increased by 382 percent, an increase unparalleled by any other programmatic unit in the state (Figure 2).

The growth of Medicaid expenditures places public funds for other state responsibilities at risk. The climate for change has arrived, and serious debate over the structure of the program has been heard in Washington and in state capitals around the nation. The debate brings into focus some fundamental questions that will affect availability of long-term care for elderly citizens in the commonwealth. Should services to children and their parents be constrained in deference to payments for long-term care? Would a reduction in federal oversight of the program place long-term care at risk if states such as Virginia move to control their Medicaid budget crisis? Can Medicaid costs be controlled without limiting access to long-term care for older residents in the commonwealth?

To try to control Medicaid long-term care costs, one strategy used in the commonwealth has been to control the supply of nursing home beds by instituting a moratorium on the construction of new nursing homes. The latest moratorium was in 1992 when Governor Wilder re-instituted the policy. The moratorium froze the existing supply at 29,890 nursing home beds and fixed the geography of long-term care in the state for four years. Occupancy levels in most homes also rose and achieved near capacity levels by 1994, averaging about 94 percent. In the spring of 1996 the state legislature provided special exemptions for the construction of new nursing home beds in some locales, and the four-year moratorium expired without a continuance offered by either the governor or the legislature. As a consequence, the state has already seen a flurry of requests for construction of nursing homes filed in the Certificate of Need pipeline. Most of these new facilities could begin accepting applications from Medicaid recipients within two years. The implication of the additional supply of nursing home beds for Medicaid expenditures seems clear. Greater pressure on the program's resources will be forthcoming if some programmatic adjustments are not implemented.

The programmatic changes most likely to emanate from Washington would give states more responsibility to finance and to administer Medicaid and would reduce the rate of growth in federal expenditures for the program. The Center on Budget and Policy estimates that under the proposed Medicaid Restructuring Act presented to Congress, Medicaid benefits for recipients would drop from $4,691 in 1996 to $4,352 in 2002. Those reductions could be even greater within individual states if the current matching formula is made more flexible and states are permitted to reduce their contributions to the program. Moreover, with increased authority, states could pare services that were deemed either too costly or unnecessary. Critics of the proposed reforms worry that states will eventually target long-term care expenses for cost reduction because they constitute the largest proportion of Medicaid expenditures.

How will the commonwealth respond if (probably when) states are granted greater autonomy in setting medical service benefits and reimbursement policies? No clear signals have been forthcoming from either the executive or legislative leaders as they await developments at the federal level, although several options appear likely now. Initially, some tightening of screening processes would probably be implemented to ensure that only the 'truly' eligible receive long-term care benefits. Some tightening of eligibility standards is also likely if substantial cost savings are forthcoming from more rigorous screening efforts. A strategy championed by most of the important stakeholders in this policy debate is for the state to give local communities more resources to expand their existing community-based long-term care services. Community-based services could lower the levels of nursing-home care for those at risk of institutionalization and, in doing so, reduce costs.

Community-based care is generally less costly than institutionalization and can be more effective in providing services than nursing homes can under favorable conditions. The 1993 Joint Legislative Audit and Review Commission (JLARC) report on Virginia's Medicaid program notes that the state's community-based care programs have demonstrated that they can be suitable substitutes for institutionalization.

At its best, community-based care provides an entire suite of services, which together provide some level of independence for the client, yet ensure that health, safety, personal care, and psychological needs are adequately met. Many jurisdictions in the state have community-based services that can stand as suitable, or even preferred, substitutes for institutionalization. Nutrition programs, homemaking services, transportation, and health care can be delivered to residents through organizations within a community. If community support is there, 'it's amazing what families do to care for elderly family members,' notes Susan Williams, executive director of the Roanoke Area Agency on Aging (AAoA).

The ability of the state to provide community-based care as an alternative to institutionalization is challenged, however, by problems that must be resolved if its potential is to be achieved. Many communities, particularly in rural areas, do not have the human or institutional capacity to provide the full range of services necessary to substitute for institutionalization. In these locales, informal networks of friends and volunteers rather than professional staff are used, or services must be curtailed, according to Tina King from the New River Agency on Aging. She notes that in the New River area, homemaking services have up to 300 people on a waiting list because resources are lacking to meet the demand. In Arlington the capacity issues are less critical, but the unique nature of the client population creates special problems in delivering services. Many clients in the area do not speak English and the diverse linguistic composition of the population makes it difficult to provide quality human interaction at times, notes Tirri Lynch, the executive director of Arlington's AAoA.

Even in programs such as those in the New River Valley, Roanoke, and Arlington, which are effectively administered and provide a wide range of community services, services are not affordable for citizens. Medicaid reimburses some services for those who are eligible, but many older citizens are either not Medicaid eligible or cannot afford the out-of-pocket costs for the services. For the individuals who fall between Medicaid eligibility and financial security, community services offer no solution to their long-term care needs. If Medicaid tightens its screening and eligibility requirements, the number within this 'gap' is certain to expand, creating more demands on local agencies.

Finally, it is not clear whether the magnitude of Medicaid savings to result from an expansion of community-based programs is real or sufficient to break the long-term-care financial trend of growth. Savings to Medicaid may occur simply from the state shifting funding responsibility to other agencies in the state or to local communities. Any real savings to the public are illusionary. In its 1993 report, JLARC calls community-based services the fastest growing cost sector within Medicaid. Real savings may occur, the JLARC report continues, only if more stringent screening is implemented to limit Medicaid reimbursement for community services to those with the highest risk of institutionalization. Thus, real savings to Medicaid may come only from tightening controls on eligibility, i.e., reducing the number of elderly receiving community-based services.

CONCLUSION

We began by emphasizing that most older Virginians currently express satisfaction with their health and the quality of the health services they receive. Arguably those results reflect over 30 years of support for their health care from Medicare and Medicaid. Now those programs are under serious review, and cutbacks are probable. Also, it seems likely that some reorganization of both programs is inevitable. As yet, no consensus has emerged on the best means to resolve the fiscal exigencies of both programs. No doubt, though, states and localities will bear a greater share of the responsibility and financial burden for the health and quality of life services currently funded by either Medicare or Medicaid. Examples from Area Agencies on Aging exemplify the complexity and difficulty of providing and funding community-based care in today's cost containment environment. Regardless of which level of government pays, as Virginians grow older, they and their families will require more care and supportive services. The question is, as a community, how will we respond and resolve the issues of access to quality care so as to ensure quality of life in later years?

James R. Bohland is professor of urban affairs and planning at Virginia Tech, where he teaches health planning, health policy, health planning applications of GIS, program evaluation, and other methods courses. He has published widely on topics concerning long-term care policy, managed care, health-care delivery systems, health-care reform, and location and environment of older adults.

Cara L. Bailey is a doctoral candidate in environmental design and planning at Virginia Tech and is concurrently completing a Graduate Certificate in Gerontology in the College of Human Resources and Education. Bailey's graduate research concerns aging in place in suburban communities.

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