Assisted Living: Needs, Practices, and Policies in Residential Care for the Elderly

2. Residential Care/Assisted Living in the Changing Health Care Environment

2 Residential Care/Assisted Living in the Changing Health Care Environment Michael A. Nolin, M.A., and Robert L. Mollica, Ed.D. The most significant trends in the health care environment over the 1980s and 1990s were the rise of managed care and the development of integrated provider or delivery systems. Some view these two changes as having transformed the health care system itself and as linked indicators for assessing the evolution of health care market forces in any given metropolitan region (Burns et al., 1997). There is little doubt that these trends have had considerable interaction and effect on each other. Together and separately, they are major determinants in shaping the health care environment and thus hold considerable importance for the residential care/ assisted living (RC/AL) industry. The growing interest in private financing alternatives for long-term care is a third health care change that merits consideration, because it has particular significance for RC/AL. This growing interest is a result of the realization among policymakers and consumers that the ability of public systems to meet the long-term-care needs of an aging population has its limits. There is a concurrent realization that with increased longevity and chronic disabling conditions, personal resources can be quickly exhausted in the absence of thoughtful planning and preparation. Though not yet dramatically changing current policy and consumer practice, there are indications that significant shifts in consumer behavior may be under way. These changes would have implications for the current and future growth of RC/AL. This chapter examines these major trends and emerging factors regarding the private financing of long-term-care services. The modest impact of managed health care and integrated delivery systems on RC/AL is explained, as well as the potential importance of the shift toward private financing of long-term care. Managed Care Medicare In the past twenty years, the managed care movement has engulfed, with remarkable alacrity and thoroughness, all insured populations and almost all geographic areas of the United States. During this period, the vast majority of insured Americans have gone from fee-for-service insurance coverage to some form of managed care program. Managed care has been de- fined in a variety of ways, often identifying the increased alignment of provider and payer as a defining characteristic. An operational, and perhaps overly friendly, definition views managed care as a “method of providing care and services through financing mechanisms which coordinate care across time, place and provider, emphasizing prevention, risk/reward sharing and appropriate utilization of services based on consumer and community needs for an outcome of maximum health and well-being at lower overall costs” (AAHSA, 1996). The paradigmatic but by no means exclusive embodiment of managed care has been the health maintenance organization (HMO). An HMO is an entity that, for a fixed premium, provides or arranges the provision of designated health services needed by voluntarily enrolled members. The dramatic growth of managed care is reflected in the rise in stock value of the HMO industry from $3 billion in 1987 to almost $39 billion in 1997 (Kaiser, 1999). Since the RC/AL industry is largely dedicated to serving the senior population, it is particularly important to study the growth of managed care in the Medicare program. Medicare, the federal health insurance program for the elderly and the disabled, has experienced an increase in the number of managed care plans and a steady increase in managed care enrollment among its beneficiaries. In December 1998, the number of managed care plans with Medicare contracts increased to 346, with a total enrollment of over 6 million, compared with 95 plans and an enrollment of 1.5 million in 1992. The Congressional Budget Office in 1997 projected a Medicare HMO enrollment of almost 15 million by 2007 (Kaiser, 1999) (fig. 2.1). However , the growth may be more modest because the Balanced Budget Act of 1997 effectively limited the increases in capitation rates in many larger markets in an effort to correct for overpayments and a payment formula bias unfavorable to rural areas. By October 1999, plan participation had dropped to 310, and actual enrollment grew to 6.3 million beneficiaries. RC/AL in the Changing Health Care Environment 35 Fig. 2.1. The 1997 Congressional Budget Office projection of Medicare managed care enrollment, 1991–2007. Historical data from Kaiser Family Foundation, 1999. Used...