John O'Connor
John O’Connor

It’s no secret the federal government is adjusting how it pays senior living and other long-term care operators.

The changes are being done in the name of better care, of course. And that is certainly one of the drivers. But it’s hardly the only one. The real catalyst: exploding caregiving costs.

Small wonder the bean counters at the Centers for Medicare & Medicaid Services are anxious to reduce their financial risk. Care to guess where they want to put that monkey? That’s correct, right on your shoulders.

Now taking on more risk is not necessarily a bad thing. Many smart operators will surely find sweet spots in new payment proposals being considered and implemented.

And adjustments can work out really well. Let’s not forget that nursing homes were primarily being paid through Medicaid, until smart bean counters realized those per diems could be tripled or quadrupled by tapping into Medicare-covered services.

But happy endings are never guaranteed.

For Exhibit A, please let me redirect your attention toward some of the nation’s most skilled risk management professionals. I’m referring of course to the insurance companies. Armed with armies of actuaries and other number of savants, they know a thing or two about the odds something will happen — or won’t.

Insurers have become extremely adept at turning their advanced math skills into massive profits. With perhaps one glaring exception: private long-term care insurance.

More than 100 companies offered these policies as recently as 2004, according to the National Association of Insurance Commissioners. These days, it’s down to about a dozen.

Why? Because this particular product has been a colossal money loser. Long story short, the insurers underestimated both costs and how long customers would live — and priced policies too low as a result. The payoff for some of the greatest risk managers ever put on the planet: billions of dollars in losses, so far.

So tread carefully here. And always remember this about risk management: the first word.

It can be a real doozy.

John O’Connor is editorial director of McKnight’s Senior Living and its sister media brands, McKnight’s Long-Term Care News, which focuses on skilled nursing, and McKnight’s Home Care. Read more of his columns here.