One of the many ways in which America is like a third world country is the lack of government support for elder care. And it isn’t as if this is an issue we ought to be ignoring. The number of Americans over 65 will double from 2000 levels by 2040, and the number over 85 is expected to increase fourfold. 70% of the elderly will typically need assistance, which means either going to what is politely referred to as a facility (either a nursing home or “assisted living”) or aging in place with support.

Not surprisingly, most want to remain at home. With Covid turning nursing homes into isolation wards and potential death traps, even more families are trying to find ways to keep elderly relatives out of institutions. But as anyone who has been through this situation knows, this isn’t easy. Most adults aren’t able to dedicate the time, even if it’s something as minor as shopping, some meal prep, escorting them to doctors (and in the old normal, to a hairdresser and for social events), and performing or arranging for house cleaning and maintenance.

And that’s before getting to dealing with older individuals who are feeble and/or cognitively impaired. Care for them often involves bathing, continence issues, lifting them, and dealing with moods swings. Aging is no fun and the elderly can take out their frustrations with their lack of control on those around them.

As Consumer Reports explains:

The responsibility for this care now falls mainly on family members. “America, unlike most developed countries, lacks a comprehensive national long-term-care support or insurance system,” says Bruce Leff, M.D., a professor of medicine at Johns Hopkins University School of Medicine. It’s a hodgepodge of family support and self-pay care at home, plus other private-pay options such as assisted living and short-term skilled home health services. (Nursing homes are mostly funded by Medicaid.) Family members often end up stitching together a patchwork system by hiring private aides, tapping local resources, and providing hands-on help.

And the underlying dynamics aren’t getting better:

But this ad hoc system could be headed for a breakdown with smaller families and fewer children to take on the burden compared with previous generations. In 2010 there were 7.2 family members (potential caregivers) for every person 80 or older, according to a 2013 study by the AARP institute. By 2030 that ratio is expected to drop to 4 to 1.

Needless to say, this situation would seem ideal for companies who provide at-home services for the elderly for those who have the ability to pay. If you watch cable TV, you might encounter ads that are clearly targeting children of aging parents, particularly ones who don’t live nearby.

As I’ll explain, these services look like a lemon market. And the price the intermediaries charge while not being willing or able to assure quality is a big part of the problem.

Lemon Markets

The Market for Lemons, a 1970 paper by “Nobel” Prize winner George Akerlof, is widely recognized as one of the seminal works on information asymmetry, as in why markets don’t operate as well as textbooks say they should due to buyers and sellers having different information.

Akerlof’s example was the market for used cars, where he looked only at buyers and sellers (as in he didn’t put the used car dealer as intermediary into his model). The seller knows how well he has treated and maintained his vehicle, meaning whether it is a lemon or a peach. The buyer has only crude proxies, like the total milage.

Akerlof posited that the buyer, unable to judge the quality of the car, would offer only somewhere between a peach and a lemon price. Owners of peaches would not sell because they would deem the price too low; only lemon owners would. The resulting tendency towards lemons would tend to drive prevailing prices lower, with the result that lemons would dominate the market.

Now in real life, some peach holders would sell at a price they knew to be too cheap because they really need the money. But you get the general point. Markets with lemon tendencies have average prices that are too low for high quality products/services, but those with better goods can’t readily prove that they have better wares.

Home Health Care Agencies as Lemons: Evidence

In the last year, I’ve dealt with three agencies in Birmingham, all of which were supposed well rated (more on those ratings shortly). Despite my lack of any history here, I’ve been forced to hire aides directly, which knock on wood is working well so far.

Note that the “health aide” part of the typical designation is a misnomer. These agencies might have an actual nurse in the adminisphere; we once by happenstance did have a terrific aide for a couple of shifts a month who worked mainly as a nurse in a local hospital. Medicare now provides reviews of what it calls “home health agencies”. But if you click through on the list for Mountain Brook, all provide nursing and other services, like physical and occupational therapy, in addition to “home health aide”. You’ll also see that Medicare rates their costs based on “an episode of care,” reflecting that these firms are mainly in the business of providing relatively short term (say post op care and rehab), higher skilled, higher paid services.

I should add that despite my mother being infirm (she was earlier using a walker and is now wheelchair bound, needed to be bathed, needs help with dressing and “transferring” as in getting in and out of her chair), the demands for her care are not bad: taking her to and from the bathroom, getting her out of bed at the start of the day and helping her with her bedtime prep and getting her into bed, getting her meals (which does not entail any cooking), picking up her mail, cleaning three counters and sinks, loading and unloading a dishwasher, emptying garbage cans, making her bed, doing laundry once a week, and foraging. The worst tasks are her sponge bath and changing her Depends (she does not have incontinence problems but dealing with adult diapers is what it is).

I had been loath to go the route of direct contracting due having no way to find caregiver plus believing that the agencies provided meaningful value added services:

1. Screening and training aides so as to assure a decent quality of care

2. Providing backup if an aide missed a shift (which happens quite a lot: getting sick, car trouble, family crises)

3. Sending bills for reimbursement to my mother’s long-term care insurer (some take assignment of benefits, others bill her but also submit their paperwork to the insurer)

1 and 2 have been a bust. Agency 1, which we hired when we needed only day shifts, could not staff Sundays and had only one aide that was adequate to the task (and that was with her taking awfully long smoking breaks in her car and when running errands, which was still not great given that my mother was ambulatory then and a fall risk). She regularly came when sick and would cough all over my mother, who has COPD. One day my mother blew up and fired the agency over the aide’s unwillingness to skip a shift when unwell despite my mother’s repeated requests.¹

Agency 2, a franchisee of a well-known national operator, was a bit better at staffing Sundays. However, after her fall, when my mother needed evening shifts, they had difficulty filling those reliably. On top of that, we got an early warning of their priorities, which was to favor aides over clients when there were difficulties. One aide put over $200 of her clothing charges on my mother’s credit card. When we told the agency, they promptly removed her from us but told us they had concluded it was “an innocent mistake” and assigned her to other clients.²

We had a second case of an aide playing fast and loose with my mother’s card, first putting $50 of her food charges on it and giving us $50, then buying things that she “knew” my mother wanted that she didn’t. The aide got angry at the idea that her judgment was incorrect and even if it had been, she should only be making specifically authorized purchases.³ Despite working as a lab tech during the day, she would also get visibly annoyed when I reminded her to wear her mask over her nose.⁴

We had also had trouble with about half the new aides sent by this agency not performing basic tasks, like unloading the dishwasher or cleaning the sinks and faucets, which I regard as an essential Covid protection.⁵ I had to ask for several aides to be replaced because they were unwilling to execute the agency-agreed minimum tasks and gave me ‘tude when tried reminding them.

This agency was also poor about backup. If someone missed their sift, >80% of the time, we were on our own.

Agency 2 effectively fired us, saying only five aides were willing to work with us and limiting us to only those five, which meant we assured of having no backup. And the claim that there were “no more aides” was false, since we learned from the head of Agency 3 that agencies bring new people all the time (my sense from her mention of her recruiting needs is over 10% a month).

Agency 3 was a franchisee of yet another chain. This one hired only aides who were at least Certified Nursing Aides and provided them with more training than Agency 2. They were also better about their backup protocols. Initially things were smooth but started going pear-shaped after a month. They too had difficulty staffing Sundays and regularly scheduled 13 hour shifts, with the result that aides would sometimes fall asleep during their shift.

We had three cases of abandonment. In one, the aide walked off the property (my mother has nearly an acre). I yelled after her since my mother needed to go to the bathroom. She didn’t answer; she was apparently out of earshot. I had to call the agency and have them ring her cell to get her to return. What if I hadn’t been there?

The second case was when an aide they touted as having been with them for years, three times her very first day, left my mother on the toilet in her bathroom. This wasn’t a matter of respecting her privacy and going into the next room. This was during the day, when I normally am sleeping, and I heard her yelling, which would never have been necessary were she close by. The third time, my mother yelled repeatedly. I stuck my head out of my bedroom and yelled at the aide, who said she was in the living room, meaning on the other side of a long narrow house. WTF?

The third time, the aide left my mother alone for 45 minutes. No explanation.

We also had one of their supposed best aides break a chair. Even though the aide flipped the chair over, telling my mother she was cleaning under it (as in trying to fix it), we were told the chair was already broken (false, as our handyman and cleaning service could confirm) and we were made the bad guy. The offer to pay $100 toward a repair or replacement was rescinded.

Agency 3 de facto fired us by asserting word had gotten out, no aides would work for us,⁶ and they’d need to increase our rates by 50% to fill the shifts. They also tried to put the claim through retroactively and without the notice period stipulated in their own contract, and so I had to remind them of their own contractual obligations.

Home Health Care Agencies as Lemons: Theory

So why is it so hard to hire a good agency? I doubt they exist. And here are some of the reasons:

Large captive audiences and poor oversight

High charges by agencies relative to their value added resulting in poorly paid, very mixed quality aides

High turnover among aides, with better aides likely seeking to work directly for clients

Inability to achieve higher service standards, charge higher rates and pay aides markedly better assures overall mediocrity (at best)

Large captive audiences and poor oversight. The reason I had been loath initially to try to find aides myself, on my own, was having zero local contacts. And it’s not easy even when you do. For instance, a good friend in another state had to organize care for her mother, who had Lewy body dementia. She eventually got two terrific caregivers, one of whom was a live-in, but had to fire three who didn’t work out. I was concerned that I couldn’t find a big enough pool to work through to find who might stick.

Needless to say, my out-of-state friend and I were both close enough to manage the situation. Many older people don’t have relatives who live near enough to keep good tabs on what the agencies were up to. And one big reason I am sure I had so much difficulty is the agencies aren’t used to having monitors. I’m unusual in being in the same house, albeit awake during only one of the two shifts.

Moreover, my mother, like many women of her generation, is terrible about making demands or being critical, until she’s had enough and blows up. And being physically dependent and hard of hearing isn’t conducive to taking on slipshod care. So I suspect that many people in her situation, who’ve hired agencies with their family at a remove, will put up with not great care because they lack the capacity to do anything about it.

High charges by agencies relative to their value added resulting in poorly paid, very mixed quality aides. Agencies take a big cut. We pay $21 an hour an the aides get only $10 an hour. You might now say: “Well, what do you expect for $10 an hour?” but I found out about the appalling net pay only by accident. I had earlier assumed the aides receives something low but not terrible, like $12 or $13 a hour.⁷

Remember that two of the three agencies we dealt with were franchisees. One in addition to a raft of up front charges, has two fees set as a percent of revenues: a 5% franchise fee and a 2% per month “marketing fee” plus other charges. The other seems to do less nickel and diming and as best as I can tell, has a “royalty fee” and “marketing fee” that total 8% of revenues. That’s a pretty healthy skim off the top.

The agencies do little to some training. Agency 3, which has a CNA as a minimum requirement, said Agency 2 gives only a day of training; they provide several days.

So where does the $11 an hour go, aside to franchise fees and overheads like rent and accounting, 24 hour phone coverage, and scheduling? It seems a big cost is recruiting all the time. The head of Agency 3, which has about 140 aides, was screening 10-15 people every two weeks. She didn’t tell me her target for net hires.

You might reasonably say, why don’t the agencies charge more so they can pay better, reduce turnover, and differentiate their brand locally? Agency 1 was charging more but their staff was no better than the other two agencies, and for all I know, the price differential was going straight into the owners’ pockets. Agency 3 is trying to hire better (or at least more credentialed) aides and train them better, yet they are not commanding a price premium.

One constraint is the lemon problem: customers like me can’t tell from the outside what the service quality is like. National ratings are across a huge number of franchisees and tell you nothing about your local operator, but they do warn you these services generally suck:⁸

Local ratings are not much more help. Here, they are much higher, but they also cluster between 4.4 and 4.7 out of 5. Worse, they look manipulated. Many are openly from employees, about what a great place XYZ is to work, making one wonder how many of the rest are from employees pressed to pump the score and who did so more artfully.

But another problem with raising prices is what the market will bear. We are a bit price insensitive since my mother has a good long-term care policy with a pretty high total policy limit. However, her policy also has a total daily maximum which is too low even to pay for the full day rate for nursing home care in Alabama, where your health care dollar goes a lot further than in most of the US. It’s also way below the cost of 24 hour care at home, which her doctor has long insisted on. Look at how the costs rack up even if you are talking just 6 hour daily shifts. From Consumer Reports:

In 2017 the national median cost for 44 hours a week of nonmedical home-care services was $47,934 per year, according to Genworth, a long-term-care insurer.

Pull out a calculator. The average cost in 2017 was $20.54. Admittedly Genworth will pay for both agencies and independent aides, but these national costs were also incurred all over the US, where wage rates are generally higher than here.

High turnover among aides, with better aides likely seeking to work directly for clients. As indicated, there’s a lot of churn. Some of it is due to the aides in many cases having their aide duty as a second job (a couple of the best aides we had worked only 2 shifts a month and we happened to get them). So if they get more hours at their main gig, they’ll abandon the aide work. Some are using the aide shifts to work more than 40 hours a week to save money for a special purpose.

But the “better” aides who might want or need to keep at this sort of thing regularly presumably work out that they are a cut above the norm and find a way to be hired privately. The difference between $10 and $21 an hour creates a lot of price points for a “win/win” situation. The agencies try to impede worker-poaching via draconian language in their agreements with clients (and the head of Agency 3 also said in their agreements with aides) to prevent aides from going to clients.

In our case, we’re now using independent caregivers, save a two-shift-a-week holdover that we really like from Agency 2, and paying them better than an agency would. But I have to stress that for anyone with parents more than a couple of hour drive away, it would be very difficult to set up and manage independent caregivers.

In fairness, one of the things that makes it hard for agencies to get ahead in this game is that even a CNA certificate isn’t a great predictor of what makes for a good aide. As you can see from the shaggy dog stories above, we had ones from Agency 3 that were train wrecks.

The most important considerations are a good work ethic, common sense and a reasonable level of intelligence, some training like how to lift someone (which an otherwise unskilled person can learn from an occupational therapist), and a pretty even keel temperament. One of our good aides now is a high-energy former New York City taxi driver who learned her aide skills by being a grandmother and then having a neighbor hire her to care for a 300 lb diabetic. You would never screen for that in a recruitment ad.

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¹ Agency 1’s management had ‘tude and also charged more than other agencies. They managed to extract a further premium for the one aide that was not bad, despite her not having any credentials or even a high school degree. Our insurer Genworth somehow organized for them to start with us and my mother suspected that there was a kickback to the employees involved.

² This was clearly bunk. I happened to be in the room when my mother found the bogus charge on the card. The aide, who was sitting next to my mother, didn’t even look at statement to see the date or amount but immediately confessed. She clearly either made the fraudulent charge knowingly or realized immediately afterwards that she’d made a mistake. But rather than tell me or my mother so we could straighten things out, she had decided to see if anyone would catch her out. In other words, if this was a mistake, it was not innocent.

³ I am sure Clive will go nuts over the idea of letting a third party put charges on a credit card, but this practice is pervasive with the housebound elderly.

⁴ I also had trouble before masks were mandatory at businesses getting aides from this agency to wear masks, even though we provided them. The agency would not support my efforts to get compliance.

⁵ Before you try, “Why didn’t you unload the dishwasher?” the agency has a list of duties they agreed the aides were to perform and this was one of them. And I am not going to stoop to give other reasons. I have reason to believe that the second aide who misused my mother’s credit card decided to get in front of the issue before I could Say Something and complained to the agency about my rather long conversation with her trying to get it through her head why she couldn’t make charges willy-nilly on my mother’s card. I did not raise my voice, but New York directness is regularly seen as aggression down here, particularly from women.

⁶ We had some aides who worked regular shifts who got on fine with us, so this claim was at best considerably exaggerated. However, my yelling across the house at the aide who left my mother in the bathroom was twisted into a charge that I yelled at aides, which was narrowly correct but clearly misleading in context (there was another instance where I yelled across the house because a different aide from this agency wasn’t answering the door for a repairman visit I had told her about in writing; the aides get notes from me every AM before I turn in. And they should be answering the door whether I leave a note or not).

⁷ A living wage here is $11.88 an hour for a single person, $9.24 for a couple with no kids and both working, and $12.81 for two working parents with one child.

⁸ We used the local outfit for one of these two franchisors.