LTC Bullet: SNALF Interview on How to Save Medicaid

Thursday, March 27, 2003

New York City--

LTC Comment: interviewed Center President Steve Moses on how to solve the states' Medicaid-induced fiscal crises, preserve Medicaid for the needy, and attract private financing to America's long-term care facilities. Excerpts and a link to the full interview after the ***news***.

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LTC E-Alert #3-022--CT Wants to Plug Loophole that Leaks Medicaid $ and Impedes LTCI

DON'T MISS OUR "VIRTUAL VISITS" TO: The Society of Actuaries' LTC Insurance Conference at AND The 16th Annual LTC Insurance Conference at . You'll find our comparison of the conferences, session summaries, interviews and pictures. Enjoy.

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LTC Comment: is a Web site dedicated exclusively to providing news and information to the long-term care profession. For a free subscription to SNALF's exclusive "LTC Daily Analysis Briefs" news headlines by e-mail, send a subscription request to . published an 8-page interview with Stephen Moses on March 10, 2003 at . Check out the interview and the rest of the site. Here are some excerpts:


"With dozens of states in deep fiscal crisis and already under-funded Medicaid programs targeted for further cuts, Stephen Moses, president of the Center for Long-Term Care Financing, talks with SNALFnews about the roots of the problem and possible solutions. 'Medicaid eligibility is set up to be a giant black hole sucking middle and upper-middle class people into nursing homes on welfare,' he says. 'It's just an insane system, and once you understand how it really works, instead of the myth that you have to be poor to get it, everything becomes crystal clear. . . .


"Well, just as I predicted the system has collapsed, for all intents and purposes. The fiscal crisis in the states and in the federal government has worsened, and there's been little relief to nursing homes and home health agencies in terms of reimbursement; they continue to rely almost entirely on government financing, which is very inadequate. The BDO Seidman study showed that nursing homes were reimbursed $3.5 billion a year short of breaking even on Medicaid, and the problem is only becoming more severe. . . .


"In Washington state, legislation has been proposed that in essence eliminates all the loopholes and exemptions to quality for Medicaid, and basically says that if you own anything, you have to spend it down before you get any help. The principle is this: the state doesn't require you to sell everything and impoverish yourself. You just use it as collateral for a line of credit, so you're only spending down on paper. Now, the reason that works is that the primary asset of seniors is the home. Over half of the net worth of the median elderly household is in the home. Eighty percent of seniors own their homes, and 80 percent of those own them free and clear. That's a trillion and a half dollars out there that goes completely untouched for purposes of long-term care, for the simple reason that Medicaid exempts the home and all contiguous property, regardless of value. So until you put the house at risk, seniors have no reason, at least in terms of asset protection, to purchase long-term care insurance, or to tap the equity in the home.

"What Washington is proposing to do is to request a waiver from the federal government that would permit them to place the house at risk, and to provide tools that would empower seniors to go to private financial institutions and take out reverse annuity mortgages. The mortgages are not only on the home but on the entire estate, so seniors would be allowed to keep the estate, including the home, until the death of the surviving spouse. But in the meantime, they will get a supplemental income that's fully collateralized by the asset, that would then empower them to go into the private marketplace and pay privately for care. So instead of going to a nursing home on welfare, they may well purchase home care, assisted living, day care, respite care -- they will tend to do things to stay out of a nursing home and off Medicaid. . . .


"What [HHS Secretary] Tommy Thompson has proposed for Medicaid reform goes like this: Medicaid has two kinds of services, mandatory coverage groups and services and optional coverage groups and services. The mandatory groups tend to be made up of the very poor -- poor women and children -- and the eligibility rules for those people are already draconian. Believe me, you have to be poor to get those services. They represent about two thirds of the recipients on Medicaid, but only one third of the dollars.

"We don't spend much for poor women and children, frankly, as compared to nursing home care for the elderly, which falls under the optional category. When things get bad enough, states can just say they're not going to pay for nursing home care Medicaid programs, and they have that authority. What Thompson and the President are trying to do is to avoid things getting so bad that the states will cut off whole eligibility groups. Because the optional coverage groups and services, such as seniors and nursing home care, represent only one third of the recipients but two thirds of the dollars.

"What the administration is suggesting is to keep all the protections and requirements and mandates that tie states in knots in place for the mandatory services and coverage groups, so that those poor women and children are protected no matter what. But they're saying let's open up those optional categories so that states can decide who and what they want to cover. They can change the eligibility criteria; they can close the loopholes so that well-to-do seniors can't get free nursing home care; they can do the line of credit on the estate that we've proposed.

"They can eliminate the loophole Connecticut is trying to close, which allows people to reduce the transfer of assets penalty by half. They can prohibit the practice Indiana has been allowing of people getting rid of two or three hundred thousand extra bucks by purchasing a rental house and calling it a business, which is exempt for purposes of determining Medicaid eligibility. Indiana has the elder law bar and the real estate industry in cahoots helping affluent seniors buy rental houses so they can qualify for Medicaid. All that sort of thing, under the President's proposal, could be stopped by individual states. Now, they are prohibited from closing those loopholes because of the federal law. So this blows the thing wide open.

"I think the Bush proposal makes great sense, for a number of reasons. States could do the kinds of things we've been proposing all along, saving Medicaid for the poor and creating stronger incentives for everyone else to pay privately, thereby assuring better access to higher quality care across a wider spectrum of services for rich and poor alike. It will also breathe financial oxygen into the provider industry and blow the lid off the long-term care insurance industry. The plan wouldn't hurt anybody except the Medicaid planning attorneys and some heirs who need to be awakened to this risk anyway, or we're going to be in a real mess in 20 years when the baby boomers start needing long-term care. . . .


"No, they're not communicating any more than they ever have. I'm very frustrated with all of them. The nursing home industry is basically just begging for a reimbursement handout from the government. There's some lip service to dealing with the hemorrhage of Medicaid eligibility, and I'll give credit where credit is due to Chip Roadman [AHCA president] and the American Health Care Association for what they've proposed.

"I recently wrote an article called 'Denial is not a river in Egypt,' and I made the case that it's not consumers who are in denial. Consumers can ignore the risk, avoid the premiums, wait until they get sick and the government will pay their long-term care. They're not half as stupid as the insurance industry thinks they are. It's the long-term care [insurance] industry that's in denial. They somehow don't observe the reality of why people don't buy their products, and so they keep getting what they always got. It's the definition of insanity -- you keep doing what you've always done and expect different results. They do not grasp that people don't buy LTC insurance because they don't think they need it, and they don't think they need it because the government has been paying for almost all of it for the last 40 years.

"My reaction is, what is so complicated? Open your eyes, look at the reality and do something about it. But all the long-term care insurance industry does is go to the government begging for tax deductibility of premiums, which since it would cost the government money, and since the government has no money, isn't going to happen in the foreseeable future. Don't get me wrong. I'm in favor of tax credits and genuine tax deductibility for long-term care insurance. I just don't think those proposals have much hope for success in the near term. Even if they pass, they will only help on the margin. And the best hope the industry has is to propose policies that save the government money AND enhance the marketability of private LTC insurance.

"Of course, the financiers of long-term care couldn't care less. They have no interest in long-term care insurance because they don't see it bringing in any money in the foreseeable future, so it doesn't help them penciling out projects they want to do now. Most of the debt and equity capital has departed, because who wants to invest in this industry when there's no money in it? They go somewhere else where they can find a decent return.

"The long-term care insurance industry should be going to the government and saying, "Look, we can save you a whole bunch of money in the future by getting people insured who don't belong on Medicaid. But in the meantime, just taking away these loopholes and exemptions would be a big savings to you right now." That is a slam dunk argument. The people at the Centers for Medicare and Medicaid Services are ready to listen to it -- they're already talking about encouraging reverse annuity mortgages. So the stage is set, and if we could just wake up the decision makers in the provider, financier and insurance industries to recognize what needs to be done and work together, the beautiful thing is that the government is now ready to listen.

"The problem with public officials is they're so busy putting out grass fires they don't even notice when a fire engine drives up right beside them. They'll be swatting with blankets because they just aren't looking at the solution, and you can understand why. They are in desperate circumstances because they didn't take heed when times were better."