LTC Bullet: Medicaid--LTC Safety Net or Inheritance Insurance?

Thursday, July 10, 2003


LTC Comment: Busted budgets are driving state Medicaid programs to target nursing home benefits more narrowly to the poor. Medicaid eligibility controls are a boon to LTC providers who need private payers, to LTC insurers who need buyers, to taxpayers who need relief, and to infirm seniors who command access to a wider range of better services when they pay privately. But targeting Medicaid to the needy is a bane to boomer heirs (and their lawyers) who currently reap a windfall of inheritance protection from the welfare system. More after the ***news***.

*** Would you like to have a "Long-Term Care Graduate Seminar" in your town? Contact Executive Director Amy McDougall at 425-377-9500 or to learn more. If you can provide a conference room and a few other essentials, we'll do the rest. For details on the program, please go to . We’re especially interested in taking the Grad Seminar to Boston, Atlanta, and Miami. ***

*** Spice up your next meeting with a nationally recognized speaker known for his perceptiveness and passion on long-term care issues. Center for Long-Term Care Financing President Steve Moses speaks across the country at conferences in the fields of gerontology, law, accountancy, financial planning, LTC service delivery, and insurance. He'll "appear" by speaker phone or conference call at your next Board, sales, staff or any other meeting to educate and motivate your group. All you need to do is contribute a negotiated amount (as low as $150 for a 15 minute appearance) based on the duration of the call to the Center for Long-Term Care Financing. Contact Executive Director Amy McDougall at 425-377-9500 or to schedule a time. ***

*** LATEST DONOR-ONLY ZONE CONTENT: Here's the latest Zone content followed by instructions on how to subscribe.

The LTC Data Update #3-017--How Many ALF Residents Would Qualify for LTCI Benefits?

YOU COULDN'T ASK FOR A BETTER REASON TO ZONE IN than this latest "LTC Data Update." Based on an inquiry from Cheryl DeMaio, TIAA-CREF's LTCI VP, we asked ProMatura President Margaret Wylde, a leading assisted living survey researcher, what percentage of ALF residents qualify for tax-qualified LTCI benefits based on ADLs. Author and trainer Phyllis Shelton remarked that Dr. Wylde's answer of 29.3 percent sounded too low and referred us to researcher and LifePlans President Marc Cohen who responded "The National Council on Assisted Living reported back in 1998 that 42 percent of residents had 2 plus ADLs and [researcher] Catherine Hawes, in her study for HHS, concluded that one-third of residents had moderate to severe cognitive impairment. I don't have a good sense of the overlap, but it is probably safe to assume that based on these data, more than half of ALF residents would qualify for benefits." This is exactly the kind of conversation--homing in on key facts, data, and analysis--that you will find in the Center's donor-only zone. So, Zone In now!

Don't miss our "virtual visits" to major LTC industry conferences in The Zone. You'll find our comparison of the conferences, session summaries, interviews and pictures at .

Individual donors of $150 or more and corporate donors to the Center for Long-Term Care Financing receive our daily email LTC Bullets, LTC E-Alerts, LTC Readers, and LTC Data Updates for a full year. You'll also get access to the donor-only zone where these publications are archived along with other donor-only features. If you already qualify for The Zone, you can click the following link, enter your user name and password, and go directly to the latest donor zone content and archives: . If you do not already qualify for The Zone, mail your tax-deductible contribution of $150 or more to the Center for Long-Term Care Financing, 2212 Queen Anne Avenue North, #110, Seattle, WA 98109. Then email your preferred user name and password (up to 10 characters each). You can also contribute online by credit card or direct withdrawal at . ***


Medicaid was always intended to be, and conventional wisdom still maintains mistakenly that it is, primarily a long-term care safety net for the poor. In reality, however, this means-tested public assistance program has gradually become the primary LTC payor for nearly everyone. For details, see "LTC Bullet: New LTC Expenditure Data Provide Clues to Low LTCI Sales and LTC Facilities' Financial Woes," January 14, 2003 at .

It's not hard to understand why Medicaid has become the 800-pound gorilla of long-term care. Anyone eligible medically with less income than the cost of private nursing home care qualifies for Medicaid LTC. Assets are unlimited as long as they're held in exempt form, such as a home, business, auto, "inaccessible" property, etc. For the well-to-do, techniques to transfer or shelter income and assets abound. Hence, you don't need to be poor to qualify for Medicaid nursing home benefits. All you need is a cash flow problem. Only the most affluent require a Medicaid planner to circumvent already generous eligibility rules.

The consequences of this "Medicaid trap" for America's long-term care system have been devastating. The program's cost skyrocketed, ruining state budgets. Low Medicaid reimbursements bankrupted thousands of nursing homes. Access, quality, and tort liability became huge problems. Few people buy LTC insurance because of a false sense of security that "somebody" pays for long-term care. Private-pay home and community-based care languished because government-subsidized nursing home care is a cheaper alternative for most families. The collapse of America's well-intentioned, but perversely counterproductive, long-term care system has nearly run its course.

Here's the latest on the federal and states' fiscal crises and Medicaid's problems, followed by our summary of some measures states are taking to stanch the Medicaid hemorrhage and to address LTC.

"Federal Spending: The Census Bureau released its annual report on the federal government's domestic spending entitled 'Consolidated Federal Funds Report for Fiscal Year 2002.' The report finds that federal domestic spending totaled $1.9 trillion in 2002, an increase of 8 percent from 2001. Altogether, Social Security, Medicare and Medicaid accounted for $890 billion (47 PERCENT) of the spending [emphasis added]. More information is available at . Source: ILC (International Longevity Center) Policy Report, July 2003

Note that the federal budget has swung from a triple-digit surplus to a triple-digit deficit in a single year.

"LTC Daily Analysis Briefs. Governors: Medicaid Remains in Jeopardy. WASHINGTON, DC -- 06/30/2003 -- (Eli Digital) As the fiscal year draws to a close, states continue to struggle with declining revenues and most are unable to shield Medicaid from budget cuts. Those are the findings of a new survey from the National Governors Association and the National Association of State Budget Officers. In fiscal year 2003, which ends today, 37 states were forced to reduce already enacted budgets by nearly $14.5 billion - the largest spending cut in the history of the 27-year-old survey.

The survey indicates that while cost containment measures have curbed Medicaid's growth rate, state Medicaid expenditures have exceeded the amounts originally allocated for the program. Twenty-eight states anticipate Medicaid shortfalls in the current fiscal year, and governors in 29 states have proposed boosting revenue by raising taxes and fees, including nursing home surcharges." Source: LTC Daily Analysis Briefs, June 30, 2003, prepared by for

For details on the disastrous financial condition of the states, see the latest (June 2003) "Fiscal Survey of the States" published by the National Governors Association and the National Association of State Budget Officers at .

What exactly are states doing to target Medicaid more narrowly to the genuinely needy? Here are a few examples.

o Washington State's Governor Gary Locke, a Democrat, signed into law a reduction in the Community Spouse Resource Allowance from $90,660 to $40,000. This means the healthy spouse of a Medicaid nursing home recipient will be allowed to retain $50,660 less in otherwise nonexempt assets than was previously excluded from the spend-down requirement. For details, see: "Locke Signs Stricter Medicaid-Asset Rule," by Marsha King in the June 27, 2003 Seattle Times: .

Interestingly, the left-leaning Seattle Times editorialized in favor of this reduction: "This state cannot afford to be at the top in social benefits. The reasonable place is somewhere in the middle - in this case, an asset cut-off of $40,000. That figure does not include the value of the family house, the land connected to it, the family car and certain trusts and annuities. The state does not count those things. There begins a whole other problem of well-off people hiring estate planners to make them officially poor. Lowering the asset cut-off to $40,000 will not make that problem go away, but it will narrow the eye of the needle, making the estate planning job more difficult. It will also more accurately reflect how much money this state can afford to pay." (Unsigned editorial, "Those Nursing-Home Bills," Seattle Times, June 25, 2003, ) (This editorial was based in part on an interview with Center President Stephen Moses.)

o Texas finally complied with the federal requirement that state Medicaid programs must recover the cost of nursing home care from the estates of deceased recipients. Texas attempted to implement estate recovery in the late 1980s, but repealed the program in the face of political opposition. Ever since passage of the Omnibus Budget Reconciliation Act of 1993 made estate recovery mandatory, Texas had thumbed its nose at the federal government by refusing to implement the program. But last month, the Texas legislature passed and Republican Governor Rick Perry signed a bill to require estate recovery, including recovery of the value of a home that passes through an estate, up to but not exceeding the value of Medicaid benefits paid.

The Dallas Morning News announced the new estate recovery program with a highly pejorative story denouncing the state for "seizing" homes of Medicaid recipients. Robert T. Garrett, "Law Lets State Take Homes Of Patients: New Measure Aims to Recoup Medicaid Funds after Nursing Home Residents Die, The Dallas Morning News June 12, 2003, . Under federal law, states cannot "seize" homes; they can only recover the actual cost of Medicaid benefits provided by filing a claim for reimbursement from the deceased recipient's estate. In a fascinating turn of events, a group representing legal rights of the poor supported the legislation as benefiting their needy clientele: "One group actively supported the requirement, the Texas Senior Advocacy Coalition, which represents about 50 individuals and nonprofit groups, according to Austin poverty lawyer Bruce Bower, its chairman. Mr. Bower said money recovered by the state would go to help pay for other elderly Texans in long-term care. 'It was about time for Texas to do this,' said Mr. Bower, director of advocacy and client services at the Texas Legal Services Center, which offers legal help for needy people. 'We're very pleased with the way it was done. It will direct all money derived from this to long-term care.'"

o Hawaii is conspicuous for what it didn't do in long-term care. New Republican Governor Linda Lingle vetoed the state legislature's "CarePlus" plan to impose a $10 per month tax on all workers--young and old, rich and poor--to fund a $70 per day LTC benefit. According to a report on the Governor's veto: "This bill establishes a . . . tax to finance a universal long-term-care plan. Objections: This bill does not adequately address the needs for long-term care for the people of Hawaii, is fundamentally unfair and regressive, and imposes unreasonable financial and administrative burdens on the State and private employers." Source: Hawaii Reporter, July 3, 2003, . [These "Hawaii Reporter" links were broken as we go to "press," but will probably be good again soon.]

We critiqued the CarePlus proposal in "LTC Bullet: Hawaii's CarePlus Program," June 28, 2002, . Steve Moses briefed state legislators and others in Honolulu last Fall on the plan's downsides: "LTC Bullet--Hawaii's Care Plus Program, a Status and Trip Report," November 19, 2002, . The fundamental problem with CarePlus is that it would have further anesthetized the public to the risk of long-term care by adding to the belief that somebody already pays for such care. Local analysts predict the Governor's veto will be sustained, because the bill passed with only a bare majority in the state House of Representatives whereas a veto requires a two-thirds majority in both houses of the state legislature.

o Many other states, including Connecticut, New York, Wisconsin, and Minnesota, are actively considering measures to target their scarce Medicaid resources more narrowly to the genuinely needy.

An interesting editorial published July 2, 2003 in the Minneapolis-St. Paul Star Tribune titled "Long-Term Care--Push For More Insurance Incentives," explicitly draws the connection between controlling Medicaid eligibility and encouraging private LTC insurance:

"In the session just past, the Legislature asked the federal government for permission to extend from 36 to 72 months the 'lookback' period, for discovery of personal assets that might be used to pay for nursing home care. That change, if allowed, will make it more difficult for people with means to give an early inheritance to their children and qualify for government financing of nursing home stays.

"Legislators hope the change, if allowed, will encourage Minnesotans to protect their estates through the purchase of insurance, rather than a timely transfer of assets. . . .

"More must be done in the next few years to keep the long-term care needs of middle-class Minnesotans from breaking the state budget in a decade or two. The Legislature seemed to acknowledge as much; it asked the Pawlenty administration to investigate the potential for several other insurance-purchase incentives to save tax money over the long haul. That investigation should rank high among administration priorities. . . ."

The Center for Long-Term Care Financing has offered to help states conduct such program reviews to identify ways to save Medicaid money while encouraging private financing of long-term care. See "LTC Bullet: Open Letter to Governors on Medicaid and LTC," May 15, 2003, . Please help us reach state legislators and program administrators with this offer. In the meantime, we'll keep you posted on developments related to Medicaid and LTC as they occur throughout the country.