LTC Bullet: Huge New Funding Source for LTC and LTCI

Wednesday, November 5, 2003

Santa Fe, NM--

LTC Comment: Public officials are finally awakening to the almost $2 trillion (that's trillion, with a "T") long-term care funding source currently locked up in seniors' home equity. More after the ***news.***

*** Last Bullet, we took a pot-shot at Germany's compulsory LTC insurance program: "LTC Bullet: Don't Look to Germany for a Long-Term Care Model," . We've heard from some top-notch academics offering a different point of view. Joshua Wiener of the Research Triangle Institute and probably the leading scholar in the country on long-term care systems, pointed out that we were wrong when we said no one has been "touting Germany's government-mandated long-term care financing system as a model for America" lately. You can find an excellent recent paper by Dr. Wiener, et al., titled "Consumer-Directed Home Care in the Netherlands, England, and Germany," which presents the German system in a very positive light, at . Professor John Campbell of the University of Michigan took issue with our conclusion that Germany's LTCI system is on a slippery slope toward insolvency. He brought to our attention his work comparing the LTCI systems in Germany and Japan. Dr.Hans-Joachim von Kondratowitz of the Deutsches Zentrum für Altersfragen sent a very gracious note offering the clarification that the German LTCI system is "NOT tax-funded as you claim but it is contribution-based as well as it is clearly compulsory." We do hope to be able to revisit international themes in the future, time permitting. In the meantime, sincere thanks to the scholars who took the time to review our latest musings and to comment. ***

*** We have an easy new way to subscribe to LTC Bullets. Encourage your colleagues to fill out the simple online subscription form at . Subscriptions are free to everyone for the first three months. ***

*** The Certified Senior Advisor organization has offered to make a contribution to the Center for Long-Term Care Financing for every new enrollee to their program who mentions the Center and cites the "source code" number 8196. Although the Center does not endorse any companies or professional designations, we've heard a lot of good things about CSA and we've met many capable professionals who have attended their training and received that designation. For information on the CSA course and certification, go to . If you enroll in the CSA program, please mention the Center for Long-Term Care Financing in your application and reference source code 8196. Drop us an email to and let us know you've enrolled. Then send us your evaluation of the program when you've completed it. CSA classes are coming up November 19-22 in Newark, NJ; December 3-6 in Orlando, FL; January 14-17 in Charlotte, NC; and January 28-31 in Phoenix, AZ. ***

*** LATEST DONOR-ONLY ZONE CONTENT: Here's the latest Zone content followed by instructions on how to subscribe so you can receive these critical epistles daily by email.

LTC E-Alert #3-058--How LTCI Reduces Elder Abuse (Most elder abuse stems from caregiver burnout which is mitigated by LTCI's respite care benefit.)

The LTC Data Update #3-026--Will Boomer Inheritances Reduce Need for LTCI? (The old gray windfall just ain't what it used to be. You need to know the facts.)

LTC E-Alert #3-059--Take This Producer Survey and you Can Receive the Results (All LTCI producers should answer this questionnaire and heed the findings.)

The LTC Reader #3-046--After Medicare, Medicaid Reform in 2004 (Congress will tackle Medicaid right after fixing Medicare. Yeah, right! Still, there's hope.)

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 . ***


LTC Comment: According to reports detailed below, the Centers for Medicare and Medicaid Services (CMS) will "start a new program to promote reverse mortgages" and has "awarded a grant entitled 'A Public-Private Partnership to Promote Reverse Mortgages for Long-Term Care'" worth $295,000 to the National Council on the Aging.

Why is this important? Home equity conversion can provide a godsend of supplemental income for seniors whose interest on savings has plummeted recently. Among other things, this extra income could help older Americans pay privately for home and community-based long-term care services, delay or prevent nursing home institutionalization, and defer or avoid Medicaid dependency. The extra income could also help many more seniors afford the premiums for private LTC insurance to protect the remainder of their estates from the catastrophic cost of long-term care.

We estimate the total home equity of people over age 65 in the United States to be at least $1.75 trillion. The germane tables from the Census Bureau's "American Housing Survey for the United States, 2001" are:
Also relevant is "Asset Ownership of Households: 2000, Table 5. Average (Mean) Value of Assets for Households, by Type of Asset Owned and Selected Characteristics: 2000 at .

Here's how we derived the $1.75 trillion estimate.

Over 80 percent of seniors own their homes rather than rent . Of the 17,513,000 owner-occupied elderly households in the U.S., 73 percent or 12,792,000 are owned free and clear, i.e. no mortgage. Mean home value of householders age 65 or older is $113,071. Multiplying 12.8 million free and clear homes of the elderly times the mean value of $113,071 gives $1.45 trillion. That is only part of the story, however.

There are 3,838,000 elderly home owners with one or more mortgages, the median outstanding principal amounts of which are $34,147. Assuming the value of the mortgaged homes is the same as the homes with no mortgage and that the median principal amount approximates the mean, then the average equity in these mortgaged properties would be $113,071 minus the remaining loan balance of $34,147 or $78,924. Multiplying the equity in mortgaged homes owned by the elderly by the total such homes (3.8 million) gives an additional $302.9 billion in home equity held by elderly households.

Adding the $1.45 trillion in unmortgaged home equity of seniors to the $.30 trillion of equity in mortgaged homes gives a total of $1.75 trillion.

This wealth currently goes largely untapped for long-term care because Medicaid exempts the home and all contiguous property regardless of value as long as the Medicaid recipient (or his or her representative) expresses a subjective intent to return to the home. Although home equity is theoretically vulnerable to estate recovery, few states have effective estate recovery programs and most states do not recover at all from estates of surviving spouses. Thus, in most cases, home equity of the elderly passes to the next generation either as a transfer of assets before qualifying for Medicaid or as an unrecovered exempt asset after Medicaid pays for long-term care. There is no empirical evidence of widespread spend down of home equity for long-term care and, in fact, all the evidence available suggests otherwise. See "So What if the Government Pays for Most Long-Term Care" at .

The fact that Medicaid's long-term care program acts as "inheritance insurance" for the baby-boom generation instead of as a safety net for the poor, has severe consequences for America's ability to provide long-term care to the needy. It reduces the public's sense of responsibility to plan for long-term care. It inhibits demand for private-pay home and community based services. It chills the market for private long-term care insurance and home equity conversion products. And it overloads the fiscally struggling Medicaid program with middle- and upper-middle-class people the program was never intended to serve. The big losers are the poor whom Medicaid WAS intended to serve.

The days when Medicaid could be expected to serve everyone as an alternative to private insurance and home equity spend down are over. America is staring the collapse of its dysfunctional long-term care service delivery and financing system squarely in the face today. The problem is easy to solve. End asset transfers by extending the look-back period and starting the eligibility penalty at date of Medicaid application (as three states have already proposed.) Then simply require spend down of home equity by means of reverse mortgages (which allow families to remain in their homes indefinitely without fear of the loan being called) before granting Medicaid eligibility.

Either do that or watch the crumbling welfare-financed LTC system fail at the expense of America's poor. In the end, the result is going to be the same: baby-boomers will either purchase LTC insurance or they will use the equity in their homes to purchase care. By the time the boomers need LTC, there will be no other options to obtain quality care at the appropriate level. The only question that remains for public policy makers to answer is whether we save the safety net for the poor or let it continue to disintegrate.


"CMS will start new program to push reverse mortgages

"Centers for Medicare and Medicaid Services administrator Thomas Scully said Thursday at a Washington conference that CMS will start a new program in the next few weeks to push an innovative way for seniors to pay for nursing home care: reverse mortgages.

"A reverse mortgage is a home equity loan that gives homeowners leeway to turn part of the equity into cash while still owning the home.

"Scully said state Medicaid programs, which pay for 68% of U.S. nursing home care, were originally meant to provide healthcare for the poor, not long-term care for middle-class seniors.

"'This would be a huge step that would give seniors good access to long-term care,' Scully said. 'The infrastructure is there. These programs exist at (the U.S. Department of Housing and Urban Development). But nobody's really looked at this as a way of paying for long-term care.'

For more information, visit (October 20, 2003)

Source: Daily Update, October 20, 2003


Our thanks go to LTC Bullets subscriber and Center supporter Bob Callanan for pointing our attention to the following item:


Centers for Medicare & Medicaid Services

Notice of Grant Award to Promote Reverse Mortgages for Long-Term Care

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Notice of grant award.

SUMMARY: The Centers for Medicare & Medicaid Services has awarded a grant entitled ''A Public-Private Partnership to Promote Reverse Mortgages for Long-Term Care'' to the National Council on the Aging (NCOA), 300 D Street SW., Suite 801, Washington, DC 20024, in response to an unsolicited application. The NCOA proposes to work with leaders from the private sector and government to develop a national blueprint for increasing the use of reverse mortgages for long-term care. The total amount of the award is $295,000 for the period September 30, 2003 through May 30, 2004. The encouragement of reverse mortgages as a means of private sector financing of long-term care expenses for the elderly is a priority issue for DHHS, CMS. Funding of this unsolicited proposal will result in a desirable public benefit based on NCOA's extensive specialized expertise in evaluating long-term care services and financing. The NCOA has a professional staff that is dedicated to understanding the myriad of state and Federal regulations that affect long-term care. NCOA also has many years of experience in defining and developing long-term care issues.

FOR FURTHER INFORMATION CONTACT: Tom Kornfield, Project Officer, Department of Health and Human Services, Centers for Medicare & Medicaid Services, DHSR/ ORDI, C3-20-17, 7500 Security Boulevard, Baltimore, Maryland, 21244, (410) 786-8263, or Judith Norris, Grants Officer, Department of Health and Human Services, OICS/AGG/CMS, C2- 21-15, 7500 Security Boulevard, Baltimore, Maryland, 21244, (410) 786- 5130.

Authority: (Catalog of Federal Domestic Assistance Program No. 93.779, Center for Medicare & Medicaid Services, Research, Demonstrations and Evaluations) Section 110 of the Social Security Act.

Dated: October 2, 2003.

Thomas A. Scully,

Administrator, Centers for Medicare & Medicaid Services.

[FR Doc. 03-26458 Filed 10-23-03; 8:45 am]