Bullet: LTC Disconnect
Wednesday, June 8, 2005
LTC Comment: Medicaid
and LTC insurance are integrally related. The
more of the one, the less of the other, and vice versa.
But most analysts, policy makers and legislators don't understand the
connection. The governors' latest
position paper is a good example.
LTC BULLET: LTC
LTC Comment: The
National Governors Association's (NGA's) policy position on reforming Medicaid
is finally available for public view. Check
it out at http://www.nga.org/nga/legislativeUpdate/policyPositionDetailPrint/1,1390,8460,00.html
While the governors want to move Medicaid in some good
directions, they don't put the puzzle pieces together quite right.
Here are the sections in NGA's proposal that bear most directly on
long-term care financing followed by our comments:
"16.2.2 Asset Policy.
While Medicaid remains a vital source of long-term care coverage for many
individuals who cannot receive that care elsewhere, there is growing concern
that many individuals are utilizing Medicaid estate planners or other means in
order to shelter or transfer assets and therefore qualify for Medicaid funded
long-term care services. Medicaid
reform must include changes that increase the penalties for inappropriate
transfers, restrict the types of assets that can be transferred, and encourage
reverse mortgages, as well as other policies that encourage individuals and
their families to self-finance care rather than rely on Medicaid."
LTC Comment: Hear,
hear. Right on!
We couldn't agree more and we've written at length about precisely how to
achieve the worthy goal of targeting Medicaid LTC benefits to the genuinely
needy. (See "The Realist's
Guide to Medicaid and Long-Term Care" at http://www.centerltc.com/realistsguide.pdf
and "How to Save Medicaid $20 Billion Per Year AND Improve the Program in
the Process" at http://www.centerltc.com/pubs/howtosavemedicaid.pdf
.) But "asset transfers,"
per se, are only the tip of the iceberg. Unless
and until Medicaid controls Medicaid estate planning in general and curtails the
eligibility hemorrhage that currently allows billions of dollars of wealth to be
sheltered from Medicaid eligibility rules, only a tiny percentage of the
potential savings will be achieved. For example, as long as Medicaid exempts unlimited home
equity including the value of all contiguous property, few people will tap their
home equity to pay for long-term care through reverse mortgages.
They'll continue to rely on Medicaid while transferring or sheltering
their home equity from the cost of LTC. Medicaid
will remain, as it has become, "inheritance insurance" for the
baby-boom generation instead of a long-term care safety net for the poor.
That is LTC Disconnect #1.
"16.5.1 Tax Credits and Deductions for Long-Term Care
Insurance. Tax credits and
deductions for qualified long-term care insurance policies and the encouragement
of public-private partnerships are likely to save money in the Medicaid program
in the long-run, if not in the short-term."
LTC Comment: True,
and we concur, but bills to grant above-the line tax deductibility for long-term
care insurance have been introduced, yet failed to pass for six years running.
The latest version of this important legislation has just been introduced
yet again in the House of Representatives by Nancy Johnson (R, CT) and Earl
Pomeroy (D, ND). Unfortunately, it
is not likely to have any more success than its predecessors.
The problem is the "score," i.e. the estimated cost of the tax
deduction, as determined by the Congressional Budget Office. This is LTC Disconnect #2:
The NGA fails to make the connection between Medicaid savings that will
accrue by ending Medicaid planning abuses and the funding needed to pay for the
cost of a long-term care insurance tax deduction (or credit).
That is a double-whammy for long-term care reform just waiting to happen.
In other words, fund LTCi tax deductibility with extra savings from
curtailing Medicaid planning abuses and you will reduce Medicaid dependency
short-term and long-term while increasing the number of Americans able to pay
privately for long-term care through insurance.
That is good for everyone involved, including providers who currently
struggle to provide quality care with inadequate funding from Medicaid.
"16.5.2 Long-Term Care Partnerships. These partnerships, currently operated by four states, create incentives to purchase long-term care insurance by allowing consumers to access Medicaid and preserve their assets once the insurance policy has been depleted. The federal law restricting these partnerships to those four states should be repealed."
LTC Comment: The LTC Partnerships face the same problem as tax deductibility: their CBO score. Some members of Congress think the Partnerships will increase instead of decrease Medicaid costs and divert Medicaid resources more than ever to middle-class people who might have purchased LTCi anyway even without the partnership incentives. In our opinion, this argument is moot. If Medicaid had a genuine spend-down requirement, people would buy LTCi even without partnership incentives. Without a genuine spend-down requirement, few people will buy LTCi even with partnership incentives. The partnerships are attractive politically. We favor expanding them. But the real problem and the true solution both depend on the need to re-target Medicaid LTC benefits to the genuinely needy. That change is the prerequisite so that all consumers will have a stronger reason to plan early and save, invest or insure so they can pay privately for their care and avoid Medicaid spend down and dependency.
"16.5.3 Improving Access to Home- and Community-Based Care. In addition to strengthening the alternatives to Medicaid-financed long-term care, reforms should also produce better health outcomes for beneficiaries who remain within Medicaid and should result in greater efficiencies for both the federal government and states. These reforms should mirror those contained in current NGA policy, HHS-28, Long-Term Care."
LTC Comment: Everyone would like to see Medicaid fund more home and community-based care. But the idea that de-institutionalizing Medicaid recipients will save money in the absence of more effective eligibility controls is dead wrong. This is LTC Disconnect #3. The more home and community-based care Medicaid programs offer, the more attractive they become, the more people seek to take advantage of them (woodwork factor), the more Medicaid estate planning occurs, and the less reason people have to purchase private LTC insurance. If, on the other hand, Medicaid benefits are targeted only to those most in need, and if major assets like home equity are put to use to fund LTC privately, then Medicaid will need to serve fewer people and will be able to pay adequately for quality long-term care at every level.
Here's the good news: All the pieces in the long-term care financing puzzle are finally on the table. We only have to put them together in the right way. That is precisely the mission which the Center for Long-Term Care Reform has set for itself. We'll be in Washington, DC fighting for rational long-term care financing policy half time until budget reconciliation in the Fall. Stay tuned to these LTC Bullets for major developments. Join the Center and subscribe to our daily LTC E-Alerts to get all the news as it happens from an insider's point of view.
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