LTC Bullet:  State Tackles the Real LTC Challenge 

Wednesday, January 18, 2006 


LTC Comment:  Most states see long-term care as a welfare problem and fail.  A new study in New Mexico sees LTC as an entitlement problem and recommends solutions that can succeed.  More after the ***news.*** 

*** 14 DAYS AND COUNTING until the House of Representatives votes on the Senate's version of the deficit reduction bill.  Passage means less Medicaid planning abuse and more private financing of long-term care.  Defeat means more of the same:  busted budgets and poor financing of LTC.  Defenders of the corrupt status quo are mobilizing to kill this critical legislation.  We invite readers of these LTC Bullets and the Center's LTC Blog at to bring to our attention any media ads or stories that oppose passage.  We'll respond with logic and evidence.  Don't let them kill the single most important change in long-term care public policy to come along in more than a decade. *** 

*** WSJ COLUMN LTCi ADVICE.  In his Wall Street Journal "Getting Going" column this morning titled "Five Strategies for Helping Your Parents -- And Getting More From Their Estate," Jonathan Clements recommends "To help their parents and protect their inheritance, the [adult] children could pay part of the [long-term care] insurance premiums."  That's a great alternative to ignoring LTC until it's too late, hiring a Medicaid planner, expropriating the parents' wealth, and placing them in a welfare-financed nursing home.   

To help make ends meet in retirement, Clements also recommends a traditional home equity loan instead of a reverse mortgage with its higher closing costs.  That's dubious advice at best because he proposes using the proceeds of the home equity loan to pay its required monthly payments.  How long would that take to equal and exceed the higher up-front costs of a reverse mortgage for which no monthly payments are required? *** 

*** WHAT GOES AROUND COMES AROUND.  In a Wall Street Journal story January 12 titled "States, Flush in Election Year, Loosen Up, Governors Propose Tax Cuts, Infrastructure Projects, More School Aid, Heating-Cost Relief," Deborah Solomon writes "Facing fat budget deficits, the Bush administration is preparing a tight 2007 budget that squeezes most domestic programs.  Flush with cash, state governors across the country are doing the opposite. . . .  [F]iscal experts caution that states still face expenses in the next few years that will be a challenge, no matter how good the books look now.  Among them is Medicaid, which continues to outpace the rate of state revenue growth, according to the Kaiser Family Foundation."  

Here we go again!  Hard times require responsible Medicaid reforms which are cast overboard as soon as tax receipts go up and welfare rolls go down.  It happened just that way after the recession of the early 1990s led to Medicaid loophole closings and mandatory estate recovery in OBRA '93.   When the economy improved, states and feds failed to enforce the reforms aggressively and a few years later, they were right back in the same fiscal mess.  Each time this cycle occurs we come closer to the time when aging demographics will finally prevent the accustomed upturn after an economic trough.  Sooner or later, Social Security, Medicare and Medicaid will overwhelm the economy's ability to pay for them.  That day of reckoning is now no more that a decade or two away.  And because markets look forward, anticipating future problems, it could even come much sooner. *** 

***  JOIN the Center for Long-Term Care Reform.  SUBSCRIBE to our publications.  It's simple.  Just go to , subscribe online, or mail in your check.  Let Damon know you're joining so he can get you all the Center's benefits immediately.  Call him at 206-283-7036 or email  Help us help you "ensure access to quality long-term care for all Americans."  That is the Center's mission. *** 



LTC Comment:  According to the deeply entrenched "welfare paradigm" of long-term care analysis, people are living longer, dying slower at great expense, spending down their life savings quickly for LTC and ending up on Medicaid (public welfare) at a cost unsupportable by taxpayers.   

But if that is true, why are most Americans in denial about the risk and cost of LTC?  Why do they routinely go to nursing homes for care instead of using the home and community-based services (HCBS) they prefer?  Why don't they tap the illiquid equity in their homes for LTC?  Why don't they buy private LTC insurance against the risk?  Clearly, the conventional "welfare paradigm" regarding LTC makes no sense.   

Consider this "entitlement paradigm" analysis instead.  For the past 40 years, Americans have been able to ignore the risk of LTC, avoid the premiums for private insurance, wait to see if they ever need LTC, and if and when they do, somebody else pays.   

If that's true, then it makes perfect sense that most people are in denial about LTC risk and cost, that they use Medicaid-financed nursing homes disproportionately instead of paying privately for HCBS, that they fail to utilize the equity in their home which Medicaid exempts in unlimited amounts and that they don't buy LTCi.  It's not that they plan to rely on Medicaid.  Rather, they just don't think about LTC because government has paid for most LTC for 40 years. 

As the Center for Long-Term Care Reform has explained in many reports available at, the welfare paradigm is demonstrably false and the entitlement paradigm is provably true.  We won't take time here to adduce that evidence, but do check it out. 

So what?  People who think long-term care is primarily a welfare problem tend to recommend even more government spending.  But if government interference in the LTC marketplace has caused the problem, then adding more public funding is like dousing a fire with gasoline.  It makes the problem worse, not better. 

People who think long-term care is primarily an entitlement problem tend to recommend public policies that target scarce government resources to the genuinely needy and encourage everyone who is able to save, invest and insure for long-term care risk.  Instead of relying on already overwhelmed public programs, they seek to attract a whole new source of private financing for long-term care. 

We're happy to report that the tide of public policy is finally turning away from the old-line "welfare paradigmers" who have caused the problem to more progressive "entitlement paradigmers" who have the solution. 

One case in point is the deficit reduction bill lying just short of the goal line in Congress.  If it becomes law, abuse of Medicaid for LTC will decline and private financing alternatives like home equity conversion and private LTC insurance will flourish.  We'll have much more on that issue as time goes on. 

In the meantime, a group of long-term care stakeholders in New Mexico has published a report rooted deeply in the "entitlement paradigm."  They propose recommendations that could truly help save Medicaid in that economically challenged state and improve LTC for the poor, rich and everyone in between. 

Headed by Gerontologist Ronald Lucchino, Ph.D., the ad hoc team that participated in this study and/or contributed to the report included representatives of state government, the LTC provider and insurance industries, a reverse mortgage lender, and senior advocates.   

Following is the executive summary (with footnotes omitted) of "Alternatives to Medicaid Financing for Long-Term Care," published in December 2005.  For a limited time, you can access the full report on the Center for Long-Term Care Reform's website at



Medicaid was established in 1965 with the aim of providing medical health care for the poor and to assist those with few resources and incomes too low to cover needed health services.  Today, Medicaid expenditures exceed the cost of Medicare and will continue to explode.  If Medicaid entitlement programs are under-funded today, in the future, the demand for long-term care, driven by longer life expectancy and the oncoming wave of Baby Boomers, will exhaust the program.  Today 13% of the population is age 60 and over, by 2030 it will increase to 20%.  By 2030, New Mexico will rank fourth in percentage over age 60 (Albuquerque Journal, April 22, 2005). Steps need to be taken to insure that Medicaid provides support to those the program was intended to serve.  There are three approaches to insure adequate funding of Medicaid: 

Provide full funding of Medicaid (state and federal)  

Make Medicaid a pre-funded program such as Social Security and Medicare, and, 

Encourage the utilization of resources to fund long-term care before relying on Medicaid. 

This report will focus on the utilization of resources to fund long-term care cost. 

Presently approximately 75% of Medicaid recipients are poor adults (mostly women) and children.  But this group accounts for only about one-third of Medicaid's costs.  The remaining 25% of Medicaid recipients are aged, blind or disabled, and they account for two-thirds of the program's costs.  The main cost driver for this latter group is long-term care for the elderly (age 65 and over).  One reason contributing to this high cost is that Medicaid, in part, has become long-term care insurance for the middle social economic class. 

Medicaid was never intended to be "long-term care insurance for the middle class" as it has become.  As long as it remains "inheritance insurance" for the baby boom generation, Medicaid will continue to fail in its first responsibility--to provide a long-term care safety net for the disadvantaged. This will be exacerbated as the Baby Boomers begin to age beyond 65.   

CMS (Centers for Medicare and Medicaid Services) noted that the Medicaid program will only be sustainable if its resources are not drained to provide health care assistance to those with substantial ability to contribute to the costs of their own care. 

A shift in the Medicaid funding paradigm is needed to encourage individuals who have the financial resources to take personal responsibility for their long-term care.  The NGA [National Governors Association] recommendations to promote such a shift are: 

Strengthen asset transfer rules; 

Use incentives and education to increase public awareness to use "alterative financing" to offset long-term Medicaid costs; 

Increase cost sharing for beneficiaries with annual incomes above the federal poverty level; 

Streamline the Medicaid waiver application process for states; 

Allow states to offer different benefit packages depending upon beneficiaries' health; and 

Pro-actively position states to immediately implement the federal Long-term Care Insurance Partnership programs once the federal government removes the restriction prohibiting the states from implementing the program. 

This paradigm shift recommended for New Mexico is not directed at our current older adult population, but intended for those age 60 and younger.  The well-publicized aging of the Baby Boomer generation threatens to place considerable stress on our state's long-term care system, specifically, the publicly financed Medicaid program.  The state must fortify itself on impending need for long-term care services by ensuring that citizens who have the means to finance a portion or all of their long-term care services also possess the tools to do so.  It will take time and education to bring about this change. 

Nationally and locally, it has become recognized that changes must occur in the current Medicaid funding paradigm to:   

a)  keep Medicaid solvent and reduce the cost burden to states; and,  

b)  insure adequate funds are available to assist those with few resources and limited incomes by either pre-funding Medicaid, fully funding Medicaid, utilization of ones resources prior to accessing Medicaid, or posthumous financing through estate recovery.  

Pre-funding and fully funding Medicaid are the purview of the federal government and are not being considered.  Therefore changes in the funding paradigm must focus on how to: 

A.  Re-direct personal assets in estate planning to support long-term care, and  

B.  Enhance estate asset recovery programs as a disincentive to asset transfer. 

Our state should consider embarking on a new mission that is proactive by encouraging those who are soon-to-age or at risk for disability to focus on preparations for their needs.  This preparation includes the state's critical involvement in identifying, characterizing, and educating the citizenry about the various private financing models available in the marketplace.  Perhaps, most importantly, the individual autonomy promoted by private financing mechanisms is the ultimate expression of self-direction.