LTC Bullet:  As LTC Climax Approaches, CBO Estimates Savings 

Monday, January 30, 2006  

Seattle-- 

LTC Comment:  With the critical Deficit Reduction Act vote coming day after tomorrow, the future of long-term care financing hangs in the balance.  More after the ***news.*** 

*** LTC COUNTDOWN:  Two more days.  The House has been out of session since before Christmas, but returns tomorrow.  Members convene with the Senate that evening to hear the President's State of the Union address.  Then, on Wednesday, February 1, 2006, the House of Representatives votes on the Deficit Reduction Act.  That vote will decide whether the center of gravity in LTC financing remains with a bankrupt welfare program or starts to shift toward private financing alternatives like insurance and home equity conversion.  Passage of the Act means Medicaid can be improved as a LTC safety net for the poor.  Defeat means Medicaid will remain a golden goose for Medicaid planners, affluent AARP members, big charities and their ilk.  Stay tuned for the exciting climax of this political nail-biter. *** 

*** WHAT'S AT STAKE?  The DRA only takes a baby step toward controlling one of the entitlement triumvirate programs that threaten America's future.  But it's a start.  Here's a clip from today's Wall Street Journal:   

"Mandatory Spending:  Social Security, Medicare and Medicaid will consume $1.1 trillion in fiscal 2006, or 43% of all federal spending.  As baby boomers start to become eligible for Social Security and Medicare in 2008, spending on those programs will grow faster.  By 2016, those programs will account for more than half of all federal spending, or 11% of the entire U.S. economy.  And if current trends continue, under the CBO's midrange forecast, that figure will grow to nearly 20% of the economy by 2050.  Today, the entire federal budget accounts for 20% of GDP." 

Source:  "Hot Topic:   Can President Bush Rein In the Red Ink?," Wall Street Journal,  January 28, 2006; Page A7, online subscription required, http://online.wsj.com/article/SB113841537333558995.html?mod=politics_secondary_stories_hs. *** 

*** WILL THE DRA HURT CHARITABLE GIVING?  Answer:  no.  As we've explained in earlier LTC Bullets, the proposed new Medicaid rules on asset transfers will not interfere with legitimate charitable giving.  But if you are still concerned, check out this article by Congressman Jo Bonner:  "Bill Shouldn't Curtail Seniors' Giving," http://www.brewtonstandard.com/articles/2006/01/30/opinion/opin04.txt.  Note this quote from Chairman Nathan Deal of the House Energy and Commerce Health Sub-Committee:   

"The conference agreement does not change the way in which charitable gifts are evaluated under Medicaid's asset transfer requirements.  Transfers for a demonstrated exclusive purpose other than to qualify for Medicaid will continue to be permitted.  Such transfers should not be penalized. . . .  It is unfortunate that those who oppose the reforms contained in the Deficit Reduction Act are forced to mischaracterize what the bill will do.  By lengthening the look-back period and changing how penalty periods would be tolled, the bill will make it much more difficult for elder law attorneys to assist their clients to shift or hide assets in order to qualify for Medicaid to pay for nursing home care.  These reforms will help preserve Medicaid and make sure that it continues to be able to provide nursing home care for your district's poorest senior citizens." *** 

LTC BULLET:  AS LTC CLIMAX APPROACHES, CBO ESTIMATES SAVINGS 

LTC Comment:  Last week the Congressional Budget Office published estimates of the source and amount of potential savings from the Deficit Reduction Act.  Following below are the sections of that report germane to Medicaid and long-term care financing. 

As you read this material, keep in mind that CBO is looking at this legislation with a microscope, not a telescope.  They see the minutiae of technical statutory changes, not the bigger policy picture. 

So, remember that what matters most in this legislation is not the fundamentally arbitrary dollar savings CBO attaches to specific provisions, but the bigger message being sent to the American public about long-term care. 

To wit:  Don't think you can ignore the risk and cost of long-term care and pass the liability on to taxpayers, LTC providers and the poor.  Plan to save, invest and insure for long-term care or expect to pay your own way before accessing the dole. 

In the long run, the actual savings from this legislation will have much less to do with the specific changes in Medicaid eligibility rules as computed by CBO and much more to do with the American public's awakening to the importance of LTC planning. 

Key point to remember:  Worries that these new rules will cause people who've transferred assets to be denied care or dumped on nursing homes without a means to pay are specious.  These changes eliminate the incentive to transfer assets to qualify for Medicaid.   

The balance of power in LTC planning will shift from elder lawyers recommending divestment to responsible financial planners recommending insurance and home equity conversion.   

In the end, more people will be able to pay privately for long-term care, LTC providers will be less dependent on meager Medicaid reimbursements, and Medicaid will be able to pay more adequately for a fuller range of LTC services for people truly in need.   

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The following is from:  "Congressional Budget Office Cost Estimate," January 27, 2006

S. 1932:  Deficit Reduction Act of 2005, Conference agreement, as amended and passed by the Senate on December 21, 2005, http://www.cbo.gov/ftpdocs/70xx/doc7028/s1932conf.pdf 

Chapter 2:  Asset Transfers.  The provisions of this chapter would reduce Medicaid spending by an estimated $2.4 billion over the 2006-2010 period and by $6.3 billion over the 2006-2015 period, primarily by increasing penalties on individuals who transfer assets for less than fair market value in order to qualify for nursing home care and by making individuals with substantial home equity ineligible for nursing home benefits. 

Revisions to Penalty Period.  Medicaid currently imposes a period of ineligibility for nursing home benefits on individuals who transfer assets for less than fair market value.  The penalty period is based on the value of any assets transferred during the three years prior to application-known as the look-back period-and starts on the date the assets were transferred.  Those rules have relatively little effect because any penalty period usually has expired by the time an individual applies for Medicaid. 

Under this act, the penalty period would start when an individual becomes eligible for Medicaid and the look-back period would be extended from three years to five years.  The act also would codify certain protections against undue hardship for individuals who transfer assets.  Those changes would apply only to asset transfers that occur after enactment, so the effect of the longer look-back period would not be felt until January 1, 2009. 

CBO expects that the provision would deter some individuals from transferring assets and thus delay or prevent them from receiving nursing home benefits; others would pay a penalty in the form of delayed eligibility for nursing home benefits.  Those provisions would reduce Medicaid spending by $1.5 billion over five years and $4.0 billion over 10 years, CBO estimates. 

Treatment of Home Equity.  Under current law, the value of an individual's home is not included when determining eligibility for Medicaid.  The act would make individuals with more than $500,000 in home equity ineligible for nursing home benefits; states would be able to raise that limit to $750,000.  That figure would be adjusted annually for inflation starting in 2011.  The prohibition would not apply if an individual's spouse, minor child, or disabled child (regardless of age) lives in the house and would allow exemptions in the case of hardship.  This provision would apply to individuals who apply for Medicaid after January 1, 2006.  CBO estimates that this change would reduce Medicaid spending by $298 million over the 2006-2010 period and by $878 million over the 2006-2015 period. 

Other Savings.  The act also would: 

Require Medicaid applicants with annuities to name the state as remainder beneficiary to the extent of Medicaid's expenditures for that individual, 

Change the rules under which income and assets are allocated from beneficiaries to their spouses who are living in the community, 

Clarify that deposits paid to continuing care retirement communities are counted when determining Medicaid eligibility and are available to pay for the costs of care, 

Make other revisions to asset-transfer rules that would further tighten the penalty period and restrict the use of certain financial instruments, and Repeal a moratorium on the number of states that may operate Long-Term Care 

Partnership Programs, which allow individuals who purchase certain kinds of long-term care insurance to protect more of their assets if they later need nursing home care under Medicaid. 

CBO estimates that those provisions would reduce Medicaid spending by $598 million over five years and $1.5 billion over 10 years.