LTC Bullet: As LTC Climax Approaches, CBO Estimates Savings
January 30, 2006
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:
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."
"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:
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
BULLET: AS LTC CLIMAX APPROACHES,
CBO ESTIMATES SAVINGS
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.
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.
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.
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.
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
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.
balance of power in LTC planning will shift from elder lawyers recommending
divestment to responsible financial planners recommending insurance and home
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.
following is from: "Congressional
Budget Office Cost Estimate," January 27, 2006
1932: Deficit Reduction Act of
2005, Conference agreement, as amended and passed by the Senate on December 21,
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
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.
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.
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.
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.
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
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
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
estimates that those provisions would reduce Medicaid spending by $598 million
over five years and $1.5 billion over 10 years.