LTC Bullet:  NYT Editorial Favors HEC for LTC 

Monday, April 24, 2006 


LTC Comment:  The New York Times urged the use of reverse mortgages for LTC financing in an editorial Saturday, but misjudged what's holding back that market and what to do about it.  Details after the ***news.*** [omitted]


LTC Comment:  Readers of these LTC Bullets have heard us say for years that home equity will be the salvation long-term care financing.  Nearly monopsonistic funding of LTC by government (Medicaid and Medicare) for 40 years has anesthetized the public to the risk and cost of long-term care, stunted the markets for private LTC insurance and reverse mortgages, impeded the development of home and community-based alternatives, and damaged access to and quality of all levels of long-term care.  Today, there is nowhere else to turn but to home equity for the money to pay for quality long-term care at the most appropriate level. 

When that conclusion receives the blessing of America's "newspaper of record," it's big news indeed.  That's why we bring your attention to the lead editorial in last Saturday's (April 22, 2006) New York Times titled "Aging in Place."  Here are some excerpts followed by our comments. 

"The financial challenge of retirement is to make one's money last while paying health care costs that inevitably increase with age.  It is becoming clear that to meet that challenge, many older Americans will need to cash in their home equity.  In a report last year, the National Council on Aging, a research and advocacy organization, made a compelling case for expanding the use of specialized loans known as reverse mortgages to help older people pay for the care they need to remain safely at home, even as they become frailer.   

[Find a link to the NCOA's excellent report titled "Use Your Home to Stay at Home" and our analysis of it in "LTC Bullet:  Use Your Home to Stay . . . Off Medicaid!," February 8, 2005:]  

"The idea is to free up money to improve the quality of daily life, while delaying or averting the need for a nursing home.  And since that should also be the nation's overall goal when it comes to the well-being of the elderly, reverse mortgages have to be regarded as a kind of social policy. . . . 

"Yet despite an upsurge in reverse mortgages since 2000 - to about 180,000 altogether - the loans have never really caught on. . . . 

"And planning for long-term care is something most Americans don't do because, as surveys show, they don't believe they'll ever need it.  . . . 

"Perhaps the biggest reason reverse mortgages aren't used more widely is the lack of a high-profile, concerted partnership among government, private and nonprofit sectors to promote them for what experts call 'aging in place.'  [B]oth the states and the federal government need to enact comprehensive incentives - and consumer protections - to encourage people to use reverse mortgages to pay for services that will allow them to grow old at home. 

"At their most basic, the inducements would involve waiving the upfront costs for people who use the loans to pay for health care.  Perhaps the most powerful incentive would be to allow people who use reverse mortgages for home-based care to shield some assets from the Medicaid estate recovery process, which states use to recoup some of the money spent on Medicaid patients after the patients die.  

"Reverse mortgages are bound to become a social norm as the broad middle class of aging Americans begins to face a financial squeeze.  The sooner there is debate, planning and action to link reverse mortgages to aging in place, the better the chances for an outcome that benefits the nation's elderly, and the nation at large." 

LTC Comment:  First, kudos to the New York Times for getting the big picture right.  Using home equity for long-term care will make it possible for seniors to age in place in their own homes where they would rather remain for as long as possible.   

But if that's such a great idea, and it is, then why hasn't it happened already?  The Times concludes that reverse mortgages have languished because of the "lack of a high-profile, concerted partnership among government, private and nonprofit sectors to promote them." 

That is a stretch.  The truth is much simpler.  Reverse mortgages have not become a major funding source for long-term care because Medicaid has protected home equity from long-term care costs for four decades.   

Until enactment of the Deficit Reduction Act on February 8, 2006, Medicaid exempted a home and all contiguous property of unlimited value.  Since the DRA, Medicaid still exempts home equity up to $500,000 ($750,000 if a state so chooses.)  Very few Americans have too much home equity to be ineligible for Medicaid LTC benefits. 

Clearly, we don't need a consortium of government, private and nonprofit entities to encourage reverse mortgages.  All we need is for the government to stop giving away what the private sector is trying to sell. 

If Congress had taken the advice of the National Governors Association and lowered the Medicaid home equity exemption to $50,000, as it will have to do sooner or later anyway, several beneficial things would have happened. 

If their home equity were truly at risk, more boomers would buy private long-term care insurance to protect it and would, therefore, not become the insupportable burden on Medicaid twenty years from now that they will inevitably be otherwise. 

If their home equity were truly at risk, many more people who failed to insure for the LTC risk would use reverse mortgages to obtain quality long-term care in the private market at the most appropriate level. 

If their home equity were truly at risk, more people would plan for LTC and fewer would end up on Medicaid, which program would then become a better safety net for individuals and families truly in need. 

If we "allow people who use reverse mortgages for home-based care to shield some assets from the Medicaid estate recovery process," would more of them utilize home equity conversion to pay for home care?  Not likely. 

That idea is similar to the LTC Partnership plan to get people to buy private LTC insurance by forgiving their Medicaid spend down and estate recovery responsibilities.  It doesn't work as long as those two liabilities are so easy to avoid. 

The obvious solution is to reduce the Medicaid home equity exemption to a level that encourages people to insure privately or use reverse mortgages.  That alone will solve the problem, but if it doesn't, you can always add more incentives later on, such as forgiving some of the estate recovery liability. 

As we've said here many times before, it is foolish to propose solutions before you understand the cause of the problem.  Reverse mortgages have not been a major source of funding for long-term home care, because Medicaid has protected home equity and diverted people to nursing homes instead. 

That is the perverse incentive in public policy that created this seeming enigma:  we have a welfare-financed, nursing home based long-term care system in the wealthiest country in the world where no one wants to go to a nursing home. 

Reduce or eliminate the perverse incentive and you will unleash private LTC insurance and home equity conversion while simultaneously improving Medicaid by reducing caseloads and eliminating institutional bias.   

It is almost too late.  Do it soon!