Bullet: Forward on Reverse
Tuesday, August 29, 2006
Santa Fe, NM
LTC Comment: Will
the DRA unleash the potential of reverse mortgages for LTC financing?
Atare Agbamu interviews Steve Moses for The Mortgage Press.
After the ***news.***
*** LTC GRADUATE SEMINAR ENDORSED. Center president Steve Moses presented the Center for
Long-Term Care Reform's full-day advanced long-term care training
program to staff of the Long-Term Care Partners on August 10.
Long-Term Care Partners is the company that administers the
Federal Long-Term Care Insurance Program.
Paul Forte, the company's CEO, had this to say:
"Thank you for the excellent job you did here
in Portsmouth on August 10. Your
seminar exceeded our expectations.
This kind of in-depth training is what I think every LTC/LTCI
business needs, if it is to manage effectively in a complex environment.
Several people remarked to me afterwards that it was impressive
that you could hold people's attention for almost seven hours. I told them it was because you really knew your subject and
would have made a very good professor."
For more information about the LTC Graduate
Seminar, go to http://www.centerltc.com/ltc_grad_seminar.htm.
We've added a section on the Deficit Reduction Act of 2005 and
its potential impact on the marketability of LTC insurance and reverse
mortgages. To schedule a
session for your company or organization, contact Damon Moses at email@example.com
or 206-283-7036. He'll
explain the basics and put you in touch with the instructor, Steve
Moses, to work out the details. Note
that we no longer accept individual enrollments.
Please ask your company or organization to schedule a session.
*** TALK RADIO APPEARANCE.
Steve Moses was interviewed on two segments of the syndicated
Lynn Wooley Show last night. The
show's website is www.belogical.com.
Producer Lou Ann Anderson informs us she will post Wooley's
interview of Moses on the show's website in a few days.
We'll let you know when it is available for listening online. ***
*** LTC BULLETS.
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to join the Center or go to http://www.centerltc.com/support/index.htm
and subscribe online. Do it
today. Then stay in touch
on our members-only LTC Forum online bulletin board. ***
LTC BULLET: FORWARD
ON REVERSE MORTGAGES
LTC Comment: Following
are excerpts from a long interview published in three successive monthly
issues of The Mortgage Press print edition.
Access a longer abridgement of the full interview at http://mortgagepress.com/article.asp?id=103367.
You'll be asked to register by providing your email address and
zip code. Providing those
will take you right to the interview.
"Forward on Reverse:
DRA 2005: A
conversation with Stephen A. Moses of the Center for Long-Term Care
Reform, Inc.: Medicaid rule
change to boost demand for reverse mortgages"
If you are in the business of marketing and
originating reverse mortgages, or if you aspire to be, pay close
attention to Medicaid, Medicaid eligibility and long-term care finance
issues. It is about keeping
an eye on the forest and the big issues that will drive demand for
reverse mortgages for decades. It's
For more than 40 years, Medicaid, a federal/state
program designed to help the poor, has been paying for long-term care
for almost everyone in the United States.
Medicaid's long-term care financing for everyone is about to
change because it is eating up states' budgets.
Some experts in Medicaid and state budgets say that if the pace
of Medicaid financing for long-term care goes unchecked, it will
bankrupt the states. Others
say government financing, whether through Medicaid or some other
program, is the solution.
With 78 million baby boomers coming down the
long-term care financing pipeline in the next 20 years, federal and
state governments are scared. With
a lot of push from the states and others who care about preserving
Medicaid for the needy, Uncle Sam has changed the rules.
The new rules are located in the Deficit Reduction Act of 2005 (DRA
2005), signed into law by President George W. Bush on Feb. 8, 2006.
The new rules of Medicaid eligibility say that you
are responsible for your long-term care financing unless you are truly
responsibility for long-term care financing means alternative financing.
Reverse mortgages are a part of alternative financing tools for
long-term care. That's why
you and I should add Medicaid, Medicaid eligibility and long-term care
financing know-how to our reverse mortgage education.
It gives us a competitive edge in our reverse mortgage marketing
To help us understand the business implications of
DRA 2005 for the emerging reverse mortgage industry and the opportunity
it holds for reverse mortgage lenders and aspiring lenders, I share with
you a conversation that I had with Stephen A. Moses, America's leading
advocate for long-term care reform.
Moses is president of the Seattle-based Center for
Long-Term Care Reform Inc., and is the nation's leading authority on
long-term care financing. The
center is a champion of "universal access to top-quality long-term
care by encouraging private financing as an alternative to Medicaid
dependency for most Americans."
Moses has been involved in health care financing
issues at federal and state levels since 1979.
His research and advocacy influenced the design of Medicaid rules
in the Omnibus Budget Reconciliation Act of 1993 (an earlier federal law
which tried to curb Medicaid shenanigans) as well as DRA 2005. A frequently quoted and consulted author and speaker, Moses
is a one-man crusader for long-term reform in the United States.
He has spoken before the U.S. Congress and two-thirds of the
state legislatures in the nation. If anyone deserves the moniker "Father of Long-Term Care
Reform in America," it is Stephen Moses.
Atare E. Agbamu:
Steve, why is DRA 2005 important for the reverse mortgage market?
Stephen A. Moses:
It is important because until now, Medicaid has exempted home
equity with no limit. One
could own a home, including all contiguous property, regardless of
value. This could be a
10,000-acre ranch in Montana, Bill Gates' big house on Lake Washington
in Seattle or any mansion anywhere, and you could qualify for Medicaid. There
were other income and asset restrictions, but those were avoided as
What has changed is that there is now a limit of
$500,000 in home equity for people to retain and still qualify for
Medicaid. Now, that's still
a very high level. Medicaid
is a means-tested public assistance program; it's welfare.
And to be able to retain the value of half a million dollars and
get the government to pay for your long-term care, which can be very
expensive, especially in a nursing home, is extremely generous.
Just to put it in perspective, in Britain, they
only allow $36,000 in home equity to be exempted to qualify for publicly
financed long-term care. In
Germany, they have a 10-year look back on the transfer of assets,
whereas we have only moved the look back period on asset transfers to
five years in this country. So,
the irony is that America, with a supposedly free-market capitalist
healthcare system, is far more generous than the so-called socialized
healthcare system in western Europe.
If people can't exempt unlimited home equity, they
would be less likely to hide money in home equity to qualify for
Medicaid - a common practice until now.
And if they do have home equity in excess of $500,000, they are
far more likely to take out a reverse mortgage to reduce their equity
down to the allowable level and use the proceeds from the reverse
mortgage either to supplement their income so they can buy long-term
care insurance or to pay for community-based services to help them
remain in their home and delay or prevent altogether nursing-home
institutionalization and Medicaid dependency.
So, [DRA 2005] is a very, very positive
development. It sends the
message to the public that long-term care is a personal responsibility,
that you can no longer preserve unlimited assets and get the government
to pay for your long-term care, a program that was really intended as a
safety net for the poor and that therefore, you should plan to be able
to pay personally for your own long-term care.
The best way to plan is with private insurance; but failing that,
if one gets to be 62 years of age and eligible for a reverse mortgage,
then that's an excellent way to ensure that one can pay one's own way.
should reverse mortgage lenders support the effort to educate the
American public on the new Medicaid limits on exempt home equity?
How should reverse mortgage lenders go about this educational
of all, they should educate themselves.
Reverse mortgage lenders are no more knowledgeable about the
effect of Medicaid eligibility in the past on the marketability of their
product than are long-term care insurance industry agents and officials.
Very few people marketing reverse mortgages or long-term care
insurance understand that the primary reason their products have not
sold very well in the past is that Medicaid was readily available to
cover the single biggest risk the elderly faced financially.
People could ignore the risks, avoid the premiums for private
insurance, wait until they got sick, shelter all of their income and
assets including their home equity and get the government to pay for
their long-term care. As
long as that was true, it's little wonder that most people didn't
prepare for long-term care, didn't buy insurance and didn't tap the
equity in their home. Why
would you tap the equity in your home if it isn't at risk for your
single biggest cost?
Reverse mortgage lending has taken off in the last
few years, but it hasn't been driven by long-term care expenses.
It's been largely a function of the interest rate collapse, and
seniors are dipping into their home equity in order to retain their
income levels and normal standard of living.
Now that Medicaid doesn't protect an unlimited
level of home equity, the public needs [reverse mortgages] much more
than was ever the case. Once
they understand it themselves, reverse mortgage lenders should begin
educating the media about this reality.
The reporters that are writing many positive articles lately
about how to use reverse mortgages to retain a decent lifestyle will
also be talking about the importance of using home equity to ensure
access to quality long-term care, particularly in the home.
This new law will mean nothing unless the states
implement it, the feds enforce it, the media publicize it and reverse
mortgage lenders and insurance agents sell it.
It's critical at every stage that the industry involved in
marketing the products that can help people get access to quality
long-term care [is] out aggressively promoting all of those laws: encouraging states to implement the rules, the feds to enforce
them, the media to publicize them and their salespeople to sell them.
Otherwise, if we don't get the public awakened to the importance of
planning for long-term care, even using their home equity, we are going
to see the age wave crest and crash on us over the next 10 or 15 years
in a way that will likely wipe out many of the supports that have been
there in the past.
Medicare has a $60 trillion unfunded liability.
We've just added Medicare Part D, which is another $8 trillion
that is completely unfunded for the future.
The Social Security program has a $10 trillion unfunded
liability. Medicaid, the
primary funder of long-term care in this country - nobody is even
calculating the unfunded liability there because the money comes
directly out of general funds and there is no trust fund. Never mind
that they're phony, but Medicare and Social Security at least have trust
funds. Medicaid doesn't.
We've got a whole house of cards here. Government
entitlements that have anesthetized the public to the risk of long-term
care are about to come tumbling down during the next 20 years and smart
people should be preparing now for that eventuality, particularly in the
area of long-term care. These
are things that reverse mortgage lenders need to understand.
They need to train their salespeople on the fiduciary
responsibility to their clients to explain these facts of financial life
to people. As they do so,
more and more people will see the light and buy their products.
But if [the education] isn't done, consumer behavior won't
change. . . .
appears that most of those who will be attracted to home equity, based
on the $500,000 cut-off, will be those in the upper income or upper
asset brackets, right?
it shouldn't be at all. What
this should be is a way to convey to the public that home equity is now
at risk. They place the
limit this year at $500,000, but as I said, in England, the limit is
$36,000. I think there is every possibility that next year, Congress
can take it to $250,000, and a year after that, maybe to $50,000.
The message the public should receive is that while
the rules remain very generous, the whole trend is in a downward
direction toward preserving Medicaid as a safety net for the poor and
conveying the message to the public that they need to plan.
If I were of an age where I was concerned about
long-term care now and I had a home, even with $250,000 in equity (which
would still be exempt for purposes of Medicaid), if I needed the income
from that home through a reverse mortgage to supplement my income so
that I could afford private insurance and I was still healthy and
medically qualified, it would be a very sensible reason to take out a
reverse mortgage in anticipation that Medicaid won't be there in the
future for me.
believe that everyone should plan for long-term care, based on the
signal that has been given by Deficit Reduction Act of 2005 (DRA 2005),
I believe everyone should have been planning for long-term care all
along. Going bare and
ending up on Medicaid has been a dismal outcome for many, many years,
but it is much more obvious now because of the changes in DRA 2005.
you think that the limit will keep dropping from $500,000 over the next
several years, right?
have to. Medicaid is
bankrupting the states. They
can't go on providing expensive nursing home care for affluent seniors. All you have to do is look at the handwriting on the wall. .
is the way forward then, in terms of creating incentives for people to
use reverse mortgages?
[there are] any number of things they can do to incentivize people to
use home equity for long-term care insurance and home equity for
long-term care. A lot of
ideas are being talked about similar to the partnerships for long-term
care insurance, where you give people an extra benefit if they use home
equity to purchase long-term care; but they do cost money.
The reason they tend not to pass is that the Congressional Budget
Office (CBO) scores them as being very expensive.
The CBO doesn't take into consideration the ultimate savings down
If they did, they might be more likely to pass
those incentives. But here
is the critical thing: No
amount of incentives is going to encourage people to buy long-term care
insurance or take out reverse mortgages as long as they can ignore the
risk, avoid the premiums and wait until they get sick, shelter the home
and get Medicaid to pay for their long-term care.
It is the Medicaid eligibility stuff that is critical.
And as I said before, we've made some progress on
that, but we still have a long, long way to go to make sure Medicaid is
a safety net for the poor and not a hammock for the upper middle class.
And if we do that, whether or not we get tax incentives and other
publicly financed incentives for these products (reverse mortgages and
long-term care insurance), people will buy them.
the key, to repeat what you've just said, is to make Medicaid
eligibility more restrictive, right?
to target Medicaid to the genuinely needy.
If you do that, you will save more than enough money to pay for
the incentives to get other people to plan for long-term care.
We just have way too many people dependent on welfare for
long-term care and way too few people planning responsibly to pay their
own way, and those are directly related.
It's a fact that for 40 years we've been able to just ignore care and get the government to pay. That has caused low market penetration of reverse mortgages and long-term care insurance. If you get Medicaid out of the business of giving away for free what we'd like people to do for themselves, you'll see people taking out reverse mortgages and buying long-term care insurance.
do you think is going to happen if people don't get the message about
the relationship between Medicaid and reverse mortgage sales?
people don't get the message, we'll just continue on the course we've
been on. Medicaid will
collapse. A lot of poor
people will be hurt. And
the baby-boom generation will have no way to pay for long-term care
except [for] their home equity. They
won't buy insurance; when the time comes, Medicaid won't be there for
them and they will have to use their home equity.
Regardless of whether we solve the problem through responsible
public policy or just leave it alone and let Medicaid collapse, both the
reverse mortgage industry and the long-term care insurance industry are
going to explode in popularity, because that will be the only way to pay
for decent long-term care. The
tragedy is that a lot of poor people will get hurt.
And a lot of young people won't get inheritances from their
baby-boomer parents similar to what baby-boomer parents are getting from
their World War II generation parents.
do you say to people who say premiums for long-term care insurance are
just way, way [expensive] for most people in their 70s?
They will not be able to get the right policy at the right price
because they may have pre-existing conditions and other factors that
could disqualify them from getting a better policy.
you can't buy fire insurance when your house is in flames, and you
obviously can't buy long-term care insurance when you already have
Alzheimer's disease. Most
people who make those kinds of arguments are totally unrealistic about
economics, and the idea that you can now transfer this risk to
government programs that are already bankrupt just covering what they
have already covered is so economically and philosophically
irresponsible that it's frankly kind of sickening. The reality is a vast majority of people can afford long-term
care insurance if they purchase it at the most appropriate time of their
lives. It's cheaper when
they are younger. But if
they are raising a family well, then maybe later on if incentives are in
effect, the children that they raised, if they are in responsible
positions, can supplement the parents to afford long-term care
The main thing is that there should be an incentive
to buy it and an incentive to use home equity if they don't have the
other resources to afford it. Those
incentives have not been there in the past; as a consequence, both the
long-term care insurance and the reverse mortgage industries have been
incentives are developing, per the small step of the Deficit Reduction
Act of 2005. There will be more restrictions in the future.
So you will see people re-evaluating the risk such that they're
willing to pay more toward the purchase of long-term care insurance.
As they see the need for it and as the need becomes real, they'll
be more and more likely to tap their home equity to help them afford it.
In your 70s, long-term care insurance gets
expensive. I purchased it
for my parents in their mid-70s in 1989.
I've paid the premiums ever since, because I don't think they
should have to pay the premiums on insurance that protects my
inheritance. And I've a
policy for myself and my wife that I've [been paying on] for 10 years.
I am part of the solution. I
pay my taxes in order to preserve Medicaid as a safety net for the poor. What I resent is paying taxes that support people who hire
attorneys to get rid of their assets in order to take advantage of a
program that's supposed to be for the poor.
They've basically ruined Medicaid as a safety net for the poor.
And my mission and the mission of my organization, the Center for
Long-Term Care Reform, is to give Medicaid back to the poor and
encourage everyone else to plan responsibly for long-term care, which
they can and should afford to do if they put the proper priority on that
AA: Do you have any closing remarks for reverse mortgage lenders?
think they should wake up, smell the coffee, take it upon themselves to
learn more about the relationship between public and private long-term
care financing, and then get involved in publicizing this and educating
their salespeople so that we can get the word out to the public that
long-term care is a risk for which they need to take responsibility in
thank you very much for this opportunity.
For more information about Stephen A. Moses and his
mission at the Center for Long-Term Care Reform, visit www.centerltc.com.
Atare E. Agbamu, CRMS is president of ThinkReverse LLC, a reverse mortgage training and consulting firm based in the Twin Cities and is a consultant with Credo Mortgage. Atare is regarded as an emerging authority on reverse mortgages and is frequently consulted by financial professionals and families across America. His reverse mortgage interviews have been Web cast on MortgageMag Live! He can be reached by phone at (651) 389-1105 or e-mail email@example.com.