LTC Bullet:  GAO on LTCI Partnerships 

Wednesday, June 20, 2007 


LTC Comment:  GAO drops the ball again on the issues of Medicaid, long-term care financing and private insurance.  After the ***news.*** [omitted]


LTC Comment:  GAO has a top-notch, Paul-Revere-like leader who issues warnings about America's unfunded entitlement liabilities in a long-running cross-country "fiscal wake-up tour."  

But when it comes to critical issues like Medicaid, long-term care financing, and private insurance, GAO's rank-and-file staff have repeatedly proven inadequate.  Either they just don't understand the complexity of long-term care policy.  Or their prejudice against private-sector solutions and in favor of piling more unfunded liabilities onto public programs is deliberate.  Either way, they are working in direct opposition to their boss's more responsible public policy positions. 

First, let's review what "LTC Bullets" has had to say recently about GAO's work on this subject.  Links to our earlier coverage follow.  Then we'll tackle the GAO's latest misfire, regarding the Long-Term Care Partnership program. 


"LTC Bullet:  GAO AWOL on LTC TOA," Wednesday, May 2, 2007:  LTC Comment:  The Government Accountability Office has again displayed stunning miscomprehension of the Medicaid eligibility, Medicaid planning and transfer of assets issues.

"LTC Bullet:  Georgetown, GAO and Kaiser:  The Bermuda Triangle of Good LTC Policy," Wednesday, January 25, 2006:  LTC Comment:  LTC doubletalk is not the exclusive province of Medicaid planners and AARP lobbyists.  Otherwise often reliable analysts get long-term care policy wrong too.

"LTC Bullet:  GAO on TOA Underwhelms," Wednesday, October 5, 2005:  LTC Comment:  The Government Accountability Office's new report on Medicaid asset transfers asks the wrong questions, uses the wrong data, and so provides few helpful answers.


LTC Comment:  The fundamental problem with GAO staff's analysis of Medicaid and long-term care financing is their failure to understand how easy Medicaid LTC eligibility is to achieve and how it crowds out any market for LTC insurance (including Partnership policies).  I won't repeat the evidence and analysis already provided in the preceding LTC Bullets, but here in a nutshell is why GAO's latest foray into LTC policy is as specious as its earlier ones. 

The report in question is "Long-Term Care Insurance:  Partnership Programs Include Benefits That Protect Policyholders and Are Unlikely to Result in Medicaid Savings," U.S. Government Accountability Office Report to Congressional Requesters, GAO-07-231, Washington, D.C., May 2007,

According to GAO:  "Available survey data and illustrative financing scenarios suggest that THE PARTNERSHIP PROGRAMS ARE UNLIKELY TO RESULT IN SAVINGS FOR MEDICAID, AND MAY INCREASE SPENDING. The impact, however, is likely to be small. About 80 percent of surveyed Partnership policyholders would have purchased traditional long-term care insurance policies if Partnership policies were not available, representing a potential cost to Medicaid. ABOUT 20 PERCENT OF SURVEYED PARTNERSHIP POLICYHOLDERS INDICATE THEY WOULD HAVE SELF-FINANCED THEIR CARE IN THE ABSENCE OF THE PARTNERSHIP PROGRAM, and data are not yet available to directly measure when or if those individuals will access Medicaid had they not purchased a Partnership policy. However, illustrative financing scenarios suggest that AN INDIVIDUAL COULD SELF-FINANCE CARE-DELAYING MEDICAID ELIGIBILITY-FOR ABOUT THE SAME AMOUNT OF TIME AS HE OR SHE WOULD HAVE USING A PARTNERSHIP POLICY, although GAO identified some circumstances that could delay or accelerate Medicaid eligibility. While the majority of policyholders have the potential to increase spending, the impact on Medicaid is likely to be small because FEW POLICYHOLDERS ARE LIKELY TO EXHAUST THEIR BENEFITS AND BECOME ELIGIBLE FOR MEDICAID due to their wealth and having policies that will cover most of their long-term care needs."  (Emphasis added.) 

In other words, 4/5 of people who buy Partnership policies would have bought LTC insurance anyway (so that's no extra savings to Medicaid and could be an extra cost if Partnership policy holders use up their private insurance benefits and turn to Medicaid) and 1/5 would have paid their own way for LTC and largely avoided Medicaid altogether (so no savings there either). 

Such "analysis" is silly.  It completely ignores the facts about LTC financing in the United States.  Between them, Medicaid and Medicare pay for the vast majority of all formal, paid LTC services in the United States.  For the details on that, see "LTC Bullet:  So What If the Government Pays for Most LTC?, 2005 Data Update" at  Add in spend-through of Social Security income, which Medicaid recipients are required to contribute toward their cost of care under the program, and you account for over three-fourths of all LTC expenditures without touching a penny of anyone's assets.  In fact, there is zero evidence that Americans are spending down significant cash assets, much less home equity, for long-term care.  

GAO's LTC Partnership study relies on asking policy holders what they would have done in the absence of the Partnership's offer of Medicaid spend-down forgiveness.  Anyone who has ever asked the public anything about long-term care planning knows that the answers are totally unreliable.  Most people have no clue who pays for LTC, nor do they care, since even though they don't realize it, the government does pay if worse comes to worst.  Who's to say whether people who bought a Partnership policy and say they'd still have insured otherwise would actually have done so, when 90 percent of the public does not insure for LTC at all?  Who's to say whether the 20 percent who bought a Partnership policy, but reported they would otherwise have self-insured, would actually have done so?  All the evidence suggests that uninsured people quickly find paths to Medicaid eligibility.   

In truth, income and assets obstruct only a small minority of infirm elderly from Medicaid LTC eligibility and those obstacles are easy to remove in most cases after the insurable event occurs and without asset transfers.  My guess is that in the absence of the LTC Partnership incentive, many of those who bought a policy would not have done so, regardless of what they say.  Furthermore, those who bought but indicate they would otherwise have self-insured would, regardless of what they say, have responded as most Americans do when confronted with the high cost of LTC:  they'd have applied for Medicaid.  Most would be eligible with little or no manipulation of assets; the rest could qualify quickly by consulting a Medicaid planner; and only a handful would need to "transfer assets."  That's how it works in the real world. 

Yet GAO remains fixated on asset transfers as though that were the only way to qualify for Medicaid without spending down.  In its comments on the GAO report, the Department of Health and Human Services' (DHHS) Assistant Secretary for Legislation made a critical observation:  "We believe that [GAO's] simplified scenarios are flawed in their lack of accounting for individuals who do engage in estate planning prior to expending all of their own funds on long-term care costs." (p. 62)  GAO brushed aside this fatal objection by saying:  "While some Medicaid savings could result from people who purchase Partnership policies INSTEAD OF TRANSFERRING ASSETS, they are unlikely to offset the costs associated with those who would have otherwise purchased traditional policies."  (Emphasis added) 

Once again, GAO falls back on the fallacy that asset transfers are the only form of Medicaid planning and that Medicaid eligibility is so hard to obtain that most people have to spend down or divest assets.  It isn't true.  Most people qualify for Medicaid LTC benefits without transferring assets or spending down significantly.  No wonder they don't buy LTC insurance, with or without the Partnership's incentives. 

So, here's the bottom line:  GAO's director U.S. Comptroller General David Walker's next "wake up" tour should be into the bowels of his own organization to shake his own staff into consciousness about Medicaid and LTC financing.  Otherwise, Medicaid's unfunded liabilities, especially on the LTC side, will someday trump those from Social Security and Medicare about which he has been such a visible spokesman.