LTC Bullet:  Reversing Your Mortgage for Elder Care 

Monday, February 4, 2008 

Knoxville, Tennessee-- 

LTC Comment:  Unleashing seniors' home equity could generate billions of private dollars to improve LTC for everyone, especially those dependent on Medicaid.  After the ***news.***  [omitted]


LTC Comment:  Joe Coletti was my contract officer at the John Locke Foundation ( for our study of long-term care financing in North Carolina published January 21.  Read "Long-Term Care Financing in North Carolina:  Good Intentions, Ambitious Efforts, Unintended Consequences" at   

Today, in an op-ed exclusive for LTC Bullets, Coletti brings home a key message of that report:  Medicaid inhibits the use of home equity to fund long-term care, causes "institutional bias," discourages home and community-based care, and increases Medicaid expenditures.  Unsaid in this piece, but equally true, is that by exempting home equity--seniors biggest asset--Medicaid crowds out a market for long-term care insurance. 


"Reversing Your Mortgage for Elder Care" 


More and more people are taking an interest in reverse mortgages. Borrowing against the equity in one's house can make sense. The idea is especially appealing to older people who have paid off their housing bills but have limited incomes - those who are "house rich, cash poor." 

Although there are a number of reasons to seek a reverse mortgage and almost as many ways to get in financial trouble because of one, these mortgages can have the most value when the borrower needs to pay for long-term care. Medicaid's loose eligibility standards, which provide large exemptions for wealth held as real property, make the reverse mortgages for other purposes even more appealing.  

Only a small portion of seniors will ever spend time in a nursing home. Most will either stay in their own home or live in an assisted-living facility. Even those who do need the full range of services provided in a nursing home may be able to use home care or assisted living for years before transferring to a nursing home. Fewer still would choose the more intensive care and supervision of a nursing home were it not for Medicaid's perverse incentives. 

Costly nursing home care easily exceeds the income of most seniors, which means they qualify for Medicaid coverage in nursing facilities. Home care and assisted-living facilities, which provide more freedom to the individual, generally provide fewer services and cost less money.  

These options make it harder to qualify for Medicaid, which requires people using these services to spend more of their income before qualifying. Home care recipients must spend all but $242 if their monthly income exceeds $851. Assisted-living and adult-care residents can have monthly income up to $1,204. When a person enters a nursing home, however, he can still qualify for Medicaid with relative ease despite higher incomes.  

Expanding eligibility for lower-cost community care is not a solution, however. While the state spends less per person, its total cost can rise as more people find the community-based alternative more appealing than nursing homes and so apply for benefits.  

Steve Moses, president of the Center for Long-Term Care Reform, suggests ways to improve the eldercare financing mess in a new report for the John Locke Foundation. Moses found that Medicaid and Medicare pay the bulk of long-term care expenses. On top of the direct payments for care, once a facility accepts payment from Medicaid, it must accept the Medicaid's low reimbursement rate even for the portion paid from private sources. This means Medicaid pays or subsidizes four dollars of every five spent on long-term care. 

Gov. Easley and the General Assembly took a small step to bring more private payment into eldercare when they revived the tax credit for purchases of long-term care insurance. The market for this insurance will be limited, however, as long as Medicaid provides broad exemptions for homes and other assets. An earlier study by Moses found that long-term care insurance had the greatest market penetration in states that had fairly high bars to qualify for Medicaid. 

To end the practice of using Medicaid as inheritance insurance, Congress increased the length of time administrators could look for asset giveaways intended to make it easier to qualify for benefits. 

Just as Medicaid should not offer inheritance insurance for children of the elderly, it cannot continue as lifestyle insurance for the elderly themselves. Without tighter Medicaid eligibility limits, North Carolina's seniors will continue to ignore the cost of long-term care. They'll use tools such as reverse mortgages to pay off existing mortgages or to enhance their lifestyles while they are healthy. 

Tighter Medicaid restrictions on eligibility for long-term care benefits could also help seniors to get more appropriate levels of care when the time comes to seek nursing assistance. With more untapped equity in their homes, seniors would have more ability to pay directly for their care. They would no longer face pressure to move to a higher level of care than they need simply because Medicaid would foot the bill. State officials could then provide assistance to the truly indigent seniors whom the program was originally designed to help. This is indeed a case when smaller government produces better results for everybody. 

Joseph Coletti is fiscal and health care policy analyst at the John Locke Foundation.