Bullet: Reversing Your
Mortgage for Elder Care
February 4, 2008
seniors' home equity could generate billions of private dollars to
improve LTC for everyone, especially those dependent on Medicaid.
After the ***news.***
BULLET: REVERSING YOUR
MORTGAGE FOR ELDER CARE
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"
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.
Your Mortgage for Elder Care"
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."
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.
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.
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.
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
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.
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.
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.
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.
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.
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.
Coletti is fiscal and health care policy analyst at the John Locke