LTC Bullet: LTC Clueless

Tuesday, May 26, 2009


LTC Comment: Consumers' denial of LTC risk and cost is nothing compared to the naiveté of professionals who should know better. Examples after the ***news.*** [omitted]


LTC Comment: LTCi producers tell me all the time that the public is in denial about long-term care risk and cost. "Denial is not a river in Egypt," they say.

But there is a good reason for consumers' cluelessness about LTC. Government has paid for most expensive long-term care since 1965. According to Brown and Finkelstein (, Medicaid alone crowds out 2/3 to 90 percent of the potential LTCi market. No wonder the public's asleep about LTC until it's too late to save, invest or insure. And by then, government financing is easy to obtain as we've explained so often here and elsewhere.

What surprises and annoys me most, however, is that professionals who ought to know better are also oblivious to the real challenge of financing long-term care. Take for example the following three stories in a recent LTC provider magazine's online publication. And don't blame the messenger. Long-Term Living E-News for May 22, 2009 was just reporting.

o Budget Update Warns of State Cuts Read More

o AARP Ramps Up Effort to Close Medicare Doughnut Hole Read More

o Poll Finds Americans Say Long-Term Care is Priority for Healthcare Reform Read More

Let's take these stories one at a time.

First, all states are struggling to meet their budgets. Medicaid is a big part of the problem; and long-term care is a big part of the Medicaid problem. Yet most states have done little to control Medicaid LTC costs. Eligibility rules remain so generous that most people who need LTC qualify. Even the affluent can become eligible by hiring lawyers to impoverish them artificially. Most states are ballooning their Medicaid LTC expenditures by expanding services people want (home care) and cutting services people would rather avoid (nursing homes). To top it all off, the federal government has subsidized this lunacy by giving states 6.2% extra federal matching funds ON THE CONDITION that they do NOTHING to control the eligibility hemorrhage.

Second, AARP wants to plug the Medicare Part D "doughnut hole." What a great idea! Thank goodness Medicare is rolling in money. Not! The new Part D pharmaceutical program added $11 trillion to Medicare's infinite-horizon unfunded liability which now totals $89 trillion. That's over five times our annual Gross Domestic Product! Looking for ways to add to Medicare's already hopeless financial obligations is simple madness. Yet, there are still those who would load long-term care onto Medicare also. The straw that breaks the camel's back? Not even. The camel's already crippled, hobbling and terminal.

Third, the American Association of Homes and Services for the Aging commissioned a poll that concluded 85% of the American public thinks LTC should be part of health care reform. Wow! No problem then. People want it. Wishing makes it so. This is delusional fantasy. Ask the question differently and see what sort of response you get. How about this: "How much more are you willing to pay in taxes so that people who can't or won't pay for their own long-term care can get it free at your expense?" The frank answer to that realistic question is usually not much more than "Zip!"

The United States is going through a turbulent readjustment from pre-Boomer-retirement-boom-times to post-Boomer-retirement-bust-times. Former Comptroller General David Walker has warned for years on his "Fiscal Wake-Up Tour" that Uncle Sugar will have to double your payroll taxes or cut your benefits by half just to prop up Social Security and Medicare. That's not counting Medicaid and long-term care, which lack even the phony trust funds of the other entitlement programs.

News flash: that ain't going to happen! So, what will happen?

Watch closely and this is what you'll see. Over the next few years, government will cut back dramatically on Medicaid LTC eligibility. No more hiding three quarters of a million dollars in home equity. No more wide open income and asset loopholes. Medicaid will shift from its long-standing status as a defacto entitlement to a real, hard-nosed welfare programs for people most in need.

But it won't stop there. Social Security and Medicare will be converted from social insurance programs available to all who pay their payroll taxes regardless of income and assets into welfare programs restricted to people who meet increasingly limited income and asset means tests. That process has already begun. Social Security taxes income above relatively low limits. Medicare Part B and Part D deductibles sky-rocket as income increases. Expect more of the same.

Bottom line? Middle class and affluent people will be much more personally responsible for their own long-term care expenses in the future. But not only that. They'll be crowded out of Social Security's and Medicare's previously generous benefits. It's not like the poor will reap a bonanza though. All economic segments will be hurt.

There's an old saying: "the best way to help the poor is not to become one of them." As the publicly financed social safety net frays and retrenches, private financing alternatives will finally emerge unfettered. Expect great growth in LTC insurance, reverse mortgages, health savings accounts, medically underwritten annuities, and other products that enable and empower personal responsibility and good planning.

In the meantime, with experts like those cited above swimming against the current of economic change, we have nothing to look forward to in the short term but hard times for all. So, here's today's take away:

If you are in the business of advising people on financial planning, you have a moral and fiduciary responsibility to convey the facts and protect your clients against these real risks. Cut through their veils of denial. It won't be easy, with so many "experts" pulling layer after layer of wool over the public's eyes.