LTC Bullet: "Doing LTC RIght" or The Medicaid Mouse that Roared

Friday, January 15, 2010


LTC Comment: Our new blockbuster report on LTC financing assaults assumptions, shatters shibboleths and confounds convention. Read it now here or follow the serialized version on our "LTC Blog" next week.



LTC Comment: The State of Rhode Island took a daring leap into radical Medicaid reform last year. The state requested and the Centers for Medicare and Medicaid Services (CMS) granted a "global Medicaid waiver." Under this unique plan, Rhode Island agreed to a cap on Medicaid matching funds for five years in exchange for more flexibility to administer the program than federal law and regulations otherwise allow. Among other objectives, the state is using the global waiver to increase Medicaid-financed home and community-based services while reducing nursing home utilization.

Rhode Island's gutsy move and noble goals are praiseworthy. But will they save money or break the bank? Will offering more services people want (home care) and fewer they'd rather avoid (nursing homes) swell Medicaid ranks? How will home care providers fare with higher acuity patients? How will nursing homes survive with fewer low-acuity (profitable) residents? Why are low-acuity patients in expensive skilled nursing facilities in the first place? Can private financing alternatives like insurance and reverse mortgages grow if Medicaid LTC becomes more attractive than ever? Is Rhode Island jumping from the fiscal frying pan into a financial firestorm? What might the state do with its global Medicaid waiver authority to reinvent and save the LTC safety net? Can Rhode Island get it right and become a model for the rest of the country?

Our new report, titled "Doing LTC RIght," released today in collaboration with the Providence-based Ocean State Policy Research Institute, answers all these questions. The executive summary, findings, and recommendations follow. Read the whole report here now or in serialized form all next week on the LTC Blog at and in our LTC E-Alerts for members.

With state and federal budgets in crisis, public officials will have to address Medicaid and long-term care costs sooner rather than later. The good news is the problem of financing long-term care is easy to fix. Our report explains the solution. If Rhode Island follows our recommendations, it can become a model for long-term care reform the rest of the country should follow. So, roar Rhode Island, show the rest of America how it's done. Save the Medicaid LTC safety net and unleash the potential of private market alternatives.


Excerpts from "Doing LTC RIght" with footnotes omitted:

Executive Summary

  • Caring for the frail and infirm elderly is difficult and expensive. Today, America's long-term care delivery and financing system is a mess.
  • Rhode Island has been a case in point.
  • Most people receive long-term care in nursing homes funded inadequately by a public welfare program called Medicaid.
  • Ideally, most people would receive long-term care in their homes and communities, but arcane federal Medicaid rules have precluded that result.
  • Rhode Island Medicaid sought and received a "global Medicaid waiver" enabling it to manage long-term care more effectively in exchange for a cap on federal funding.
  • The state is implementing a new system of clinical eligibility that makes more home care and less institutional care available to Medicaid recipients.
  • But, demographic pressures (the Age Wave) and financial pressures (the recession and government deficits) presage huge future problems for long-term care.
  • This report examines whether Rhode Island's ingenious global waiver strategy can achieve its goal of rebalancing long-term care without breaking the bank.
  • The report explains how long-term care in the USA and Rhode Island came to be dominated by publicly financed institutional care.
  • It describes how Medicaid became the dominant payer for long-term care not only for the poor, but for most of the middle class, and many of the affluent.
  • The report argues that financing quality long-term care for all Rhode Islanders will require more private financing to supplement dwindling public funds.
  • It explains why potential private long-term care financing alternatives, such as home equity conversion and private insurance, have languished to date.
  • Finally, this report recommends a course of action whereby Rhode Island Medicaid can ensure clinical success and financial viability under the global waiver.
  • "Doing LTC RIght" offers a model for long-term care reform that could reduce institutional bias, increase access and quality of long-term care, and save money.
  • If Rhode Island does LTC right, the rest of the country may follow its example.



Rhode Island Medicaid has embarked upon a financially risky, but potentially very beneficial reorganization of its long-term care delivery system.

State policy makers agree on the "Basic Principles" guiding their long-term care reform initiative:

  1. "'Take care of the people with no other options first'
  2. 'Right service, right setting, right time, right result'
  3. 'For everyone a medical home with all the necessary information'
  4. 'Leverage all available money'
  5. 'Remember the taxpayer'"

So far, Rhode Island's LTC reform measures have addressed two of those objectives (numbers 2 and 3) but largely disregarded three others (numbers 1, 4, and 5).

The state's unique global waiver enables Rhode Island Medicaid to provide more LTC services in settings people prefer (home and community) and fewer in settings most people would rather avoid (nursing homes).

Thus, the principles of providing the right services in the right settings are being met.

In the absence of equally radical changes to Medicaid's generous financial eligibility for long-term care, however, the clinical changes implemented by Rhode Island could cause LTC expenses to skyrocket, waiting lists to explode, or both.

Easy access to Medicaid LTC eligibility after the insurable event has occurred increases public expenditures and crowds out potential private LTC financing sources.

Clearly, the objectives of caring first for the neediest, leveraging all available money, and remembering the taxpayers are not yet achieved nor even being strongly pursued.

To be sure, Rhode Island is constrained by generous and elastic, federally imposed LTC eligibility rules that prevent the state from targeting scarce Medicaid resources to people most in need.

It was precisely the domineering, over-restrictive federal laws and regulations governing waivers, home and community-based services, and institutional bias that Rhode Island sought to escape by means of its global Medicaid waiver.

So, the next logical step for Rhode Island is to seek authority under the global waiver to pursue Medicaid LTC financial eligibility rules that comport more fully with the state's principles of long-term care reform.


The following recommendations if implemented would position Rhode Island Medicaid to achieve all of its remaining LTC reform goals by (1) targeting scarce public resources to people most in need and (2) attracting nontax revenue to LTC financing from private assets, home equity and insurance, thus (3) relieving the financial burden of Medicaid LTC on taxpayers.

If some of these recommendations seem harsh, consider them in the context of what will happen when Medicaid and other state and federal safety net programs are unable to continue supporting current programs. Consider the potential benefits to all concerned--care receivers, caregivers, and care funders--of attracting new sources of private financing to the long-term care system.

I. Establish a baseline. Study a valid random sample of LTC cases to determine how much money Rhode Island Medicaid loses because of . . .

  1. Assets transferred before the five-year transfer of assets look-back period.
  2. The $500,000 home equity exemption.
  3. The business exemption.
  4. The automobile exemption.
  5. The prepaid burials exemption.
  6. The term life insurance exemption.
  7. The household goods exemption.
  8. Purchase of exempt assets.
  9. The "reverse half-a-loaf" technique.
  10. Irrevocable income-only trusts.
  11. Medicaid friendly annuities.
  12. Life estates with special powers.
  13. Purchase of an interest in another's home.
  14. Fraud or unintentional misrepresentation of personal finances.
  15. Other Medicaid planning techniques.
  16. Failure to pursue TEFRA liens.
  17. Lack of a robust Medicaid estate recovery program.

The results of this study should provide ample evidence of the need for and the benefits of implementing the remaining recommendations.

II. Seek authority from the federal Centers for Medicare and Medicaid Services under the state's global Medicaid waiver to change Rhode Island's financial eligibility rules for long-term care services in the following ways.

  1. Extend the look-back period during which assets transferred for less than fair market value to qualify for Medicaid incur an eligibility penalty from five years (currently) to ten years (as currently in Germany, a socialized health care system.)
  2. Eliminate or radically reduce the home equity exemption for Medicaid LTC eligibility from $500,000 (currently) to no more than $40,000 (as in the United Kingdom, another socialized health care system.)
  3. Preclude the use of trusts, annuities, promissory notes, the "reverse half-a-loaf" strategy and other Medicaid planning techniques to divest or shelter assets from Medicaid LTC financial eligibility limits.

III. Enhance Rhode Island's lien and estate recovery program.

  1. Establish a TEFRA lien program and make it stronger than otherwise allowed under federal law by using the global Medicaid waiver authority.
  2. Hire more estate recovery personnel until the marginal rate of return is reached, i.e. add staff as long as each new hire increases lien and estate recoveries.
  3. Establish a system, currently nonexistent, to ensure that every death of a Medicaid LTC recipient is reported immediately and that the estate recovery procedure begins without delay in every case with potentially recoverable assets.
  4. Seek passage of the "uniform probate code" by the state legislature.
  5. Expand estate recovery to include home care, not just nursing home services as currently.
  6. Seek state legislative approval of the expanded definition of probate to include assets passed in joint tenancy with right of survivorship as authorized by OBRA '93.
  7. Track and seek recoveries from the estates of deceased spouses for Medicaid's cost of care paid for their predeceased spouses on Medicaid, AKA "spousal recoveries."
  8. Track and seek recoveries from former Medicaid recipients who die after leaving Medicaid.
  9. Seek state legislative authority to capture accounts held by nursing homes in the Medicaid recipients' names until estate liability is determined.
  10. Establish a system to recover hard assets, including investment-grade property, from recipients' estates before the property is taken by heirs.
  11. Set up repayment plans whereby families can repay their estate recovery liability over time and retain ownership of homes or other property if they wish.
  12. Conduct a study of successful estate recovery programs, especially Oregon's, and implement best practices. Seek state legislative authority for changes that require it.
  13. To eliminate all cost to the state and maximize recoveries, consider hiring an outside contractor on contingency to do estate recoveries in exchange for a percentage of the amount recovered.

III. Educate Rhode Islanders about the importance of planning for long-term care.

  1. Explain the risk and cost of long-term care in the media and in public meetings.
  2. Publicize what the state will and will not pay for and for whom under new, stricter eligibility rules.
  3. Describe measures taken to restrict access to Medicaid LTC and why they are necessary to ensure access to quality care for the needy, as public funds diminish.
  4. Emphasize the fact that stronger lien and estate recovery rules will ensure everyone who can pay will pay for long-term care, either up front as a private payer or after the fact, through Medicaid estate recovery.

IV. Implement measures to encourage the use of reverse mortgages and private long-term care insurance to fund long-term care privately.

  1. Consider both tax and Medicaid eligibility incentives to promote the use of reverse mortgages to fund long-term care privately.
  2. Consult the National Council on the Aging's (NCOA) report titled "Use the Home to Stay at Home" for additional ways to encourage the use of home equity conversion to fund LTC.
  3. Publicize and expand Rhode Island's Long-Term Care Partnership program.
  4. Consider and implement tax incentives to encourage the purchase of private long-term care insurance.

Why not try these measures in a small state that has already embarked on Medicaid experimentation with its global waiver? If they work, Rhode Island Medicaid could become a model for LTC reform throughout the country.

It happened for welfare reform when an experiment in Wisconsin went national in the Welfare Reform Act of 1996. It must happen for long-term care somewhere soon, because the Age Wave will make fixing long-term care harder and harder as time goes on.

Carpe diem.