LTC Bullet: A Forgotten Entitlement

Tuesday, September 28, 2010


LTC Comment: Everyone knows Social Security and Medicare are "under water," but a Hoover Institution report reminds us there are "forgotten entitlements" that may be as bad off, or worse. Details after the ***news.***

*** SPONSOR A BULLET. Follow EM-Power's lead. Sponsor an LTC Bullet. Get your message out to the best and brightest in the field of long-term care financing . . . our readership. Simultaneously, you'll support the Center for Long-Term Care Reform's efforts to encourage responsible long-term care planning and rational LTC public policy. Contact Damon at 206-283-7036 or ***

*** CLASS UPDATE. "Implementing Obamacare: A New Exercise in Old-Fashioned Central Planning," by John S. Hoff for the Heritage Foundation, published September 10, 2010, contains a section on CLASS toward the end titled "Federal Long-Term Care Insurance."

The National Federation of Independent Businesses has lent its support to Congressman Charles Boustany's (R, LA) "Fiscal Responsibility and Retirement Security Act of 2010." The NFIB's 9/22/10 letter states: "This legislation provides a strong and sharp tool to blunt the explosion of yet another government-entitlement program - the CLASS Act."

*** MILLIONS TO FIND MEDICAID, BUPKES FOR LTCI. "HHS Secretary Kathleen Sebelius today announced $68 million in grants to help seniors, individuals with disabilities, and caregivers better understand and navigate their health and long-term care options. These grants, made possible by the Affordable Care Act, are going to states, territories, tribal and community-based organizations. Ö The funds will be used to help families: understand their Medicare and Medicaid benefits, including coverage for preventive services; navigate options for long term care including community-based services that can help individuals remain in their homes; and assist those transitioning from nursing or rehabilitation facilities back home to put the supports in place to make that transition successful." Source:, 9/27/10 ***



LTC Comment: Henry Olsen and Jon Flugstad authored the Hoover Institution's January 27, 2009 "Policy Review" No. 153. Titled "The Forgotten Entitlements," the piece discusses Social Security Disability Insurance and Medicaid LTC. See if their views expressed in these excerpts sound familiar.

"Medicaid LTC helps elderly individuals pay for nursing homes and other institutional and community-based care. Not everyone can qualify: Only people with low incomes and few assets receive LTC benefits. But, as we will later discuss in detail, it is relatively easy for the middle class to 'spend down' their assets and end their lives in a nursing home paid for by the federal government. [Emphasis added.]

"The looming Baby Boom-driven explosion in the population of the aged presents Medicaid LTC with an uneasy future. Currently, Medicaid accounts for 42 percent of LTC expenditures. Since Medicaid is a federal matching program, it can be difficult to calculate the federal government's share in LTC services because matching rates differ from state to state. The average match rate, from year to year, however, is roughly 57 percent, which puts federal spending on LTC in FY 2006 at about $63.4 billion. Total spending on Medicaid LTC already has increased 100 percent between 1996 and 2006 to roughly $111 billion. With the total number of elderly people projected to more than double from 2000 to 2040, from 34.8 million to 77.2 million, similar increases are in store for the coming decades."

"But over the years, Medicaid ltc has become more readily available to middle-income citizens due to policy mechanisms that allow applicants to 'spend down' their income and assets. Under this approach, certain assets, such as homes and cars, are not counted towards eligibility. People who could have otherwise paid for their long-term care have used estate planning, asset sheltering, and trusts to get Medicaid to foot the bill for them. It is fantasy to believe that Medicaid can continue to pick up all these tabs. Medicaidís nominal expenditures for ltc have already grown by 305 percent since 1991 ó an average growth rate of over 19 percent per year. There is also reason to believe that levels of informal care-giving will decrease. The costs of care-giving, rise in the female labor force, decreasing fertility rates, and high divorce rates mean that fewer avenues will be available for those in need of informal care. Average family size was only 3.1 in 2000, and is projected to fall to 2.8 by 2040. This, too, could spur further growth in demand for Medicaid ltc services, which would make spending skyrocket." [Emphasis added.]

"Private ltc insurance offers one way out of this trap. Many companies already market individual ltc policies, but so far, few consumers are buying them. In 2007, only 4 percent of ltc costs were covered by private ltc insurance programs. The Congressional Budget Office predicts that by 2020, only 17 percent of ltc costs will be covered by private policies.  Why is the private market so small and why are consumers seemingly so uninterested in it?

"One major reason is simply the availability of Medicaid. As mentioned previously, the ability for individuals to spend down their assets makes free Medicaid a viable option for many Americans, even those who are by no means impoverished. Additionally, an applicant who selects private insurance would not only be paying an otherwise unnecessary premium, but he would also forgo the value of the services provided by Medicaid. A recent paper by economists Jeffrey Brown and Amy Finkelstein illustrates the effects of this implicit tax that Medicaid places on private insurance ó a tax that may be able to explain the lack of private insurance policies purchased for at least two-thirds and as much as 90 percent of the wealth distribution. Brown and Finkelstein show that for people who do not fall in the wealthiest ten percent of the population, the existence of Medicaid ltc affects their willingness to buy private policies.

 Plus, the limited size and newness of the private-insurance market means there is very little assurance that a private policy will cover all its holderís long-term needs. Health care prices are rising sharply, so a private insurance company is forced to either charge exorbitant fees for a policy that can adapt to this changing health-care environment or offer a policy with sparser benefits. [Emphasis added.]

"Another reason the private market is so small is that there is a general lack of awareness about ltc needs and services. Few Americans plan for ltc needs, even though on average 69 percent of seniors will need ltc at some point in their lives. Because people donít think about their future ltc needs, they donít purchase private policies to cover them. By contrast, drivers are required to purchase car insurance, which creates a pool of safe and unsafe drivers from which the companies can collect rates and in which they can disperse risk. This keeps costs reasonable. But private markets for ltc are small, and ltc insurance buyers are generally those who will need and use their benefit ó two reasons why private ltc insurance (worthwhile insurance, at least) costs a bundle and why Medicaid is so much more attractive."

"Nevertheless, the traditionalist principle can still be effectively employed to reduce the middle-class asset spend-down that plagues ltc. Right now, those with the assets to purchase private insurance are discouraged from doing so because of their ability to shift around or spend-down assets and acquire Medicaid eligibility. This discourages traditional virtues and encourages the entitlement mentality every bit as much as other easy-to-access entitlement programs. While it is very important to prevent spousal impoverishment for those married to ltc beneficiaries and maintain decent living standards for those returning from institutionalized care, policies should encourage individuals to use their assets on private plans instead of depleting them to gain Medicaid coverage.

"Recent reforms are already drawing on this principle. Provisions in the Deficit Reduction Act (dra) of 2005 set new restrictions on asset transferring and denied Medicaid eligibility for those with certain levels of home equity ó over $500,000 (or up to $750,000 in states that have chosen to raise standards above and beyond the federal threshold). It also made the LTC Partnership Program available in every state. Previously only available in four states, the Partnership Program allows Medicaid applicants who purchased private ltc insurance to protect their assets from being counted toward Medicaid eligibility if they have depleted the benefits from their plan. Consumers fear private programs because of the programsí inability to cover all LTC needs. When benefits are exhausted, policyholders are left to find other sources of care, such as Medicaid. But partnership plans encourage people to purchase private plans because they are precluded from the risk of having to spend down their assets after their benefits are exhausted. States have also implemented the 'Own Your Future' Campaign, which 'aims to increase consumer awareness about the need to plan for long-term care and provides tools and information to help people plan for their long-term care needs." [Emphasis added.]


LTC Comment: Any reader of our LTC Bullets, LTC E-Alerts, many published articles, and numerous national and state-level reports has seen these same arguments made repeatedly by us since 1985.

Medicaid LTC may be a "forgotten entitlement," but it's never been forgotten here. Yet scan this report's bibliography and you'll find no reference to the Center for Long-Term Care Reform's publications.

Oh well, they say imitation is the highest form of flattery. We'll settle for that. And remember what Harry S. Truman said: "It is amazing what you can accomplish if you do not care who gets the credit."