LTC Bullet: What Should the LTC Commission Do?
Friday, June 21, 2013
LTC Comment: How should the LTC Commission prioritize its work and recommendations? Some thoughts after the ***news.*** [omitted]
LTC BULLET: WHAT SHOULD THE LTC COMMISSION DO?
When the American Taxpayer Relief Act of 2012 (ATRA ’12) repealed CLASS it offered a consolation prize, a special commission to study long-term care services and financing. The new commission was directed to form quickly, deliberate rapidly, and present its recommendations for long-term care reform within six months. Months have gone by with no action, but the LTC Commission has finally appointed a Chair (SCAN’s Bruce Chernof) and Vice-Chair (Towers Watson’s Mark Warshawsky) and scheduled its first meeting for this coming Thursday, June 27.
With only three months of its original six remaining, where should the commission start? What should its priorities be? Where can it get the biggest reform bang for its deliberative buck?
The problem with long-term care is that people don’t worry about it or plan until they need it. That condition exists because Medicaid made nursing home care virtually free in 1965, created an institutionally biased LTC system, impeded a private market for home and community-based care, and crowded out home equity conversion and private LTC insurance from helping to finance long-term care. The result is that a safety net program intended to help only the poor has become the dominant payer of long-term care for everyone.
Throwing more government money at long-term care or forcing Americans into another unfunded entitlement program like Medicare would only make the situation worse. You don’t put out a fire by dowsing it with gasoline. The right way to approach reform is to return Medicaid LTC to the needy and redirect the affluent and middle class toward early LTC planning and private LTC financing. That’s how a safety net for the poor can be preserved while attracting private-sector funding to relieve the hopelessly heavy and about-to-explode fiscal burden on government.
To achieve that goal, these should be the LTC commission’s priorities:
1. Eliminate or vastly reduce Medicaid’s home equity exemption from a minimum of $536K and a maximum of $802K now to something more reasonable, like $50K or less. This would redirect people to reverse mortgages to fund home care, discourage a common planning gimmick of investing otherwise countable assets in exempt homes, and encourage families to help elders prepare for private LTC financing as a way to protect their own inheritances. Simultaneously the look-back period for transfers of real property should be extended from 5 years to 10 years or even 20 years to discourage divestment of the home. Longer lookbacks for real property are no administrative burden because all real estate transfers are recorded and easy to track, often online these days.
2. The next biggest potential savings to Medicaid is reducing or eliminating the currently unlimited exemption for prepaid funeral expenses. Eligibility workers in a couple dozen states where I've conducted my studies have told me 80% to 90% of all Medicaid LTC recipients have prepaid burial plans averaging $8,000 to $12,000. I'm told very few non-Medicaid-LTC recipients purchase such plans. Medicaid planners say “Prepaying a burial may not be a timely investment in many cases since it returns no interest or dividends, but purchasing an irrevocable burial plan is an important part of the Medicaid spend down.” (ElderLaw Answers). Annually, this exemption amounts to scores of billions of dollars diverted from private financing of LTC to Medicaid asset shelters nationally. Wonderful windfall for the funeral industry and heirs but a huge cost to Medicaid and taxpayers.
3. Medicaid-friendly annuities are a gigantic problem that would be simple to fix if CMS would just take the travesty seriously. They're used in two ways. First, a Medicaid LTC recipient transfers all his assets to a community spouse which interspousal transfer is allowed anytime without limit. Now the spouse has the whole estate in her name, buys an immediate annuity which meets requirements of the Deficit Reduction Act of 2005 (DRA ’05), such as paying out within the actuarial life expectancy of the Medicaid spouse, and collects all the money back in her own name but outside Medicaid consideration in as little as a year. Maine gave me the example of a $450,000 annuity that paid out $17,000 per month to the community spouse until she had the whole amount, less the agent's commission, in her exclusive ownership. Maine provided a letter New Jersey sent to CMS requesting closure of this loophole to which they said CMS never formally responded. The second way annuities are used is as a means to return half of a penalized asset transfer in a "reverse-half-a-loaf" method that could also be done using a promissory note for the purpose of qualifying an unmarried applicant for Medicaid LTC in half the time. (That technique is too complicated to explain briefly here, but for a full explanation and documentation of the annuity problem, see “The Maine Thing About Long-Term Care is That Federal Rules Preclude a High-Quality, Cost-Effective Safety Net.”)
4. Any assets that are only exempted and not divested should be available for estate recovery. Otherwise, Medicaid operates as free inheritance insurance for heirs. The Omnibus Budget Reconciliation Act of 1993 (OBRA ’93) tightened eligibility, encouraged liens, and made estate recovery mandatory with the intent to encourage people to save, invest or insure privately for long-term care, but to make sure, if they don’t plan responsibly, that they must pay back the cost of their care out of their estates. Unfortunately, states didn't implement estate recovery well; the feds don't enforce it aggressively; the media doesn't publicize it; and the public is unaware of it. The last time the federal government even bothered to measure and publish estate recoveries was in 2005 based on 2004 data. Estate recovery is very easy to avoid with legal advice, and that's a routine part of the advice all Medicaid planners give their clients. For details and a current status report on Medicaid estate recoveries, see our recent report “Maximizing NonTax Revenue from MaineCare Estate Recoveries.”
The Center for Long-Term Care Reform’s two recent reports cited above explain in full what must be done to wean the middle class and affluent off Medicaid, return the program to the poor as a quality long-term care safety net, and prepare the LTC financing system to meet the growing Age Wave challenge that will overwhelm long-term care otherwise. For a quick read that explains how America evolved into a welfare-financed, nursing-home-based LTC system and what to do to fix it so that people can get the care they need in the settings they prefer, see our six briefing papers titled “How to Fix Long-Term Care.”
Unfortunately, no changes to Medicaid LTC eligibility rules are easy politically. Every imaginable interest group has a stake in the status quo. Needed eligibility changes are even more difficult for the time being because of the “Maintenance of Effort” rule in the Affordable Care Act of 2010 (ACA ’10) which prevents states even from reducing their easy eligibility rules (e.g., $802,000 home equity exemption) to the tighter rule otherwise allowed (e.g., $536,000). So fixing this system isn’t easy. But it is not impossible either, as our victories (documented here) at the federal and state level over the years demonstrate.
I think the best argument for the right kind of reform is this: we have a moral and fiduciary responsibility to ensure that Medicaid's scarce resources go first to the truly needy and that taxpayers' money is not used to subsidize the boomers' failure to plan responsibly for long-term care. If the LTC Commission applies that principle, it may make a positive contribution.