LTC Bullet: Do the Rich Benefit from Medicaid?
Friday, August 16, 2013
Stone Mountain, Georgia—
LTC Comment: Biased reporting by AARP suggests the answer to the title question is “no,” but solider peer-reviewed scholarship says “yes.” Who’s right? After the ***news.*** [mostly omitted]
LTC Comment: The obvious answer to that question is: “Of course not. Medicaid is welfare. You have to be poor to qualify. People must spend down their life’s savings for long-term care before Medicaid will help.” That’s what everyone has been taught. It’s what most of the popular media articles say. Even academics, who ought to know better, repeat the litany in their publications. It’s even what I believed many years ago.
Just one problem. It isn’t true. Here’s the puzzle that got me started studying Medicaid and long-term care financing way back in 1982. I was a federal Medicaid State Representative in the Health Care Financing Administration’s Seattle Regional Office. My state was Oregon. During a routine state assessment I came across a program called Medicaid Estate Recoveries which purported to recover millions of dollars from the estates of deceased Medicaid recipients. That really got me thinking.
See the problem? If Medicaid requires impoverishment, how could people qualify for the program, spend years in a nursing home at enormous expense to the state and federal governments, and when they died, a little state like Oregon recovered, back then $5 million, more like $20 million today, from their estates!?
It didn’t compute, so I set out to study Medicaid long-term care financial eligibility. What I found three decades ago is still true today despite statutory measures (that I successfully advocated) to tighten eligibility rules. Income almost never interferes with Medicaid LTC eligibility unless an applicant’s income is higher than the cost of a private nursing home, $75,000 per year on average. Assets held in exempt form are practically unlimited: up to $802,000 of home equity goes uncounted, and with no limit at all, a business, a car, term life insurance, personal belongings, home furnishings, IRAs if they pay out a regular cash stream, and prepaid burial plans. Finally, if you still have too much money to qualify, cadres of Medicaid planners are eager to take thousands of dollars in fees to provide quick and easy artificial impoverishment.
In other words, if middle class and affluent people were NOT benefiting from Medicaid, that would be the surprise. The burden of proof falls on those who claim Medicaid does not benefit the “rich.”
A couple weeks ago, the federal LTC Commission heard testimony from several academics on this subject. Read it here. Unfortunately, the Commission’s Vice Chairman, Mark Warshawsky, who understands how Medicaid really works, was not present due to a death in the family. So a key questioner was missing who could have brought reason and understanding to the discussion.
According to an article by Don Redfoot of AARP published yesterday, the argument about whether the rich benefit from Medicaid was resolved in favor of the deniers. Think maybe AARP is a little biased on the topic having advocated expanded government financing of LTC for decades? Read Redfoot’s article here and judge for yourself with the preceding and following content for context. He says “Do the rich benefit from the welfare-based Medicaid program? Not according to much of the testimony presented at a recent hearing of the federal Commission on Long-Term Care.”
On what is that conclusion based? Ellen O’Brien testified that “There is little basis for the assertion that people with substantial incomes or assets are becoming eligible for Medicaid by improperly transferring their assets.” I’ve debunked such careless conclusions for many years. See for example here, and here. The strategy of researchers with an ideological bias who seek to obfuscate the issue is to focus only on asset transfers. Asset transfers are significant, but they aren’t the major problem. The major problem, as explained above, is that Medicaid’s basic LTC financial eligibility rules are so generous that most people don’t have to transfer assets to qualify. Simply buying exempt assets with otherwise countable resources will suffice. People with much more money can consult Medicaid planners who have many, more effective artificial impoverishment tools than asset transfers. Such tools include Medicaid-friendly annuities, reverse half-a-loaf strategies, life care contracts, systematically purchasing large exempt assets, special trusts, etc. But the obfuscators fixate on asset transfers as if showing the limited impact of a relatively minor Medicaid planning technique proved their case.
The other argument against Medicaid benefits for the affluent came from Richard Johnson of the Urban Institute who presented data showing that most people who experience disabilities and need Medicaid assistance not only had lower incomes and assets at the time they needed assistance, but overwhelmingly also had relatively low incomes and assets during their peak earning years. Well, hello, some people on Medicaid are poor? What a surprise. The program is supposed to be a safety net for people in need. That fact says exactly nothing about the real tragedy that affluent people are consuming scarce public resources that should go exclusively to help the poor.
Does this academic sleight of hand by ideological prestidigitators get on your nerves? Then have a look at the more serious presenters who testified the same day. Eric French, from the Federal Reserve Bank of Chicago, showed that rich people really do benefit from Medicaid . . . as much or more so than poor people. Jeffrey Brown of the University of Illinois summarized his research findings that between two-thirds and 90 percent of the market for private long-term care insurance is crowded out by the availability of Medicaid LTC benefits. Since poor people don’t buy LTCI, that means that well-heeled people are also failing to buy because of easy access to Medicaid after the insurable event occurs.
According to the Redfoot piece: “Chairman Bruce Chernof said it best at the Commission hearing when he noted that he does not know anyone who wants to be on Medicaid, as Medicaid is a poverty program.” One hopes the Chairman is only naïve and not simply ignorant. Medicaid planners lure their clients with the promise that they’ll get great care on Medicaid because they can buy their way into the nicest facilities. How? By retaining “key money” so they can pay privately for awhile at rates half again as high as Medicaid’s. Financially starved LTC providers roll out the red carpet for private payers. Once in, the lawyer flips the switch, converts the client to Medicaid, and the facility is stuck with another welfare patient paying less than the cost of the care because state and federal laws prohibit expelling residents if their source of payment changes.
Unfortunately, poor people don’t have “key money.” They’re stuck with whatever Medicaid can afford which has been described as “low cost care of uncertain quality.” That’s the net effect of Medicaid’s covering too many people who could, should and would have planned early and paid privately for long-term care if it were not for the perverse incentives in public policy that academic obfuscators hide and deny. Now they want the LTC Commission to double down on public financing of long-term care which caused the problem in the first place.
Recent media stories indicate the LTC Commission has already prepared the first two chapters of its report. It’s hard at work on the final chapter which will include recommendations to Congress. We can only hope against hope that objectivity, clarity and reason will prevail. In the end, however, it likely won’t matter much anyway, because bigger fiscal issues are about to capture lawmakers’ attention as the fiscal cliff looms once again.