LTC Bullet:  The Medicaid Program Integrity Act

Friday, May 3, 2013

Alpine, TX—

LTC Comment:  New proposed legislation opposes the two biggest perverse incentives in public policy that discourage responsible LTC planning.



LTC Comment:  I often get questions like this one.  “Mr. Moses, you’ve been writing about Medicaid and long-term care financing for a long time.  You’ve made hundreds of recommendations over the years.  If you had to pick just one or two things policy makers could do to improve LTC, what would they be?”

You couldn’t find a better answer to that question than H.R. 1703, “The Medicaid Program Integrity Act of 2013” recently introduced in the U.S. House of Representatives by Congressman Charles W. Boustany, M.D. (R, LA).  The provisions in this bill, when they become law, as they must sooner or later, in this or some other form, will correct the two biggest problems facing long-term care.

What are those problems? 

First, the “Maintenance of Effort” (MOE) requirement in ObamaCare prevents state Medicaid programs from tightening their income and asset eligibility rules.  Consequently, for example, states that made access to Medicaid’s most expensive LTC benefits very easy during good economic times are unable to tighten that access now in order to save money, ensure scarce LTC resources go to their neediest citizens, and send the message to the general public that long-term care is a personal risk and responsibility for which families should plan early and responsibly.  The Medicaid Program Integrity Act repeals the MOE requirement.  It would therefore, allow the 13 states and DC which opted for a home equity exemption of $750,000 (currently inflated to $802,000) to reduce the amount of their exemption to the minimum allowed under federal law, currently $536,000.  But that limit still leaves our home equity exemption almost 15 times larger than socialized England’s $36,600 exemption, which includes all property, not just home equity like ours.

So, second, that huge home equity exemption is the single biggest loophole in federally imposed Medicaid LTC eligibility rules.  As long as it remains in effect, even at the reduced level of over half a million dollars, the vast majority of Americans can qualify easily for Medicaid LTC benefits without spending down simply by hiding their money in their homes.  (Mandatory estate recovery, intended to ensure that all assets, including home equity, go to re-pay Medicaid after recipients die, was achieved in 1993, but unfortunately remains very easy to evade.)  The Medicaid Program Integrity Act allows state Medicaid programs to reduce their home equity exemption to as low as $50,000.  That’s still over a third more than England allows, but it would send a very strong message to middle class and affluent Americans that failure to plan for long-term care could cost them and their heirs dearly. 

Eliminating the maintenance of effort requirement and enabling states to reduce their home equity exemptions to a more reasonable level are the two most important actions the federal government could take to reduce perverse incentives in current law that discourage responsible LTC planning.  There are many more things that need to be done, such as (1) stopping the abuse of “Medicaid-friendly annuities” which allow couples to divert hundreds of thousands of dollars from Medicaid spend down without any pre-planning and (2) closing the “reverse half-a-loaf” loophole that survived the Deficit Reduction Act’s valiant effort to return Medicaid LTC to the needy.  To find other examples, read any of the Center for Long-Term Care Reform’s many national and state-level studies here.

Bottom line, the Medicaid Program Integrity Act does not do everything that needs to be done to fix LTC financing policy, but it does do the two most important things and that’s a critical step in the right direction. 

Are we tilting at windmills to ask Congress to pass and the President to sign such a bill?  Probably, in the short term.  But I’ve learned that perseverance in tilting often tips windmills over.  We’ve made important progress over the years since the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA ’82) first allowed states on a voluntary basis to restrict asset transfers, place liens on real property, and recover from estates.  Legislation in 1988 (MCCA ’88) made asset transfer restrictions mandatory.  OBRA ’93 made transfer of asset limits longer and stronger and estate recoveries mandatory.  HIPAA ’96 and BBA ’97 tried to stop asset transfers altogether.  And the DRA ’05 further strengthened asset transfer restrictions and put the first cap ever on the home equity exemption.  For the full history and complete citations, see our “LTC Graduate Seminar Transcription” here.

So progress is slow.  But it is inevitable.  The USA cannot continue indefinitely to finance LTC for the middle class and affluent through a welfare program that serves no one well.  Kudos to the author of the Medicaid Program Integrity Act of 2013 and to its supporters.  Tilt away proudly.