LTC Bullet:  Who Gets Medicaid LTC?

Friday, March 28, 2014


LTC Comment:  Is Medicaid a long-term care safety net for the poor, the middle class, even the affluent, all of the above?  Questions remain, but answers abound.


LTC Comment:  Last week’s “LTC Bullet:  LTC Embed Report from the Policy Front at ILTCI ’14 Orlando” highlighted a presentation at the recent 14th Annual Intercompany Long-Term Care Insurance conference titled “Feder and Warshawsky:  Long-Term Care Financing Perspectives and Solutions:  An in-depth conversation with two of the nation's most knowledgeable long-term care experts, Mark Warshawsky and Judith Feder.”

During that presentation, Dr. Feder of Georgetown University's McCourt School of Public Policy—who has had a long and distinguished academic career focused on long-term care financing issues—stated that most people who receive Medicaid nursing home benefits did not possess much wealth 10 or 15 years before qualifying for public assistance.  That statement didn’t surprise me.  Too few Americans have accumulated sufficient retirement savings so naturally “most” of them who end up in Medicaid nursing homes will have had small estates a decade or more earlier.  What gave me pause, rather, was her implication that this fact meant problems raised in a recent Wall Street Journal op-ed titled Millionaires on Medicaid by her interlocutor, Mark Warshawsky of the American Enterprise Institute, himself an accomplished and well-regarded scholar in the field, somehow didn’t matter. 

So I asked Dr. Feder what her source was for that conclusion.  She responded by referring me to Rich Johnson’s testimony before the LTC Commission.  Check it out:  “Income and Wealth of Older Adults  Needing Long-Term Services and Supports,” Statement of  Richard W. Johnson,  Senior Fellow, The Urban Institute, before the Commission on Long-Term Care, August 1, 2013.  I encourage everyone to read his full testimony.  What follows are selected quotes and my comments.  My closing comment addresses the more general question of why so many academics choose to conduct only research that supports a public financing bias and avoid addressing facts that challenge that bias.

Quote: "As the focus on Medicaid intensifies, questions grow about exactly who receives help from the program in later life. Has the program morphed into a middle-class entitlement for nursing home care? I have been examining the income and wealth trajectories of older adults who end up in nursing homes. My principal conclusion is that most older people who receive Medicaid-financed nursing home care have low incomes and very little wealth, not only while they are in the program but also for at least a decade before they enter a nursing home.” (p. 1)

LTC Comment:  OK, as I acknowledged above, that’s obvious given Americans’ well-documented failure to save adequately for retirement.

Quote:  "These results suggest that efforts to promote individual saving for long-term care, while laudable, may not move many people off Medicaid or save the program much money, because most Medicaid nursing home residents never had the means to save much in the first place. These findings thus underscore the importance of Medicaid for some of the nation's most vulnerable citizens."  (pps. 1-2)

LTC Comment:  Whoa!  Wait a minute.  First, no one has challenged “the importance of Medicaid for some of the nation's most vulnerable citizens.”  What’s at issue is whether Medicaid should provide long-term care to people who could have, would have and should have planned responsibly to pay for their own care if it were not for perverse public policy incentives that discourage responsible LTC planning.  Let’s first see if Johnson’s data and analysis support his conclusion that more responsible LTC planning wouldn’t save Medicaid much money. 

Quote:  “It can be difficult to tap into home equity to cover the cost of long-term services and supports and other living expenses, and states do not always pursue beneficiaries' housing wealth when trying to recoup some of the cost of Medicaid-financed nursing homes. Consequently, nonhousing wealth-defined as total household wealth excluding the value of home equity-is another useful metric of financial well-being.”  (p. 4)

LTC Comment:  Hard to tap home equity?  No it’s not.  That’s what reverse mortgages do.  The National Council on the Aging (NCOA) encourages their use as a funding source for long-term care.  Home equity, the biggest asset aging Americans possess, goes largely unused to fund long-term care because Medicaid exempts the home and all contiguous property up to a minimum of $543,000 in most states and a maximum of $814,000 in the rest.  People face a strong disincentive to tap the equity in their homes to fund home care or to supplement their income so they can afford private LTC insurance.  Furthermore, the fact that state Medicaid programs fail to pursue estate recovery of housing wealth means that home equity is not only exempt for recipients going onto assistance, it is protected as a “windfall of Medicaid subsidies” for their heirs as the HHS Inspector General explained in a 1988 report (pps. 47-48).  Johnson’s conclusion that “nonhousing wealth” bears considering as a measure of financial well-being is therefore unfounded.  Nonhousing wealth doesn’t amount to much in the first place and, in the second place, it is very easy to eliminate from Medicaid spend down liability by purchasing exempt assets including home equity but also an automobile, an income-producing business, term life insurance, an IRA, and prepaid burial insurance.

The first section of the testimony titled "Current Financial Status of Older Americans with Disabilities" (pps. 2-5) is not relevant as the disabled could not have insured and likely would not have been able to save for long-term care.  The second section, titled "Midlife Financial Status among Those Who Develop Disabilities in Later Life" is more relevant (pps. 5-7)

Quote:  “The limited income and wealth of older adults with disabilities suggests that few can afford to spend much out of pocket on long-term services and supports. However, financial shortfalls in later life may reflect long-term care expenses and are not necessarily reliable indicators of lifetime economic status or the ability to have saved earlier in life for future care needs. Moreover, some older adults with disabilities might have recently transferred assets to family members to qualify for Medicaid. To improve our understanding of the potential capacity of adults to save for future spending on long-term services and supports, the analyses described in this section examine income and wealth for people in their fifties in the early 1990s, and compares financial well-being for those who develop disabilities by their seventies and those who do not. Estimates are restricted to those who reported no ADL limitations in their fifties and were not yet retired at that time, so that the analyses do not confound the financial effects of retirement with the effects of future disabilities.  (p. 5)

LTC Comment:  This is too short a span of years to permit valid conclusions.  People in their 50s who develop disabilities only 20 years later by their 70s were likely poorer and more prone to health problems than people who did not develop disabilities in that short time span.  We would need to compare the financial condition of people in their 50s with their financial and health conditions at age 85 or older, which is when the need for long-term care spikes upward.  Unfortunately the data source used for this analysis does not cover such a long span of time.  It would be very interesting to have an insurance actuary analyze this data.

Quote:  “Disability-related disparities in household wealth are even more stark than disparities in household income. Median household wealth in 1992 for adults ages 52 to 60 was nearly twice as high for those who did not develop any disabilities by ages 70 to 78 than those who developed two or more ADL limitations (figure 2). Total household wealth did not exceed $13,300 for one in four of those who became disabled. Half of those who became disabled held less than $111,300, and three-quarters held less than $238,900. Household wealth approached $700,000 or more for only 1 in 10 adults in their fifties who became disabled by their seventies.  (p. 6)

LTC Comment:  Ditto my previous comment.  But really, half of those who became disabled had $111,300 or more in household wealth and one quarter had $238,900 or more in their 50s when they were still working and accumulating more wealth?  They sound like candidates for savings or insurance who could have prepared better for their future disabilities (and possibly delayed or avoided welfare dependency) had they had stronger incentives (and fewer disincentives) to do so.

The key section in Dr. Johnson’s testimony is the next one, titled “Financial Status of Older Americans Receiving Nursing Home Care” (p. 7).

Quote:  "The analysis in this section follows a sample of HRS respondents for up to 17 years, from 1993 until 2010. The respondents were ages 70 to 75 in 1993, when all were living in the community, and survivors were ages 87 to 92 in 2010. The analysis compares 1992 income and 1993 wealth for those who received some Medicaid-financed nursing home care over the period, those who received some nursing home care but were never covered by Medicaid, and those who never received nursing home care.

"Adults who eventually obtained nursing home care paid at least in part by Medicaid received substantially less income before they entered a nursing home than those who never entered a nursing home and those who obtained nursing home care that was never paid by Medicaid. Median annual per capita household income in 1992 was about $14,200 (in 2012 constant dollars) for those who eventually received Medicaid-financed nursing home care, compared with $21,500 for those who never received nursing home care and $25,500 for those who received nursing home care but were never covered by Medicaid (figure 4). Only a quarter of those who eventually obtained Medicaid-financed nursing home care received annual per capita income in excess of $20,000, and only a tenth received income in excess of $31,800." (p. 7)

LTC Comment:  How is this relevant?  By the time they're in their 70s their incomes have already declined because they are no longer employed.  We need to know their incomes and wealth in their 50s when they could have saved or insured.  But again, as above, the data source used for this analysis does not have the longitudinal reach it would need to have to span people’s financial and health conditions from their 50s, when their income and wealth are higher and still growing, through their 90s when they’re most likely to need expensive long-term care. 

Quote:  “Household wealth varies sharply by future nursing home care. Among community-dwelling adults ages 70 to 75 who eventually entered nursing homes, the median household wealth for those who never received Medicaid was more than five times as high as for those whose nursing home care was at least partly paid by Medicaid ($255,000 versus $49,600, figure 5). Median wealth for those who never entered nursing homes was more than three times as high as for those who received Medicaid-financed care. A quarter of those who later received Medicaid-financed nursing home care held less than $2,700 in total household wealth at ages 70 to 75, while only a quarter held more than $151,700 in total household wealth and 1 in 10 held more than $260,600.”  (p. 9)

LTC Comment:  Ditto my comment above about the inadequate chronological span of this data.  Furthermore, that quarter of folks with more than $151,700 and the one in 10 with over $260,000 sure sound more like candidates for private-pay LTC instead of Medicaid, yet that’s where they ended up.  The more important question is how much of their wealth was actually used to fund long-term care?  How much was lost to asset exemptions, Medicaid planning, and estate recovery evasion?

Quote:  "About half of our 1993 sample of adults ages 70 to 75 who eventually received Medicaid-financed nursing home care entered a nursing home within 10 years. Some of these people may have spent much of their wealth on paid home care, and some may have transferred some of their assets out of their own name to qualify for Medicaid because they expected to need nursing home care soon.

"To account for these possibilities, figure 7 examines household wealth in 1993 for community-dwelling adults ages 70 to 75 who did not enter nursing homes until 2003 or later (at least 10 years in the future). Even among members of this group, who seem less likely to have been able to anticipate their future nursing home admissions and may have spent less on other care and medical expenses than those who entered nursing homes sooner, very few of those whose eventual nursing home stays were at least partly paid by Medicaid had accumulated much wealth. Half had less than $59,600 in total household wealth in 1993, and a quarter had less than $9,900. Only 10 percent had more than $286,800." (p. 10)

LTC Comment:  Ditto my comment above about the inadequate chronological span of this data.  Furthermore, it is naïve to think people are unaware of Medicaid planning opportunities to shelter or divest assets.  Do an internet search for “Medicaid planning in Your State” and see what you get.  Word gets out fast among the aging on the “wheel chair telegraph.” Potential heirs have their ears to the ground as well.  Still, half had more than $59,600 and one in 10 had over $286,800?  Isn’t there something these folks and their families might have done to avoid welfare dependency if public policy had encouraged them to do so instead of providing a slippery slope into public assistance?  Before Medicaid intervened half of nursing home residents were private pay; now 63% reply on Medicaid; 14%, on Medicare; and only 22% depend on “other” sources.  Those other sources include private long-term care insurance, other medical insurance, other public coverage and, finally, last and likely least, the old-fashioned, write-the-check every month kind of private-pay which is rapidly disappearing.

Quote:  “It is worth noting some of the limitations of this research. For example, income, wealth, and Medicaid coverage are all reported by older respondents themselves or their proxies (usually their spouses or adult children), and the information they provide is not always accurate. The sample of older adults with disabilities on which the analyses are based is relatively small, which limits confidence in the estimates. Additionally, we observe Medicaid coverage only through ages 87 to 92, and some people do not receive Medicaid-financed nursing home care until even older ages. Those who do not obtain Medicaid coverage until they reach their nineties may have had more wealth when younger than those who obtain coverage sooner.” (pps. 11-12)

LTC Comment:  “Worth noting some of the limitations”?  I should say so.  Data provided by elderly respondents, and by their heirs with a stake in potential inheritances protected by Medicaid, is dubious.  Missing ages over 92 years drops the most costly long-term nursing home expenditures from the analysis as Mark Warshawsky points out and DeNardi, et al. observed in their seminal paper for the Chicago Federal Reserve Bank.  Finally “big data” is notorious for misinterpretation, intentional or otherwise.

Quote:  “Despite these caveats, it is clear that Medicaid provides a vital safety net for older adults with disabilities. Most older adults who end up on the program would never have been able to earn enough income or accumulate enough wealth to cover their nursing home costs. It seems likely that Medicaid will continue to play an important role in long-term care financing as long as those with long-term care needs are disproportionately those with limited financial resources.”

Closing LTC Comment:  Most is not all.  The fact that “most older adults who end up on the program” would not have been able to save, invest or insure sufficiently to avoid Medicaid is not at issue.  Nor is Medicaid’s future role in providing long-term care to the indigent.  What is at issue is whether Medicaid should be readily available for middle class and affluent people without significant spend down and whether or not the fact that it is so available results in fewer people saving, investing or insuring for long-term care and more people unnecessarily dependent on the program.

That is the issue so many academics evade.  They continue to write that “Medicaid requires impoverishment” and only “low income” people qualify for the program’s long-term care benefits.  Such statements are demonstrably false.  Income level rarely interferes with eligibility.  Assets are virtually unlimited because of Medicaid’s many exemptions.  Actual unlimited wealth can be divested five years ahead of applying without penalty.  Numerous other means of sheltering assets are available from elder law advisers without planning half a decade ahead.  Estate recovery is weak in most states, easily avoided in the rest, and of course cannot recapture wealth that was jettisoned in the first place.

All these facts are well documented here.  They explain why a few brave academics have been able to discover and publish results that contradict the conventional academic wisdom that Medicaid LTC requires impoverishment.  They explain why the Chicago Fed found “that even higher-income retirees benefit from Medicaid.”  They explain why Brown and Finkelstein discovered that Medicaid crowds out 65% to 90% of the potential market for private long-term care insurance.

What remains unexplained is why most academics and the reporters they supply with expert advice still ignore the facts of Medicaid eligibility.  They continue to seek answers in giant data bases and tiny samples, but almost never ask Medicaid eligibility workers how the program really works or consult actual Medicaid case files for answers.  I’ve done both for 30 years and I’ve reported the surprising results in publications for the Health Care Financing Administration (1985), the HHS Inspector General (1988), the Gerontologist (1990),  the Journal of Accountancy (1993), the Journal of Financial Planning (2001), the Cato Institute (2005) and in dozens of trade journal articles and think-tank sponsored reports available here.  So, you can’t say we didn’t warn you. 

The Center for Long-Term Care Reform’s latest research goes beyond documenting the easy access to Medicaid LTC benefits and its crowd out effect on responsible planning.  We’ve begun to explore the likely consequences of a wider range of factors dragging down the prospects for future long-term care financing.  Our “Index of Long-Term Care Vulnerability” gauges the likelihood that long-term care service delivery and financing as it exists in the United States today can survive the ravages of aging demographics, morbidity, economic and fiscal challenges, inadequate private financing alternatives, and the “entitlement mentality.”  Our three latest reports apply this “Index” to Virginia, New Jersey, Georgia and the USA.  Read them here at the section titled “The Center’s latest state reports.” 

It may be already too late to save America’s dysfunctional long-term care system, but it’s never too early to wake up, smell the coffee, debunk the myths, and confront the reality.


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