LTC Bullet:  LTC at a Crossroads

Friday, June 3, 2016


LTC Comment:  Long-term care financing policy is at a critical crossroads and may take a wrong turn.  We explain after the ***news.*** [omitted]


When you come to a fork in the road, take it.  Yogi Berra

If we could first know where we are and whither we are tending, we could better judge what to do and how to do it.  Lincoln, House Divided Speech

Beware of the naked man who offers you his shirt.  Navjot Singh Sidhu

LTC Comment:  U.S. long-term care financing policy has come to a fork in the road.  If we take the now-most-likely turn, the consequences could be disastrous.  Far better if we back up, consider how we got to where we are, and reconsider alternative pathways before we choose.  Otherwise, we may end up with yet another bankrupt entitlement program, with Uncle Sam nude promising raiment.

The Trending Consensus

After decades of struggling unsuccessfully to find better ways to finance long-term care, researchers, industry experts and public policy makers are starting to agree on a general direction for reform.

A consensus is forming around the idea of a mandatory, government-financed program to cover the back-end, catastrophic long-term care risk with incentives for private insurance to help pick up some of the front-end risk.

Three reports published in February of this year offered variations of this plan:

All three reports relied on research conducted by (1) the Urban Institute (UI) and Milliman as described in a November 2015 Health Affairs article titled “Financing Long-Term Services and Supports:  Options Reflect Trade- Offs for Older Americans and Federal Spending,” by Melissa M. Favreault, Howard Gleckman, and Richard W. Johnson and (2) the Urban Institute and the Department of Health and Human Services Assistant Secretary for Planning and Evaluation (ASPE) as published July 2015 and revised February 2016 in “Long-Term Services and Supports for Older Americans: Risks and Financing.”

We have already critiqued these reports, the research underlying them and the ethical principles on which they depend in:

Let’s look now at what went wrong that led smart, well-intentioned people to the brink of a big mistake.

Foundational Fallacies

(1) Ignoring Lincoln.  In the quote at the top of this article, our 16th President recommended considering where we are (we might add “how we got here”) and where we’re headed, before deciding just what to do and how to do it.  The organizations and authors behind the new LTC consensus have not explained why LTC has the problems it has, how the problems developed over time, or why their “solution” will help.  What if excessive government interference in the long-term care market is the primary cause of its welfare-based access and quality problems, inadequate funding, caregiver shortages, institutional bias and oblivious consumers as we argue in “The History of Long-Term Care Financing or How We Got Into This Mess?”  If that’s the case, how will adding more government financing and interference improve the LTC market?  Why won’t it make problems worse instead of better?  Yet, any reflection on the history of LTC financing and the cause of the problems they propose to resolve is missing from the research and reports underlying the new LTC consensus.

(2)  Fallacy of Impoverishment and The Myth of Medicaid Spend Down.  The new consensus is grounded in the assumption that vast swaths of America’s aging population are spending down their life’s savings into total impoverishment for long-term care.  Its advocates do not base this assumption on evidence, but on the mistaken presumption that Medicaid, the principal payer for long-term care, requires impoverishment.  Actually, people qualify for Medicaid’s expensive LTC benefit with incomes up to the total cost of their actual medical expenses including long-term care, with practically unlimited exempt assets and with much, much more if they retain the help of a Medicaid planner.  For details, see “The Myth of Medicaid Spend-Down,” “The Fallacy of Impoverishment,” and the dozens of articles here.

(3)  LTC Myopia.  The forming LTC consensus is based predominantly on analysis of longitudinal data about the income and assets of aging Americans and their dependency on public programs such as Medicaid and Medicare.  These HRS/AHEAD/Rand data bases are a wonderful source of information.  They show that most people have low income and assets as they enter their declining years and that many aging people decumulate what little wealth they have fairly rapidly as they approach the need for long-term care.  No surprise there.  Old people in the bottom half financially are poor and do need an economic safety net.  What’s missing in the research based on “big data” is an explanation of what happens to the income and assets of people between the median and the top five percent of wealth.  That research has totally ignored the vast legal literature on Medicaid planning and the flood of information on how to qualify for Medicaid without spending down that is readily available on the internet and in the popular media.

(4) Equivocation on “asset transfers.”  How is it possible for researchers to ignore something as big and ethically questionable as widespread artificial impoverishment to qualify for Medicaid?  Several GAO reports and some scholarly studies we’ve critiqued over the years show how:  Where There's Smoke, There's Fire; GAO on TOA Underwhelms; Georgetown, GAO and Kaiser:  The Bermuda Triangle of Good LTC Policy; Kaiser Cover-Up Continues; GAO AWOL on LTC TOA; GAO Punts on Medicaid Planning.  These studies all focus on only one of the many ways to qualify for Medicaid without spending down, specifically asset transfers.  They find that asset transfers are relatively rare and occur in mostly small amounts, although one study did acknowledge that up to one percent of the cost of Medicaid long-term care spending could be recovered by aggressively pursuing transferred assets.  While that is real money, the big money lost to Medicaid is not in asset transfers, but in the ease with which middle class and affluent people can qualify for Medicaid even without formal legal planning and the many forms of Medicaid planning that do not involve transferring assets, such as the purchase of exempt assets.

(5) Equivocation on “spend down” and “transitions.”  A great deal of the research underlying the new LTC consensus is based on a failure to distinguish between genuine spend down of savings and simply transitioning to Medicaid without needing to spend down or after artificially self-impoverishing oneself.  Because Medicaid’s income and asset rules are very generous and elastic, it is quite easy and commonplace to transition to Medicaid LTC benefits without spending down savings.  But this reality is rarely recognized and acknowledged in the literature.  Analysts choose instead to call everything “spend down” on the simple presumption that people are too ignorant, naïve, or stigmatized to take advantage of universally available information on how to get Medicaid, a means-tested public welfare program, to pay for their long-term care without spending down.

(6) Equivocation on “out of pocket” expenses to include residential care and to exclude Medicare post-acute care.  Advocates of the new LTC consensus argue that out-of-pocket expenditures for LTC (call them “OOPs”) have skyrocketed to over 50 percent.  They get to that figure by including in OOPs room and board expenses in residential care settings, costs that people would incur whether they need LTC or not, and by excluding Medicare expenditures from the LTC total, even though Medicare’s relatively generous nursing home and home care reimbursements are the only thing enabling Medicaid to pay LTC providers less than the cost of the care.  Why tie themselves in argumentative knots to make OOPs look as high as possible?

If you want a big new government program to fund long-term care, it helps if you can convince policy makers and voters that the public is spending outrageous amounts of money for long-term care and so desperately needs financial assistance.  But the proportion of long-term care paid by government has been going up and the proportion paid by individuals and families has been going down for half a century.  When Medicaid first started paying for long-term care, out-of-pocket expenditures were very high, upwards of half of all nursing home expenditures.  But then Medicaid and Medicare spending increased rapidly and dramatically.  OOPs declined to around one-fourth of total expenditures.  As we point out every year in our annual update on the latest LTC expenditure data titled “So What If the Government Pays for Most Long-Term Care,” even that low OOPs figure is misleadingly high because roughly half of it is not assets being spent down, but Social Security income being spent-through by people on Medicaid already as required to offset Medicaid’s cost of care.  To this day, upwards of 85 to 90 percent of nursing home expenditures can be accounted for without dipping into personal savings.  The same is true of home care.  Only 8.9% of formal home health care costs were paid out of pocket. 

Our Challenge

If the newly forming consensus on long-term care financing policy is not to become an unstoppable juggernaut like ObamaCare, we need to mobilize, analyze, criticize and refute its underpinnings.  That’s how cooler heads managed to reverse the misbegotten CLASS Act even after it passed into federal law.  How to proceed?  Well, we’re working on that.

The Center for Long-Term Care Reform is systematically reviewing decades of published research that has culminated in the errors we’ve described in this article.  We’ll show how easy access to Medicaid LTC benefits after the insurable event has occurred explains why most people do not plan for long-term care and end up dependent on Medicaid.  We will explain how people over age 65 with median through 95th percentile incomes ($24,150 to $93,000), assets ($63,350 to $1,219,250), and housing wealth ($65,500 to $418,400) routinely become eligible for Medicaid LTC benefits.  We will demonstrate that tightening Medicaid financial eligibility criteria to put home equity at risk and closing the egregious Medicaid-compliant annuity loophole can remove perverse incentives that discourage responsible long-term care planning.

And from these facts and this reasoning, we will plot and recommend a better course toward improving long-term care service delivery and financing.  Stay tuned.