LTC Bullet:  How Fiscal and Monetary Malfeasance Will Ruin Long-Term Care

Friday, October 7, 2016

Seattle—

LTC Comment:  Fiscal malfeasance ($20 trillion federal debt) enabled by monetary malfeasance (artificially low interest rates) bode ill for the economy and for Medicaid LTC financing.  Here’s why and how after this ***quick message.***  [omitted]

LTC BULLET:  HOW FISCAL AND MONETARY MALFEASANCE WILL RUIN LONG-TERM CARE

Following is an excerpt from our forthcoming (currently in draft) report titled “Long-Term Care Financing:  The Myth and the Reality.”  This passage, read in tandem with the report’s annotated chronological bibliography, explains why efforts have stalled to target Medicaid LTC benefits to the genuinely needy, why a new compulsory government program to finance catastrophic LTC costs is highly unlikely, and why instead we’re most likely to see Medicaid retrench from being the dominant funder of LTC to a lesser role.

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Excerpt from Stephen A. Moses, “Long-Term Care Financing:  The Myth and the Reality”

Historically, as . . . documented in the Bibliography, progress toward making Medicaid a better long-term care safety net for the poor tends to occur after major economic downturns when state and federal governments face serious financial constraints.  After most recessions since 1965, Congresses and Presidents of widely divergent ideological persuasions backed legislation closing Medicaid long-term care eligibility loopholes and encouraging early and responsible long-term care planning.  But as each recession was followed by a rapid economic recovery and fiscal pressure abated, Medicaid long-term care benefits always reverted to virtually universal availability for all economic classes.

This pattern has changed recently.  After the March to November 2001 recession following the internet bubble’s implosion, economic recovery came more slowly than before.  Likewise, it took much longer for legislation discouraging the excessive use of Medicaid long-term care benefits to be passed.  The Deficit Reduction Act of 2005 was not signed into law until February of 2006, nearly five years after the start of the previous recession.  Ultimately, economic recovery did come and true to form enforcement of DRA ’05 lessened.

The resulting boom ended when the housing bubble burst causing the Great Recession of December 2007 to June 2009.  Again, economic recovery has come very slowly and meagerly.^[1]  To date, more than seven years after the end of the last recession, we have seen neither a full economic recovery nor action to spend Medicaid’s scarce resources more wisely by aiming them toward people most in need.  In fact, . . . public policy analysts and advocates are moving in the opposite direction, toward proposing yet another government program funded by taxpayers to expand public financing of long-term care for all.

What might explain both phenomena, i.e., slower recoveries in recent years and less attention to the cost of Medicaid long-term care benefits?  The Federal Reserve forced interest rates to almost zero during and since the Great Recession.  The consequences of this policy have ramified through the economy in many ways.  One way is that government has been able to finance deficit spending and the rapidly increasing national debt at considerably lower carrying costs than before, when interest rates were much higher.  Consequently, according to a Wall Street Journal article:

Gone are the fights of yesteryear over striking a “grand bargain” to slash the debt. In their place a new debate has emerged over whether America’s borrowing capacity has gone up—and how the nation might take advantage of it.  The top candidates from both major parties have made scant mention of addressing rising long-term deficits and are calling instead for an increase in federal stimulus.^[2]

By enabling politicians to spend more without facing the normal fiscal consequences, this new economic policy has attracted greater financial resources, including borrowed funds, into public financing of all kinds and simultaneously diverted private wealth into low-interest-rate-induced malinvestment.  Consequently, political concern about burgeoning budgets and debt has abated and no significant effort to preserve Medicaid funds by targeting them to the poor has occurred.

The danger is that just as excessive public spending and private malinvestment in the early 2000s led to the housing bubble and its consequent mid-decade recession, so the current much larger credit bubble driven by excessive government borrowing and spending could lead to an even greater economic collapse.  With the current national debt topping $19 trillion^[3] and total unfunded entitlement liabilities around $103.1 trillion,^[4] a return to economically realistic market-based interest rates would render the federal government immediately insolvent. 

Further exacerbating the problem of long-term care financing is the fact that the long anticipated age wave is finally cresting and will soon crash on the U.S. economy.  Baby boomers began retiring and taking Social Security benefits at age 62 in 2008.  At age 65 in 2011, they turned the Social Security and Medicare programs cash-flow negative.  Boomers begin taking Required Minimum Distributions (RMDs) from their tax-deferred retirement accounts this year depleting private investment capital.  They will reach the critical age (85 years plus) of rising long-term care needs in 2031, right around the time Social Security and Medicare are expected to go broke.  Of course, Medicaid is the main funder of long-term care, but according to the Center for Medicare and Medicaid Services Chief Actuary, in a statement of mind-numbing denial, “. . . Medicaid outlays and revenues are automatically in financial balance, there is no need to maintain a contingency reserve, and, unlike Medicare, the ‘financial status’ of the program is not in question from an actuarial perspective.”^[5]  In a phrase, conditions are coalescing for a potential economic cataclysm in or before the second third of this century and public officials are in near total denial about the risk.

Under current circumstances, therefore, incrementally adding a new government long-term care financing program to the already dysfunctional system described in this paper would be the height of folly.  We should instead change course and try something totally unprecedented.  Save Medicaid long-term care for the poor by diverting everyone else to personal responsibility for their own lives, well-being and long-term care.