LTC Bullet:  Who Isn’t Covered by Private Long-Term Care Insurance?

Friday, October 21, 2016


LTC Comment:  Who is not covered by private LTCI is a much more interesting question, and harder to answer, than who is covered as we’ll explain after the ***news.*** [omitted]


LTC Comment:  A recent (August 2016) “brief” titled “Who Is Covered by Private Long-Term Care Insurance?,” by Richard W. Johnson of the Urban Institute, offers some interesting data and observations in answer to his title’s question.  For example:

“In 2014, 11 percent of adults ages 65 and older living in community settings were covered by long-term care insurance (figure 1), corresponding to about 5 million people.” (p. 2)

“Private long-term care insurance coverage rises with wealth, because wealthier people are better able to afford coverage than those with less wealth.”  (p. 3)

Mr. Johnson concludes:  “Private long-term care insurance is not the best way to finance LTSS for every older adult. People with limited financial resources and pre-existing health conditions, for example, may always have to rely on public programs like Medicaid.  However, expanded long-term care insurance coverage could protect many middle- and upper-income older Americans from catastrophic LTSS expenses.”  (p. 5)

LTC Comment:  These are not very profound observations or conclusions.  Wealthier people are more likely to buy LTCI?  Well, yeah. 

LTCI isn’t for everyone including poor people who need public welfare?  OK, sure. 

Expanded LTCI coverage could protect many more middle- and upper-income people?  Great!  That’s a welcome and very unusual admission for someone representing the Urban Institute.

But the far more interesting question is why don’t “many middle- and upper-income older Americans” buy LTC insurance?

The answer to that question is hidden in Johnson’s paper but you have to identify his fallacious assumptions about Medicaid LTC eligibility to find it.

For example, he writes:  “Medicaid covers only those people with severe LTSS needs who have virtually no assets other than their home or have already spent nearly all of their wealth on LTSS.”  (p. 1)

If that were true, many more people would worry about long-term care, plan for it, and buy LTCI.  But it is not true.

First, there is no requirement in federal or state law or regulations that people must spend down for long-term care.  They can spend their money for anything they want as long as they receive fair market value in exchange.  That’s why Medicaid planning attorneys offer advice like this:

Another sheltering strategy is to convert available, countable assets into noncountable exempt assets.  For example, money in checking or savings accounts may be used, without creating a period of ineligibility, to purchase or improve a home, pay off a mortgage, buy a cemetery lot, pre-pay funeral services, pre-pay residence-related taxes and insurance, or even pay outstanding bills, including legal fees....[1]


While there are rules against giving away most assets, there are no prohibitions against simply spending money...options might include travel to visit relatives or see the world, or one last tour of Reno's finest establishments.[2]


...a common misconception among [Medicaid] applicants is that excess resources must be spent only on doctors, hospitals, nurses, medication, and nursing homes.  Nowhere in the law is this indicated.  Quite literally, an applicant could spend all of his or her assets on something 'frivolous,' such as a 90th birthday celebration of Ziegfield Follies proportion and this should not be cause for denial of Medicaid, because the applicant received 'value' for his or her money.[3]

Second, the home (up to $828,000 of equity in 13 states, $552,000 elsewhere) isn’t the only major asset Medicaid exempts.  It disregards these with no limit on their value:  one farm or business including the capital and cash flow; IRAs that are paying out (as all must after age 70.5); one automobile (including a new Tesla or Mercedes); prepaid burial funds for everyone in the recipient’s immediate family; term life insurance; personal belongings; and home furnishings.  People who have too much in cash or negotiable securities only need to convert that disqualifying wealth into exempt assets by purchasing one or more of these items.

Now consider this observation that Johnson makes about the relationship between wealth and the purchase of LTCI:

In 2014, coverage rates reached 25 percent for adults ages 65 and older with at least $1 million in total household wealth and 20 percent for older adults with at least $500,000 but less than $1 million in household wealth (table 1). By contrast, only 8 percent of older adults with at least $100,000 but less than $500,000 in household wealth—representing 40 percent of the older population—had coverage.  (p. 3)

Why is the market penetration less than half (8 percent) for people under $500,000 in wealth than (20 percent or more) for people with over $500,000?   Shouldn’t it follow that people with less wealth are more at risk to spend down than people more wealth?  Shouldn’t people with fewer assets be even more worried about losing them than more affluent people?  Ought not lower-wealth people to be even more likely to purchase at least some LTCI protection than their better-well-off fellows?

Of course.  That would follow if it were not for the fact that Medicaid is the dominant payer for long-term care for the middle class and some of the affluent while sheltering virtually unlimited assets from spend down and from estate recovery, which is easy to avoid.  Consider too that we have not even mentioned the more sophisticated legal means to qualify for Medicaid without spending down, i.e., artificial self-impoverishment by means of Medicaid estate planning.

It’s good to know who buys LTCI, but it’s much more important to understand why so many people do not buy the product.  By answering that question, as we’ve just done, and correcting it you can save Medicaid for people truly in need, reduce the burden on taxpayers of welfare-financed LTC, divert many more middle class and affluent people to private LTC financing alternatives like home equity conversion and LTC insurance, and improve long-term care options and quality for all Americans.


[1] Hal Fliegelman and Debora C. Fliegelman, “Giving Guardians the Power to do Medicaid Planning,” Wake Forest Law Review, Vol. 32, No. 2, Summer 1997, pps. 341-2, 359, 362-4, 373.

[2] Michael Gilfix and Mark Woolpert, "Medi-Cal Asset Preservation and Your Clients or Estate Planning is Not Enough!:  A California Elder Law Institute Continuing Legal Education Seminar," Gilfix Management Group, Palo Alto, California, 1990, p. 42.

[3] Ira S. Schneider and Ezra Huber, Financial Planning for Long-Term Care, Human Sciences Press, Inc., New York, 1989, p. 142.