LTC Bullet: Medicaid Matters Most

Friday, May 5, 2017


LTC Comment: Medicaid is not just a factor in long-term care financing; it is the factor overshadowing all others. Why and how?


“The simplest answer is most often correct.” Occam’s Razor

“Give me a lever long enough and a fulcrum strong enough and single-handed I can move the world.” Archimedes

Long-term care financing is complicated. Think of all the research studies, journal articles and special commissions that have grappled with it unsuccessfully for decades. Recall the myriad variables, perplexing questions, noble goals and stubborn obstacles standing in the way of progress. Just to name a few:

Who should pay? Are people responsible or is government? Should planning be voluntary or compulsory? Why do people ignore long-term care risk and cost until too late to prepare? How can nursing home bias prevail when people prefer cheaper home care? Why is long-term care fraught with access and quality problems? How can we spend so much on long-term care but the sector remains starved for funding? Why is caregiver compensation so low and who will do that work in the future for minimum wages? What is going to happen when the age wave finally crests and crashes in the 2030s?

The usual policy analysts’ response to these perplexities is to wring their hands and conclude the government must compel people to prepare for long-term care by paying higher taxes. But what if public financing is what caused our long-term care dysfunctions in the first place? What if the questions and problems we face have a simple answer? Could Occam’s Razor and Archimedes’ leverage principle apply to long-term care? What is the simplest way to fix long-term care financing?

Medicaid is not just a factor of long-term care financing.  It is the critical factor. Since its founding in 1965, Medicaid has evolved from a minor funder to become the primary payor for formal paid care. Its near monopsony status has serious ramifications. Because Medicaid requires state programs to pay for nursing home care, it has an institutional bias. Because it pays notoriously low reimbursement rates, Medicaid causes caregiver shortages and access and quality problems. Because it pays for care whenever needed, Medicaid enables the public’s denial of long-term care risk and cost. Because it pays after the insurable event occurs, Medicaid crowds out private long-term care insurance. Because it pays increasingly for home care, Medicaid inhibits the private home care market. Name a deficiency of long-term care service delivery or financing and you will find Medicaid at the root of it.

Many policy analysts will agree with that assessment or some parts of it. They too blame Medicaid for numerous long-term care problems, but for different reasons. They claim Medicaid requires impoverishment; that people must spend down their life’s savings to qualify for long-term care benefits; and that wide swaths of the American public are devastated by catastrophic expenditures before they receive help from Medicaid. What these analysts do not and cannot explain is that, if Medicaid requires impoverishment, why do most people ignore this calamitous risk, fail to plan, save, invest or insure for long-term care, and end up dependent on a means-tested welfare program? Most analysts cannot explain this logical contradiction, so they evade it.

Here’s the key to unlock this confusing conundrum of long-term care financing quandaries. Medicaid long-term care benefits do not require impoverishment. Virtually unlimited income does not obstruct eligibility if medical and long-term care expenses are high enough, as they usually are for people in need of formal, paid long-term care. Virtually unlimited assets are exempt in the form of home equity (between $560,000 and $840,000), one business, one auto, IRAs paying periodically, term life insurance, Medicaid-compliant annuities, life care contracts, prepaid burials, personal belongings, and home furnishings. Over and above these routine exemptions, the use of trusts, “spousal refusal,” disinheritance, divorce and numerous sophisticated “Medicaid planning” techniques make access to Medicaid long-term care benefits available to almost anyone who chooses to take advantage of the program.

Once you realize that Medicaid does not require impoverishment, all the puzzles associated with long-term care financing disappear. If people can ignore the risk of long-term care, avoid the premiums for private insurance, wait to see if they ever need expensive paid long-term care and if they do, transfer most of the cost to Medicaid, then everything else follows logically. Most people do not plan for long-term care; they end up on Medicaid by default if they need care; and Medicaid pays for most care, overburdening its scarce resources. Consequently Medicaid has too little revenue to pay care providers adequately which causes caregiver shortages and other access and quality problems. Quad erat demonstrandum.

Q.E.D., notwithstanding, this analysis has not prevailed in the marketplace of ideas. That’s why the Center for Long-Term Care Reform’s new report, titled “How to Fix Long-Term Care Financing,” will document the argument and the evidence for it conclusively. It will prove beyond any doubt that access to Medicaid long-term care benefits does not require impoverishment. It will explain why most analysts wrongly claim that Medicaid does require impoverishment. It will describe Medicaid’s true role as the dominant factor in long-term care financing and trace the history of how it became that way. It will recount how frequent efforts to target Medicaid’s limited resources to its originally intended needy recipients have failed repeatedly. It will explain why such efforts ended entirely in 2005, show no signs of recurring, and must begin anew to salvage long-term care financing. Finally the new report will propose simple solutions to improve Medicaid as a long-term care safety net for people in need while improving the access to and qualify of long-term care for people of all economic levels.

Stay tuned.