LTC Bullet: What’s Next?

Friday, October 20, 2017


LTC Comment: What can we do to mitigate LTC Armageddon?, after the ***news.***

*** LTC CLIPPING: 10/19/2017, “LTCA to Washington: Most Agree on These LTC Financing Reforms,” by Stephen D. Forman, PR/Web

Quote: “Long Term Care Associates, Inc. (‘LTCA’), accompanied by representatives from the nation's leading long-term care insurance carriers, traveled to Washington, DC this October to deliver a report addressing our country's pressing LTC financing crisis. In the report, LTCA finds common ground among competing solutions, and advocates for those which will appeal to a broad cross-section of Americans.”

LTC Comment: Congratulations to Center-corporate-member LTCA for taking a proactive stance toward the real problem facing long-term care insurance—poor public policy. Check out “LTC Financing: Where Common Sense Finds Common Ground,” their concise, highly readable report. It summarizes major recent proposals to reform LTC financing, including the Center for Long-Term Care Reform’s “How to Fix Long-Term Care Financing.” Well done! ***

*** LTC CLIPPING: 10/18/2017, “The Nation’s Retirement System: A Comprehensive Re-evaluation Is Needed,” Government Accountability Office (GAO)

Quote: “The U.S. retirement system, and the workers and retirees it was designed to help, face major challenges. Traditional pensions have become much less common, and individuals are increasingly responsible for planning and managing their own retirement savings accounts, such as 401(k) plans. Yet research shows that many households are ill-equipped for this task and have little or no retirement savings. In this special report, GAO examines these challenges, drawing from prior work and others’ research, as well as insights from a panel of retirement experts on how to better ensure a secure and adequate retirement, with dignity, for all. . . . Congress should consider establishing an independent commission to comprehensively examine the U.S. retirement system and make recommendations to clarify key policy goals for the system and improve how the nation promotes retirement security.”

LTC Comment: Yeah right, what this country needs is another study commission. No, what this country needs is to understand that if you’re going to make people more responsible for their own retirement and health care planning, you can’t indemnify them with unfunded Social Security, Medicare and Medicaid benefits when they fail. Otherwise, moral hazard prevails. Fewer and fewer people are responsible while more and more come to rely on social programs that are less and less able to pay benefits. It’s a vicious downward spiral which this mealy-mouthed GAO report misses entirely. ***

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LTC Comment: Last week’s LTC Bullet, titled “LTC Armageddon,” described the sad state of long-term care service delivery and financing in the United States. It explained what would have to happen to avoid a more likely oncoming collapse. It opined that policy makers are unlikely to do what needs to be done and concluded our best hope is to adapt as best we can.

Consider how differently the public sector and the private sector are responding to the problems facing long-term care. The public sector digs the hole deeper and deeper, spending more and more on programs like Medicaid that trap people in low cost care of uncertain quality. The private sector instead adapts creatively by designing new products and marketing strategies.

But there is only so much long-term care insurance carriers, distributors and producers can do to combat the effect of bad public policy without confronting it head on. New products and better marketing won’t reverse the disastrous effects of Medicaid’s crowding out LTCI’s demand and the Federal Reserve’s impairing LTCI’s profitability with artificially low interest rates. What can we do to address those fundamental problems?

We answered that question in detail here: “How to Fix Long-Term Care Financing” (July 2017). Unfortunately, our recommendations to give Medicaid back to the poor and incentivize everyone else to plan, save, invest or insure for long-term care are politically unachievable for the time being. No one thinks the federal government, riven as it is by political division, will cut back Medicaid’s home equity exemption, end Medicaid planning, and experiment with new eligibility rules that encourage personal responsibility and discourage welfare dependency. Yet those measures are the ones we identified as the key to turn America from mostly public financing to mostly private financing of long-term care.

If we can’t rely on the federal government to employ these critical measures, we will have to turn to individual state Medicaid programs. For a while, it looked like efforts to repeal and replace ObamaCare might succeed and convert Medicaid into a block grant program that would provide states less federal money, but give them more flexibility and much stronger incentives to manage their Medicaid long-term care programs cost-effectively. But, at least for now, that health reform approach has failed.

We’re left with only one tack to take. We need to find one or more states willing to try out these measures on their own. But how? Generally, states must follow federal laws and regulations governing Medicaid or risk losing federal funding. Yet there is an exception. Section 1115 of the Social Security Act allows state Medicaid programs to waive otherwise mandatory federal rules in order to experiment with and demonstrate the effectiveness of different approaches. The requirements that must be met to qualify for an 1115 waiver are several and strict, but the Trump Administration has committed “to ushering in a new era . . . where states have more freedom to design programs that meet the spectrum of diverse needs of their Medicaid population.” (Governors Letter, March 2017) The Administration aims to achieve this new era by encouraging and generously approving many more and varied 1115 waiver requests.

If, as we argued in “How to Fix Long-Term Care Financing,” the main problem with long-term care is that Medicaid desensitizes the public to long-term care risk and cost, then the single most important thing we can do to fix the problem is to end that condition. The primary ways Medicaid desensitizes the public to LTC risk and cost is by (1) exempting seniors’ biggest asset, home equity and (2) allowing the many methods of Medicaid planning listed and described in our report, including especially “spousal refusal” and Medicaid-friendly annuities. What’s needed, therefore, is a state Medicaid program willing to request and obtain an 1115 waiver allowing it to stop using Medicaid as free inheritance insurance for baby-boomer heirs and return the program to its original and legitimate purpose as a long-term care safety net for the truly needy.

1115 waivers must test an hypothesis that would further the purposes of the Medicaid program. How about this for such an hypothesis? If people could not shelter hundreds of thousands of dollars in home equity or divert comparable amounts from long-term care liability using Medicaid estate planning, would Medicaid save money allowing it to provide better access and care to genuinely needy recipients while relieving tax payers? Likewise, would affluent people thus denied access to public assistance use home equity conversion and resource spend down to purchase long-term care services privately thus obtaining better care and access while avoiding or at least delaying Medicaid dependency? Would this policy incentivize people to plan earlier and prepare sooner for long-term care risks and costs? Can anyone really doubt what the results of such an experiment would show? If you eliminate perverse incentives, you end moral hazard. It’s as simple as that.

It won’t be easy to find a state Medicaid program willing to seek an 1115 waiver to answer those politically sensitive questions. Politicians and bureaucrats are great at giving benefits away, but not so good at reining in fiscally out-of-control programs. But for now, this is the only practical avenue of public policy we have available to improve long-term care services and financing in the USA.

So, what’s next for your Center for Long-Term Care Reform? We’re seeking a grant to research, design, and draft an 1115 waiver as described above and to seek and find a state Medicaid program willing to request, implement, and evaluate it. Any takers?