LTC Bullet: Three to Get Ready

Friday, January 19, 2018


LTC Comment:  Three seemingly unrelated Wall Street Journal articles this week are ominous for long-term care financing. Explanation after the ***news.***

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1/18/2018, “Long-Term Care Insurance Claim Payments Rise 6.4%,” by Allison Bell, ThinkAdvisor

Quote: “Long-term care insurance (LTCI) providers paid about $9.2 billion in U.S. long-term care claims in 2017, or about 6.4% more than they paid in 2016, according to the American Association for Long Term Care Insurance. . . . The number of people on claim increased 5.4% between 2016 and 2017, to 295,000, according to AALTCI.

LTC Comment: Something tells me we won’t see these findings on the front page of the Wall Street Journal. ***



LTC Comment: “One for the money; two for the show; three to get ready; and four to go.” I recall that expression from my childhood. It came to mind as I contemplated three WSJ articles this week. They seem to bear no relationship to each other, but taken together they’re ill omens for long-term care financing. So, here we go . . .

Article number one is “How Millionaires Collect Food Stamps,” by Kristina Rasmussen, published January 15. She writes

Consider the food stamp program’s longstanding policy of “broad-based categorical eligibility.” You probably assume that food stamps go to poor people only. But this policy . . . allows state food-stamp programs to grant benefits to anyone who has moderately low wage income, regardless of net worth. A family with a seven-figure bank account can be eligible for food stamps.

Sound familiar? The same phenomenon occurs with eligibility for Medicaid long-term care benefits, only worse. Most assets are exempt from eligibility consideration, but even low-income isn’t necessary for Medicaid LTC, only cash flow insufficient to pay for costly nursing home care. For a complete explanation of Medicaid long-term care eligibility, why the affluent often qualify, and dozens of references to legal publications explaining how, see my monograph “How to Fix Long-Term Care Financing,” published by the same Foundation for Government Accountability that employs the food-stamps-article author Rasmussen.

Article number two is an op-ed titled “The Case for Medicaid Work Requirements,” by WSJ editorial board member Jason L. Riley, published January 16. He writes

[F]ew things are more important to America’s financial health than entitlement reform, and last Thursday the Trump administration backed state work requirements for recipients of Medicaid, which covers more Americans than any other health-care program. . . . In a major policy shift . . . the Trump administration told states that they could impose modest work or job-training requirements on childless adults without disabilities who receive Medicaid.

Imagine having to work or show signs you’re trying to find work before qualifying for free taxpayer-financed health care. Heaven forfend! Opposition was quick, widespread and strident.

But this was just a baby step in the direction of targeting Medicaid to the genuinely needy, because, as Riley observes, most Medicaid recipients are elderly, disabled or children, not able-bodied adults. A much bigger problem remains:  gaping loopholes that trap many otherwise responsible affluent people on Medicaid unnecessarily. Specifically, the program’s huge home equity exemption--between $572,000 and $858,00 as of 2018--and its policy of allowing Medicaid-friendly annuities and “spousal refusal” create a slippery slope onto Medicaid for people who could, would and should have prepared privately for long-term care risk and cost.

A smart next step for the Centers for Medicare and Medicaid Services, which administers Medicaid, would be to apply the same “1115 Waiver” authority it used to enable states to impose work requirements on able-bodied applicants, to empower state Medicaid programs to reduce or eliminate the federally imposed home equity exemption and the annuity and spousal refusal dodges. I explained the need and made the case for such a move in “How to Fix Long-Term Care Financing.”

Article number three is a front-page, above-the-fold news article titled “Millions Bought Insurance to Cover Retirement Health Costs. Now They Face an Awful Choice,” by Leslie Scism, published January 17. She writes

Long-term-care insurance was supposed to help pay for nursing homes, assisted living and personal aides for tens of millions of Americans when they became unable to take care of themselves. Now, though, the industry is in financial turmoil, causing misery for many of the 7.3 million people who own a long-term-care policy, equal to about a fifth of the U.S. population at least 65 years old. Steep rate increases that many policyholders never saw coming are confronting them with an awful choice: Come up with the money to pay more—or walk away from their coverage.

Here’s how I replied to Ms. Scism:

“There is a critical aspect of the LTC insurance issue that your otherwise fair and well-researched article missed entirely.

“When LTC insurance carriers recognized their reserves were inadequate to pay future claims, they did the honorable thing. They raised premiums to ensure future claimants would receive full benefits.

“Compare that with the federal government’s failure to fund Social Security and Medicare adequately, leaving those programs with upwards of $100 trillion dollars in unfunded liability. What’s more, government policy actually impaired private LTC insurance.

“Beyond the reasons you cited for LTC insurance problems (actuaries’ errors regarding lapse rates and utilization, plus the Federal Reserve’s forcing interest rates to near zero, for which actuaries should not be blamed) there is another cause. Medicaid is the dominant payor of long-term care. Easy access to Medicaid for middle class and affluent people after they already needed care crowded out up to 90% of the potential market for LTC insurance, according to authors of peer-reviewed research published in the American Economic Review.

“In other words, government policy impaired demand for and profitability of private long-term care insurance, while itself, leaving most aging Americans vulnerable to social insurance and public assistance programs that are hopelessly unprepared financially for the coming age wave.

“It is a tragedy to blame private insurers and the dedicated people who’ve tried to make the LTC insurance product work for problems caused by poor public policy. Blame the culprits, not the victims.

“For a full explanation, evidence and documentation of these facts and this analysis, please see my monograph “How to Fix Long-Term Care Financing,” published by the Foundation for Government Accountability (also the source of yesterday’s WSJ op-ed about millionaires on food stamps, a very similar problem.)  

“If you would like to follow up on these aspects of this complicated problem, please contact me.” 

Steve Moses, President
Center for Long-Term Care Reform

LTC Comment:  OK, let’s tie these three articles and the key points they make together. Article one exemplifies the problem. Perverse incentives in public policy lure affluent people onto welfare for whom our safety net programs were never intended. Article two shows an example of how public policy can be modified to discourage overuse of public assistance by able-bodied non-needy people. Finally, article three demonstrates how the private sector, in this case long-term care insurance, gets blamed for problems caused, exacerbated and prolonged by counterproductive government rules.  

Takeaway:  “There are people, who the more you do for them, the less they will do for themselves.” (Jane Austen, Emma) We’d better rid public policy of the pernicious tendency to do too much for too many or we’ll fail the few genuinely needy Americans who need help the most.