LTC Bullet: Feder Fantasy Fatally Flawed (Cohen Contribution Notwithstanding)
May 4, 2018
LTC Comment: A new Feder/Cohen proposal would take long-term care out of the frying pan into the fire. We explain after the ***news.*** [omitted]
LTC BULLET: FEDER FANTASY FATALLY FLAWED (COHEN CONTRIBUTION NOTWITHSTANDING)
LTC Comment: Professor Judy Feder dreams of expanding government financing (and control) of long-term care. Marc Cohen, Ph.D. is a respected analyst and advocate of private long-term care insurance. Oil and water?
Maybe not. They’ve put their heads together and come up with an ingenious concoction to fix public LTC financing and supercharge private LTC insurance with a single legislative remedy. But like any mixture of insoluble ingredients, it quickly comes apart.
Their paper, co-authored with Melissa Favreault, Ph.D. of the Urban Institute, is titled “A New Public-Private Partnership: Catastrophic Public and Front-End Private LTC Insurance.” Read it first so you have the big picture and then come back here for our challenge and analysis.
Challenge: Frankly, I’ve had it with wishful-thinking plans like this that ignore the facts of long-term care financing reality. Below is a detailed analysis and refutation of this proposal, but first, here’s the crux of the matter and an invitation to its authors.
The fatal flaw in their proposal is that it purports to achieve major savings including a 15% cut in out-of-pocket LTC costs and a 23% reduction in Medicaid expenditures by increasing Medicare premiums for individuals and businesses, jaw-boning the purchase of LTC “gap insurance” (an oxymoron) and leaving Medicaid eligibility rules unchanged. None of this will work, as I explain below and elsewhere. In fact, it would make the long-term care financing problem much worse.
Yet these authors ignore their critics’ arguments. They claim against the facts that Medicaid LTC asset spend down is unavoidable and causes impoverishment, that middle class and affluent people taking advantage of Medicaid LTC benefits is rare, and that Medicaid estate planning amounts to little more than rumors. Instead of acknowledging and addressing our evidence and objections, they dodge them with misdirection, straw-man arguments, and equivocation on key terms like “impoverishment,” “spend down,” and “out-of-pocket.” We need to pierce the shield wall of “peer review” that enables scholars of conventional wisdom to ignore evidence and logic they don’t want to consider.
Therefore, I invite Judith Feder and/or Marc Cohen to a public debate of these issues in the venue of their choice. Let’s see whose arguments and conclusions the facts support!
Here’s what I propose: A formal debate with ten-minute opening statements by each side (total 20 minutes). Then three rounds (six questions total) with the discussants probing each other’s positions including a one-minute question, a three-minute-reply, and a one-minute rebuttal for each of the six questions (30 minutes). Q&A from the audience for any time remaining. Jury of objective reviewers chosen by voir dire to score, judge and report the result. Wouldn’t such an intellectual duel be entertaining, informative and a great draw for any germane conference? RSVP to firstname.lastname@example.org.
Analysis: Following are quotes from the Feder, Cohen, Favreault (FCF) paper with our comments.
FCF: “The intent with this design is twofold: first, to target publicly-financed benefits to expenses that exceed amounts that middle-income (along with higher-income) people can reasonably be expected to manage – either with private insurance or personal resources; and second, to enhance the attractiveness and purchase of the limited-coverage private insurance products that insurers prefer by positioning them as gap fillers that, in combination with public insurance, facilitate relatively comprehensive protection against LTSS costs.” (pps. 5-6)
LTC Comment: OK, sounds interesting. They want to use public funds only to cover what middle class people can’t afford. But wait, wasn’t that supposed to be the idea behind Medicaid “spend down?” They want to turn private insurance into a first-dollar “gap filler.” But wait, isn’t the purpose of insurance to replace the small risk of a catastrophic loss with the certainty of an affordable premium? Wouldn’t their plan be like using car insurance for oil changes? What are we really talking about here?
FCF: “A public catastrophic insurance program for LTSS costs that takes effect after an income-related waiting period has been met. … Eligibility … phased in over ten years, with people eligible for benefits once they work 40 quarters after the law’s enactment …. Benefits would become available once people incur impairments in 2+ ADLs and/or severe cognitive impairment … . Up to $110/day cash benefit (2014 dollars) … Paid out either daily or weekly … Unlimited benefit once an income-related waiting period is met … Waiting period of 1 year for people with lifetime incomes in the lowest two quintiles of the distribution and 2, 3, and 4 years for people with incomes in the third, fourth and highest quintiles, respectively. … Annual benefits increase at the rate that hourly costs increase for home health aide workers” (p. 7)
LTC Comment: My, that does sound complicated. Is the government up to handling such administrative complexity? What if I don’t think so and I want to say “no thanks?” They considered giving people the freedom to opt out, but “Though potentially feasible and a lighter political lift, previous analysis suggests that the scope of coverage would likely be much more limited with this approach.” (pps. 24-25) Ya think? You won’t find the words involuntary, mandatory or compulsory in the plan, but they do apply. Just like Social Security and Medicare; you’re in this program whether you want to be or not. So, hmmm, who’s going to pay for this new entitlement?
FCF: “The program would be financed in large part by increasing the Medicare tax split between employees and employers that would begin at age 40. … For ease of estimating, we … estimated that an additional tax of about 1.0 percent of earned Medicare-covered income would be sufficient to finance the proposed program over the required period assuming that the surplus revenue from early years were invested in a secure Trust Fund.” (pps. 13, 22)
LTC Comment: Medicare already faces unfunded liabilities of $48 trillion. Its “trust fund” has nothing in it except IOUs for money the federal government has already spent on other things. Any new money we put into a long-term care trust fund will inevitably be misappropriated in the same way. This idea is like adding deck chairs to the Titanic after the incident with the iceberg. But we’re going to save a ton of money by reducing Medicaid expenditures and selling private LTC gap insurance, right?
FCF: “In fact, we project a public catastrophic program for older Americans would enhance LTSS spending by 14 percent, reduce out-of-pocket spending by 15 percent, and reduce Medicaid spending by 23 percent, compared to projected spending under current law. … The implication is that Medicaid will remain a vital part of the nation’s overall LTSS system – whether for people currently impaired or for people for whom our proposal is insufficient to provide meaningful insurance protection against substantial LTSS risk.” (pps. i, 25)
LTC Comment: This plan’s architects leave Medicaid, the dominant long-term care payor currently, in place. They propose no changes to Medicaid LTC eligibility and yet they expect to save almost a quarter of its cost. How? Blank out. There is nothing in this proposal to explain why consumer behavior with regard to Medicaid would change. Instead of paying privately or buying insurance to cover the plan’s one-to-four year waiting period before the new government program kicks in, people will go directly onto Medicaid as they do now. No savings will accrue to Medicaid. Nor will significantly more people buy LTC gap insurance than buy regular LTC insurance now for the same reasons. For the evidence to support this conclusion, see “The Fallacy of Impoverishment” (1990), “How to Fix Long-Term Care Financing” (2017), and our many state and national studies in between those publications here.
FCF: “While some have argued that the Medicaid program, which represents the largest public payer of LTSS, ‘crowds out’ or suppresses demand for private insurance, evidence suggests that the impact is likely modest in light of other issues affecting demand and that such effects are operant at the lower end of the income scale;5 even proponents of the theoretical argument for ‘crowd-out’ point to problems with the private products as an empirical explanation of the market’s failure to thrive.6,7,8,9,10,11,12” (p. 2)
LTC Comment: “Some have argued” Medicaid crowds out private LTC insurance? Who? Blank out. We get not a single reference to the dozens of published reports (many, if not most, written by yours truly) that present the evidence that Medicaid exempts most assets, is easy to qualify for after care is already needed, and therefore desensitizes consumers to long-term care risk and cost, discourages early and responsible long-term care planning, undercuts the use of private resources to pay for long-term care by means of asset spend down, home equity conversion or private LTC insurance, and thus contributes to institutional bias by channeling people into nursing homes who could have paid for home care or assisted living. Instead, we get footnotes to eight sources that allegedly prove otherwise, but are easily refuted and were disproved contemporaneously. For example:
We refuted Footnote #9 (Waidmann, T., & Liu, K. (2006). Asset transfer and nursing home use: Empirical evidence and policy significance) with LTC Bullet: Kaiser Cover-Up Continues, Thursday, April 27, 2006: “Urban Institute ‘scholars,’ aided and abetted by the Kaiser Family Foundation, employed an underhanded straw man argument in the foundation's latest unsuccessful attempt to debunk the impact of Medicaid planning abuse.”
We addressed a fundamental flaw in Footnote #10 (Lee, J., Kim, H., & Tanenbaum, S. (2006). Medicaid and family wealth transfers. Gerontologist, 46, 6–13) with “LTC Bullet: Behind AHEAD,” Friday, September 2, 2016: “The people and organizations advocating a new, compulsory, payroll-financed government program to fund catastrophic LTC expenses base their arguments on dubious sources and reasoning.”
We refuted Footnote #12 (Wiener, J, Anderson, W., Khatutsky, G., Kaganova, Y and O’Keefe, J. (2013). Medicaid Spend Down: New Estimates and Implications for Long-Term Services and Supports Financing Reform: Final Report) with “LTC Bullet: Medicaid Spend Down that Isn’t and Why it Matters,” Friday 19, 2013: “Claiming ‘transitions’ to Medicaid are evidence of catastrophic LTC asset ‘spend down’ misrepresents the truth and should be publicly recanted. [We explain:] Who, what, when, where and why.”
For a complete exposition of the evidence and logic refuting the argument that the proposed compulsory, payroll-financed, public catastrophic LTC insurance plan will reduce Medicaid expenditures and encourage the purchase of private LTC insurance, see “How to Fix Long-Term Care Financing.” That paper includes a “Supplemental Bibliography of Books, Elder Law Treatises and Law Journal Articles on Medicaid Planning Listed Chronologically with Dates of U.S. Economic Recessions and Passage of Major Legislation to Control Medicaid Planning” (pps. 34-63) and dozens of “Examples of Medicaid Planning Techniques; Home Equity Potential; Estate Recovery and Medicaid-Compliant Annuities” (pps. 64-65)
FCF: “At the same time, public ‘insurance’ – through Medicaid – supports services only after people pay what might be called an ‘infinite deductible’ – that is, only after they expend most, if not all, of their personal liquid financial resources.” (p. 2)
LTC Comment: Contributing income and cash resources toward one’s cost of long-term care is a tiny price to pay, while retaining for heirs all the wealth Medicaid routinely allows recipients to keep. In most states, Medicaid lets LTC recipients retain only $2,000 in cash or assets easily convertible to cash. But that doesn’t mean people have to spend down into impoverishment in order to qualify. Rather, they can retain virtually unlimited wealth in the form of home equity (at least $572,000 and up to $858,000 in some states) as well as unlimited amounts of personal belongings, home furnishings, one automobile, one business including the capital and cash flow, term life insurance, IRAs paying periodically (as they must do after age 70 ½), Medicaid-compliant annuities, life care contracts, and prepaid burials for the recipient and immediate family members. In addition to 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 nearly anyone who chooses to take advantage of the program. Nor is income an obstacle to Medicaid LTC eligibility in most cases. 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.
FCF: “Changes in the political landscape have replaced efforts to reform federal LTSS financing, and instead are increasingly focused on limiting public LTSS spending. But financing challenges will continue to grow with the aging of the population. Research undertaken now on the design and challenges of specific proposals for LTSS financing reform will provide the necessary intellectual infrastructure and foundation for effective action when policymakers are inevitably forced to address the issue in the years ahead. (pps. 4-5)
LTC Comment: True, but what if future policymakers are facing the far more likely outcome that public programs are imploding because of their gargantuan unfunded liabilities? This new LTC plan only adds an extra bale of hay to the “camel’s back.” A far better and much simpler solution is to redirect public financing to those most in need and use some of the savings to incentivize early, responsible long-term care planning and private financing. For details on how to do this, see “How to Fix Long-Term Care Financing.”