LTC Bullet: LTC Evasion

Friday, May 11, 2018


LTC Comment: We explain what LTC scholars evade and why after the ***news.*** [omitted]


LTC Comment: Last week we disentangled and refuted the convoluted reasoning in Feder and Cohen’s “A New Public-Private Partnership: Catastrophic Public and Front-End Private LTC Insurance.” We attributed the authors’ fundamental error to their discounting Medicaid’s role in long-term care financing. See “LTC Bullet: Feder Fantasy Fatally Flawed (Cohen Contribution Notwithstanding).” Today we summarize the consequences of evading LTC reality. In future weeks, we’ll explore each of those consequences more deeply. If you just can’t wait to get the full picture, go directly to “How to Fix Long-Term Care Financing.” For now, here’s the overview.

Medicaid Matters Most

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

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

Medicaid is in the news daily, particularly its expansion under the Affordable Care Act, or ObamaCare. But ObamaCare primarily affected acute care for young people. And while the young are three-fourths (75 percent) of Medicaid’s recipients, they account for only slightly more than one-third (36 percent) of the program’s expenditures. The aged, blind, and disabled, on the other hand, are just one-fourth of the recipients (24 percent) but account for nearly two-thirds (63 percent) of expenditures, mostly for the long-term services and supports that they require.1-2 Given its disproportionately high impact on Medicaid costs, long-term care deserves much more attention than it currently receives from policymakers.

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

Who should pay? Are families responsible for payment or is the government? Should planning be voluntary or compulsory? Why do people ignore long-term care risk and cost until it is 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 taxpayers spend so much for long-term care but the sector remains starved for funding? Who will provide care when compensation is so low? What is going to happen when the age wave finally crests and crashes in the 2030s?

Most policy analysts [including Feder and Cohen] respond to these perplexities by wringing their hands. They conclude that the government must compel people to prepare for long-term care by paying higher taxes. But what if public financing caused the long-term care dysfunctions in the first place? What if the questions and problems we face have a simpler answer? Do Occam’s razor and Archimedes’ leverage principle apply to long-term care?

Medicaid is not just a factor in long-term care financing. It is the critical factor.

Medicaid is not just a factor in long-term care financing; it is the critical factor. Since its founding in 1965, Medicaid has evolved from a minor funding source to the primary funder of formal paid care. This near monopsony status has serious ramifications. Because it requires state programs to pay for nursing home care, Medicaid has an institutional bias. Because it pays notoriously low reimbursement rates, Medicaid causes caregiver shortages, access, and quality problems. Because it pays for care after it is 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. And because it increasingly pays 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 the problem.

Many policy analysts will agree with that assessment or at least some parts of it. They too blame Medicaid for numerous long-term care problems but for different reasons. Most analysts 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 such analysts do not and cannot explain is, if Medicaid requires impoverishment, why do most people ignore such a calamitous risk? Why do they fail to plan, save, invest, or insure for long-term care and end up dependent on a means-tested welfare program to receive nursing home care they would rather avoid? Since they cannot explain this logical contradiction, most analysts [including Feder and Cohen] evade it.

Therein is the fulcrum strong enough and the lever long enough to render a simple answer to the 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 $572,000 and $858,000], one business, one auto, IRAs paying periodically, term life insurance, Medicaid-compliant annuities, life care contracts, prepaid burials, personal belongings, and home furnishings. 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.

This report explains and substantiates the argument that easy access to Medicaid after care is needed has caused most of long-term care’s problems.

Once it is clear that Medicaid does not require impoverishment, 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; instead, they end up on Medicaid by default when they need care, leaving Medicaid to pick up the cost and overburdening its scarce resources. Consequently, Medicaid has too little revenue to pay care providers adequately, causing caregiver shortages as well as access and quality problems. Consumers lack choice of services and providers that a freer market could ensure. The system struggles financially in the absence of private revenue from genuine asset spend down, home equity conversion, or long-term care insurance.

That analysis requires fuller exposition and proof. This report [“How to Fix Long-Term Care Financing”] explains and substantiates the argument that easy access to Medicaid after care is needed has caused most of long-term care’s problems. This report demonstrates that access to Medicaid long-term care benefits does not require impoverishment and explains why most analysts wrongly claim that it does. It describes Medicaid’s true role as the dominant factor in long-term care financing and traces the history of how it became that way. It recounts how legislative and regulatory efforts to target Medicaid’s limited resources to its originally intended needy recipients have failed repeatedly. It explains why such efforts ended in 2005, show no signs of recurring, and must begin anew to salvage long-term care financing. Finally, this report proposes simple solutions to improve Medicaid as a long-term care safety net for people in need while improving the access to and quality of long-term care for people of all economic levels.

1.    Kaiser Family Foundation,, “Distribution of Medicaid Enrollees by Enrollment Group,” cited May 8, 2017;

2.    Kaiser Family Foundation,, “Medicaid Spending by Enrollment Group,” cited May 8, 2017;

LTC Comment: Even more basic than their evasion of Medicaid’s detrimental LTC financing role is the failure of LTC scholars, including Feder and Cohen, to explain why America’s long-term care services and funding system is so dysfunctional. They simply accept the defective status quo and propose solutions without understanding, much less explaining why the problems exist in the first place. Consequently, their solutions always entail more of the same government control and revenue, which ironically, caused the dysfunctions in the first place. We’ll develop that theme in future LTC Bullets by explaining how long-term care came to be the way it is so that we can propose solutions that fix, instead of exacerbate, the problems.

Next week: How Medicaid caused most of the dysfunctions in long-term care including institutional bias, poor access and quality, inadequate financing, and excessive dependency on family care-giving.

Following week:  How and why LTC academics refuse to acknowledge these realities, evade the consequences, and contribute to the problems instead of solving them.