LTC Bullet: Who Wins, Who Loses When Medicaid Misleads?

Thursday, October 25, 2018


LTC Comment: Public financing impacts long-term care more than most analysts recognize, benefiting affluent recipients and Medicaid planners but hurting providers and taxpayers. Insights and analysis follow the ***news.***

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LTC Comment: Everyone knows Medicaid is the major payer for nursing home care. But as soon as you get below that high-level platitude, the subject complicates quickly. The consequences of how Medicaid really works as opposed to how it is represented are serious. Let me give you some examples.

AARP’s 2018 version of its “Across the States” report tells us that nationwide Medicaid is the “primary payer” for 62 percent of nursing facility residents. The report also provides the comparable figure for each state, which varies from 82 percent in Alaska to only 46 percent in Iowa.

Now here’s something curious. When I read that Medicaid is the “primary payer” for a resident, I’m thinking Medicaid must pay most of the bill. So I’m wondering who else pays the remainder? Who’s the secondary payer? But that isn’t what “primary payer” means at all. A nursing facility resident has Medicaid as “primary payer” if Medicaid pays any part of the bill, whether or not any other source contributes to the total, as is usually the case.

That seemed strange to me, so I did some research. I asked Charlene Harrington, co-author et al. of “Nursing Facilities, Staffing, Residents and Facility Deficiencies, 2009 Through 2016,” which is the source of the Medicaid-as-primary-payer data that AARP reported. She confirmed “when it says that a payer is the primary, it means that those residents have that payer source. Even if they have a share of payment, if Medicaid is paying any part, it is credited to Medicaid.” So, if Medicaid pays only $1, as can happen when a recipient has substantial income to contribute, Medicaid gets the credit in full.

That got me wondering where the primary payer data come from originally, so I consulted long-term care data maven extraordinaire Mick Cowles of the Cowles Research Group. He told me the summary data are compiled from field #76 of the CMS-672 “Resident Census and Conditions of Residents” form that is filled out by staff of the nursing facilities that receive the Medicaid payments. So I checked the instructions for that form and found this guidance on when to check that box: “Block F76: Residents whose primary payer is Medicaid.”

We seem to be going around in circles here. We ask: “What does it mean that Medicaid is the primary payer for a nursing home resident?” We get the answer: “Someone at a nursing home checked a box saying Medicaid is the primary payer.” But what makes Medicaid a primary payer even when it pays almost nothing? What is the definition of “primary payer”? No answer. Not very enlightening and quite frustrating.

But why does this matter anyway? Who cares?

You need to know how Medicaid eligibility and reimbursement work. It’s a complicated system with several undesirable, maybe or maybe not unintended, consequences. Unlike most of what you read in the newspaper, and in academic journals for that matter, people do not have to be low-income to qualify for Medicaid’s long-term care benefit. In most states, they qualify if their income is insufficient to pay all their medical and LTC expenses. In other states, those that cap income, Miller trusts achieve the same purpose. Rule of thumb: people with incomes below the cost of a nursing home, which is at least several thousands of dollars per month and often $10,000 or more--hardly “low income”--qualify routinely for Medicaid based on income. (Never mind assets. That’s a topic for another day, but the short answer is that substantial assets often don’t obstruct eligibility either because of Medicaid’s huge resource exemptions and/or legal machinations by Medicaid planners.)

This situation has consequences for everyone involved, beneficial for some, very negative for two. To wit:

  • Recipients get nursing home care at the Medicaid rate, which on average is about two-thirds of the private pay rate.

  • Medicaid, as well as the politicians and government officials who run it, get credit for helping a citizen who couldn’t afford long-term care otherwise.

  • State governments that partially fund Medicaid rake in billions from the federal government which pays the larger share of Medicaid.

  • Nursing homes are big losers. They get the Medicaid rate instead of the private pay rate which on average is half again as much.

  • Tax payers are the biggest losers. They seem to get something for nothing, easy access to publicly financed long-term care, but at the expense of ultimately ending up uninsured and dying in a welfare home. 

Perverse incentives influence each party in this system. To wit:

  • The recipients, who can retain substantial assets because of Medicaid’s large resource exemptions, get care they would have had to pay half again as much more for privately, while only contributing their income as a kind of deductible. That’s much better than being wiped out financially as most media reports claim happens frequently, but actually doesn’t. Thus, Medicaid offers the uninsured a good deal after they need care when it’s too late to plan ahead for the risk thus perversely rewarding and incentivizing consumers’ failure to plan.

  • Politicians and government officials who get the credit for the services Medicaid provides are perversely incentivized to do more of the same, trading government deficits and debt for votes and personal advancement.

  • State governments are perversely incentivized to maximize the federal financial participation they receive from the U.S. government by charging Medicaid for anything they can get away with and by means of “provider taxes,” i.e., taxing LTC providers to bump up the federal contribution and then kicking back some of the extra funds to the over-taxed, underfunded providers and putting the rest of the windfall into the state’s general budget.

  • Nursing homes, which can’t survive without Medicaid, their single biggest payer, are perversely incentivized in several ways. They cut corners on care, file questionable claims, over-utilize higher-paying Medicare and over-charge private payers trying to compensate for the dismally low Medicaid reimbursements on which they principally depend.

  • Tax payers are perversely incentivized not to plan or insure for long-term care resulting in their dependency on public assistance for care widely recognized as inferior and subject to institutional bias.

It’s a crazy, mixed up system, but what does this have to do with calling Medicaid the “primary payer” whether it pays any part of the bill or not?

Because of the way Medicaid eligibility works, as described above, it is entirely possible for someone with substantial Social Security and pension income to qualify for Medicaid because their income is insufficient to cover all their medical and LTC costs but meets or exceeds the low Medicaid rate for their care. I’ve even seen cases where the patient contribution pays the entire cost of care at the low Medicaid rate. So, Medicaid gets the credit even when the recipient pays the whole bill out of pocket.

In a rational system, when the patient pays most or all of the bill out of pocket, out of pocket would be the “primary payer.” But reporting the reality instead of the myth required by the Centers for Medicare and Medicaid Services instructions for its CMS-672 form would diminish the reported proportion of residents Medicaid supports.

LTC Comment: In general, it benefits the government, and its hangers on, politicians and bureaucrats, to give the impression that Medicaid does more good than it does, does less damage than it does, and costs less than it seems. Reporting Medicaid as the “primary payer” even when it pays nothing for a recipient’s care is a handy way to buff the welfare program’s image. The big losers in this system are the nursing facilities expected to provide “Ritz Carlton care at Motel 6 rates,” as a provider explained to me once. Biggest losers of all are the tax payers who fund the system and end up uninsured for long-term care and spending their final days in welfare-financed nursing homes.

Entitlements of all kinds are popular. Most people like to get something for nothing at someone else’s expense. Medicaid fits that bill. But there is one big criticism of Medicaid that still rankles after its reputation as “primary payer” has been artificially enhanced. Medicaid costs too much. Does government reporting also mislead regarding Medicaid’s cost to make it appear less than it really is? If so, how? Qui bono? Who benefits? Who loses?

For the answer to those questions, stay tuned for our next LTC Bullet.