LTC Bullet: Who Wins, Who Loses When Medicaid Misleads? Part 2

Thursday, November 8, 2018


LTC Comment: In Part 1, we showed how Medicaid misleads by taking credit for helping recipients whether it pays anything for their care or not. Part 2 shows how Medicaid misleads by downplaying its cost and exaggerating out-of-pocket expenditures, after the ***news.***

*** LTC CLIPPINGS bring you one or two daily updates on critical information you need to know to stay at the forefront of professional knowledge. Steve Moses scans the news and LTC literature. He chooses reports, articles, stories and data that LTCI agents, financial advisors, and anyone involved in aging issues need to know. He provides the title, author, source, a hyperlink to the original, and a sentence or two of commentary. As a bonus to LTC Clippings subscribers, Steve will answer questions by phone or email usually within 24 hours. Hook yourself into this reliable source and you can safely spend less time scanning for information and more time doing what you do best professionally. Contact Damon at 206-283-7036 or to subscribe or learn more. Sample clipping:

11/7/2018, “Medicaid Is A Big Winner On Election Day,” by Jeffrey Young, HuffPost

Quote: “Voters in Idaho, Nebraska and Utah on Tuesday defied their GOP state leaders and approved ballot initiatives to expand Medicaid, which would provide access to health coverage for about 300,000 working adults. … In other potentially positive news for supporters of Medicaid expansion, Kansas elected Democrat Laura Kelly to be its next governor. … Kelly voted for expansion while serving in the legislature. In Maine, Democrat Janet Mills will succeed Gov. Paul LePage (R) after winning Tuesday, which should bring swift implementation of the Medicaid expansion there, which LePage has obstructed since voters approved it via ballot initiative last year.”

LTC Comment: When is adding more people to public assistance a victory? 73.2 million out of 325.7 million or 22.5% already receive Medicaid. What happens when half of us are supporting the other half? We should be working to reduce dependency not to increase it. ***



LTC Comment:  In “LTC Bullet: Who Wins, Who Loses When Medicaid Misleads?,” we explained how Medicaid claims “primary payer” status for a nursing facility resident whether it pays any part of the bill or not.

We observed that this makes Medicaid, senior advocates, politicians and public officials appear to be supporting more people than is actually the case.

We pointed out losers in this system include nursing facilities who receive Medicaid’s extremely low reimbursement rate and tax payers who fund a system that discourages LTC planning and often results in their ending up in publicly-underfinanced nursing homes.

We explained that the system perversely …

  • incentivizes consumers to ignore the need for LTC planning by making publicly funded care available after the insurable event, i.e. the need for care, has already occurred.

  • incentivizes politicians and bureaucrats to drive up public expenditures, deficits and debt offering generous LTC benefits in exchange for votes, professional advancement and ego gratification.

  • incentivizes state governments to maximize federal funding by “Medicaiding,” i.e. charging Medicaid for any good or service they can get away with, and/or using “provider taxes” to jack up federal financial participation.

  • incentivizes nursing facilities to do whatever they can to survive debilitatingly low Medicaid reimbursement rates, including economizing on care, creative billing, driving up private pay rates, and over-charging Medicare.

  • incentivizes tax payers not to plan or insure for long-term care resulting in their dependency on public assistance for care widely recognized as institutionally biased and at risk of lower quality.

Thus, Medicaid misleads to the upside about its benefits and disguises its negative consequences.

But Medicaid also misleads to the downside on its cost and that is our focus in today’s LTC Bullet.

For example, for 2016 CMS reported in Table 15 that Medicaid paid $50 billion (30.7 percent of the total) for “Nursing Care Facilities and Continuing Care Retirement Communities Expenditures” whereas it reports out-of-pocket expenditures for the same service were $43.8 billion (26.9 percent of the total.)

What a bargain! Medicaid is the “principal payer” for 62 percent of all nursing facility residents (see LTC Bullet: Who Wins, Who Loses When Medicaid Misleads?), but it only charges us 31 percent of the total cost of nursing facility care. Who picks up the other half?

Must be out-of-pocket costs. At 27 percent, they’re very high, nearly as high as Medicaid itself (31 percent) and even higher than Medicare’s, $37.5 billion or 23 percent of the total.  Reporting out-of-pocket expenditures so high appears to support the conventional wisdom that Americans are spending down their life’s savings before qualifying for Medicaid.

But it’s an illusion.

Nearly half of what CMS reports as out-of-pocket expenditures for nursing home care is actually the “spend through” of Social Security income, by people already on Medicaid who are required to contribute their income to offset Medicaid’s cost for their care. Here’s the proof:

According to HCFA: “An estimated 41 percent...of out-of-pocket spending for nursing home care was received as income by patients or their representatives from monthly social security benefits.”  (Helen C. Lazenby and Suzanne W. Letsch, “National Health Expenditures, 1989,” Health Care Financing Review, Vol. 12, No. 2, Winter 1990, p. 8.)  Later research confirmed that Social Security spend-through is almost half of nursing home out-of-pocket costs.  (Nelda McCall, "Long Term Care:  Definition, Demand, Cost, and Financing," in Nelda McCall, editor, Who Will Pay for Long-Term Care, Health Administration Press, Chicago, Illinois, 2001, p. 19.) As all income, not only Social Security, is subject to the Medicaid recipient contribution requirement, private pension and other income also count as income “spend-through” and not asset spend down.

In other words, Medicaid recipients are largely spending income, not catastrophically depleting their life savings as is almost universally assumed and reported. The 27 percent reported by CMS as out-of-pocket costs, half of which are really Social Security income, explains much of the difference between the 62 percent of nursing facility residents for whom Medicaid is allegedly the “primary payer” and the fact that Medicaid only pays 31 percent of the cost for their care.

Wait, people own their Social Security, pension and other income, don’t they? When they contribute those sources of income to offset Medicaid’s cost, they are actually paying out of pocket. True, but you can see the confusion and misrepresentation created. It gives the impression that people are spending down the savings of a lifetime when they’re actually only applying income from another fiscally challenged government program, i.e. Social Security, as likely as Medicaid to suffer catastrophic reductions when the age wave hits in earnest.

We’ve already explained the motive Medicaid advocates have for making the program appear to support more people than it really does. Why do they make out-of-pocket expenditures appear to be higher and more onerous than they really are?

Let me explain with an example…

Some analysts say the out-of-pocket share of long-term care expenditures has skyrocketed to more than 50 percent.[1] But they arrive at that figure by including room and board expenses in residential care settings — costs that people would incur whether they need long-term care or not — and by excluding Medicare post-acute care expenditures from the total even though Medicare’s relatively generous nursing home and home care reimbursements are the only thing enabling Medicaid to pay long-term care providers less than the cost of providing the care to a majority of long-term care patients.[2]

In reality, the proportion of long-term care expenses paid by taxpayers has been rising and the proportion paid by families has been declining for half a century. When Medicaid first started paying for long-term care in the late 1960s, out-of-pocket expenditures were very high – upwards of half of all nursing home expenditures. Since then, Medicaid and Medicare spending have increased rapidly and dramatically. Out-of-pocket expenditures, as reported by CMS, declined to around one-fourth of total long-term care expenditures. But even that low figure is misleadingly high because roughly half of it is not savings being spent down as often implied but Social Security and other income being “spent-through” by people already on Medicaid to offset Medicaid’s cost of care as federal law requires.[3] To this day, upwards of 85 to 90 percent of nursing home expenditures are accounted for without dipping into personal savings and only 8.9 percent of formal home health care costs were paid out of pocket.[4]

Nevertheless, analysts and advocates continue to argue that out-of-pocket long-term care expenditures are higher than they really are. Why? When you back out Social Security income that beneficiaries contribute to Medicaid, which is income they would otherwise have spent on room and board in the absence of Medicaid nursing home benefits, you’re left with a much smaller out-of-pocket total for long-term care. Medicaid promoters push up out-of-pocket expenditures creatively in order to justify new, government-funded long-term care financing programs. But spending more on the same programs that caused the problems in the first place is as foolish as it is self-serving.

Closing LTC Comment: Medicaid misleads to the upside by claiming to help more people than it does. Medicaid misleads to the downside by claiming out-of-pocket LTC expenditures, strongly implied to be asset spend down, are higher than they really are. Medicaid advocates do both to promote the program and their own interests. The net effect is that too few people plan for long-term care; they end up unable to pay its full cost; and they become dependent on the Medicaid program, which may disappear just when people need it most as the age wave crests and crashes.

A more honest way to measure Medicaid’s benefits and costs would be to report the number and proportion of patient days the program covers. Medicaid recipients tend to be the long-stayers in nursing homes, often remaining a year or more whereas Medicare residents are in an out usually in 20 days. Private payers last only as long as it takes the family to find a Medicaid planning attorney. If 62 percent of nursing facility residents qualify for Medicaid, but they account for 80 or 90 percent of patient days, because of their long stays, then Medicaid with its notoriously low reimbursement rates is doing far more damage than the commonly reported and highly misleading 62 percent “primary payer” number suggests. So what proportion of total nursing facility resident days does Medicaid touch? That’s the key metric researchers should discover and analyze. Does anyone know?


[1] Melissa Favreault and Judith Dey, “Long-Term Services and Supports for Older Americans: Risks and Financing,” USDHHS Assistant Secretary for Planning and Evaluation (ASPE) Issue Brief, July 1, 2015, revised February 2016, p.5; https://aspe.hhs. gov/basic-report/long-term-services-and-supports-older-americans-risks-and-financing-research-brief. Critiqued in S. Moses, LTC Bullet: New Data on LTC Incidence, Duration, Cost and Financing Sources, July 24, 2015; bullets/archives2015/1094.htm.
[2] “Nursing centers rely heavily on two public programs, Medicare and Medicaid, to pay for the services they provide to most of their patients. The rates paid by states for Medicaid do not adequately reimburse the actual costs incurred by providers, resulting in a major disconnect between payment levels and the needs of the patients. Unreimbursed allowable Medicaid costs for 2015 are projected to exceed $7.0 billion. Expressed as a shortfall in reimbursement per Medicaid patient day, the estimated average Medicaid shortfall for 2015 is projected to be $22.46, which is a 6.0 percent increase over the preceding year’s projected shortfall of $21.20.” ELJAY, LLC & Hansen Hunter & Company, PC, “A Report on Shortfalls in Medicaid Funding for Nursing Center Care,” American Health Care Association, Washington, D.C., April 2016, p. 1;
[3] People in nursing homes on Medicaid are required to contribute all of their income, except for a small personal needs allowance, to offset Medicaid’s cost for their care.
[4] See S. Moses, “LTC Bullet: So What If the Government Pays for Most LTC?, 2015 Data Update,” December 6, 2016;