LTC Bullet: Long-Term Care for Libertarians (and Austrian Economists)

Friday, October 11, 2019


LTC Comment: For unique insights into Medicaid and long-term care, read and/or listen to this speech and watch for the paper it presents, after the ***news.***

*** ILTCI NEWS: The Intercompany Long-Term Care Insurance Conference, celebrating its 20th anniversary, will be held March 29 to April 1, 2020 at the Sheraton Downtown Denver. The premier LTCI conference now has a newsletter to keep us all up to date on every detail of the program. Check it out here: Follow along as they lock in important details like the keynote speaker, Diamond Sponsors, and session offerings. Bookmark the page, and check back often for “lots of great content coming up, especially in November which is 'Long-Term Care Month.'” Preliminary conference info and hotel details can be found at Attendee registration will open online in November. Exhibitor and Sponsor applications are being accepted now. Early Bird Discounted rates are available until November 20th, and then will increase in price. Check out the 2020 Exhibitor & Sponsor Prospectus for full details and options. Organizers say “This year's individual attendee rate is $1,095 per person, making exhibitor and sponsor discounts even more valuable and cost effective.” ***

*** THE LTC TECH SUMMIT sponsored by the Society of Actuaries in collaboration with Maddock Douglas convenes November 7, 2019 in Sunnyvale, California at the Plug and Play Tech Center. Get all the details here. Great news: you don’t even have to be present to participate as livestream registration is available. Organizers say “Join leading innovators, payors, providers and investors to learn about emerging LTC technologies and participate in an intimate discussion to assemble the pieces that will address this crisis. Due to limited space, individuals wishing to attend the in-person event should register as soon as possible.” Don’t miss this exciting, cutting-edge program. ***



LTC Comment: Steve Moses delivered the following speech at the Libertarian Scholars Conference, sponsored by the Mises Institute, on September 28, 2019 in New York City. In it he recounts the development of long-term care financing policy since the early 1980s, including his personal involvement in that process. He references the Center for Long-Term Care Reform’s new policy paper, also titled Medicaid and Long-Term Care, which the Center will summarize in our next LTC Bullet and publish soon. We hope this speech will encourage you to read the full paper when it is officially released.

Listen to Steve’s speech on SoundCloud here.

“Medicaid and Long-Term Care”
Stephen A. Moses
presented to the
Libertarian Scholars Conference
September 28, 2019
New York City

Good morning. I’m going to speak with you today about long-term care and Medicaid.

Long-term care includes a broad range of social, medical and custodial services that caregivers provide for three months or longer to help disabled people perform activities of daily living such as eating, bathing, and toileting.

Now, how many of you think long-term care sounds like a scintillating topic for a speech? You just can’t wait to hear what I have to say?

Right, I have my work cut out for me.

So, let me frame this topic with a personal story that I hope will engage your interest and cover the main themes of my paper.

In the early 1980s, I was working for the federal Department of HEW, predecessor of the current HHS. I’d landed in the Seattle regional office of the HCFA, predecessor of CMS.

Federal agencies just kept going defunct after I worked there.

Anyway, I was the Medicaid state representative for Oregon. That’s the liaison job between the federal government, which partially funds and oversees Medicaid and the state, which partially funds and administers the program.

My job was to make sure Oregon administered Medicaid in accordance with federal laws and regulations.

In the course of a routine annual review, I discovered a program in Oregon that surprised me.

The state Medicaid agency was filing claims on the estates of deceased Medicaid recipients to recover the cost of benefits correctly paid for eligible recipients in order to reimburse the program (and taxpayers) for the cost of their care.

That was a shock. It contradicted everything I thought I knew about Medicaid. Isn’t it welfare? Doesn’t it require impoverishment to qualify?

If so, how was it possible that people spent years in nursing homes on Medicaid at enormous state and federal expense, but when they died, they still had significant wealth to be recovered from their estates?

So I did some research. What I found blew me away.

Despite the conventional wisdom that Medicaid eligibility required low income and virtually no assets, I learned that for people over the age of 65 who needed nursing-home level of care, income rarely blocked eligibility and the vast majority of all assets were not counted for purposes of determining their eligibility.

That’s still true today and if you want to know the details of how it works, please read my paper. I could easily use up all my time today just explaining the complexities of Medicaid financial eligibility.

Anyway, it made sense that people on Medicaid retain substantial wealth and that Oregon could recover large amounts from their estates. But that got me wondering about the viability of such a system.

Demographically, the baby boomer generation was moving through social history like a pig through a python shaking up everything along the way. School shortages in the 1950’s; drugs, sex, Rock‘n’Roll in the 60’s; stagflation in the 70s; and so on. What would the boomers do to America’s entitlement programs when they retired in 3 or 4 decades?

Already, long-term care services and financing, dominated by Medicaid regulation and funding, were a mess, fraught with problems of access, quality, low reimbursement, discrimination and institutional bias. On top of that, Medicaid long-term care was exploding in cost.

I concluded that as long as Medicaid was easily available to everyone while allowing them to retain their biggest asset, home equity, no one would plan ahead privately for the risk and cost of long-term care. Sooner or later, everyone would end up on Medicaid.

Clearly, something had to be done and my little state of Oregon was doing it. They’d made a deal with the public:

OK, you need long-term care now and you can’t afford it, fine, Medicaid will pay but we’ll make sure your heirs pay it all back from your estate. If you and they don’t like that, then pay your own way by spending down your savings, using your home equity or buying private insurance.

Interesting, I thought. Are other states doing this? A quick review showed most were not. In fact, from its founding in 1965 until 1980, Medicaid law explicitly permitted asset transfers to qualify for long-term care benefits. Anyone could give away everything and qualify overnight.

I learned that in 1982, the Tax Equity and Fiscal Responsibility Act allowed, but did not require state Medicaid programs to penalize asset transfers done for the purpose of qualifying for Medicaid, to place liens on real property to prevent its divestiture, and to recover from estates.

So I did a study. I asked: What if every state in the country made the same deal with its citizens as Oregon? The findings were dramatic, showing widespread overuse of Medicaid by the middle class and affluent as well as substantial potential savings by discouraging that practice and recovering from estates.

But my federal supervisors did not think a regional staffer should be doing a national study, so they suppressed my work threatening me with negative personnel actions if I distributed my report. But I’d already sent my draft to GAO and the IG of DHHS.

Both of those agencies began national studies of the subject. The Inspector General hired me away from HCFA to direct its study and write the report, which was published in June 1988.

That study found that if every state recovered from estates at the same rate as Oregon, estate recoveries could increase by over half a billion dollars, saving about five percent of Medicaid long-term care expenditures. That was three decades ago when a billion dollars was still “real money.”

But we also found that the extra estate recoveries could be much higher and overall savings far greater if people couldn’t divest assets before becoming eligible for Medicaid.

So the report also recommended stronger transfer of assets restrictions and mandatory liens on real property to ensure that wealth would remain available to recover later.

The next question to ask was Qui Bono? If these recommendations became law, who would benefit? Of course, Medicaid would spend less, relieving taxpayers. The public would have a better safety net and the poor, who really need Medicaid’s help, could be better served if the affluent weren’t diverting scarce welfare resources to their own benefit.

But if Medicaid weren’t paying for long-term care for the middle class and affluent, who would?

There were two sources of private financing that might mitigate dependency on Medicaid for long-term care: home equity conversion and private long-term care insurance.

Why home equity? Same reason Willie Sutton robbed banks. That’s where the money is. Literally trillions of dollars were being exempted from long-term care cost by Medicaid’s unlimited home equity exemption.

And private long-term care insurance? Maybe people would actually buy the struggling new, very expensive product, if they couldn’t ignore long-term care risk, wait to see if they ever need expensive care, and then shift the cost to taxpayers if necessary.

By this time I was convinced I couldn’t get the policies I was recommending into law while working within government. So I left the Inspector General in 1989 to become Research Director for a small long-term care insurance marketing firm called LTC, Inc.

Free of the constraints of government employment, I aggressively promoted my analysis and recommendations. I published articles, contacted journalists, buttonholed Congressmen and staff, spoke at industry conferences for insurance, nursing homes, CPAs, financial planners, and many others. I conducted and published state-level studies in Massachusetts, Minnesota, Wisconsin, Kentucky and Montana.

And then, Success! We got most of what we wanted in the Omnibus Budget Reconciliation Act of 1993. It made estate recovery mandatory, extended the look back period on asset transfers to three years, removed the 30-month cap on the eligibility penalty, ended pyramid divestment and closed other financial eligibility loopholes.

The plan was to keep Medicaid long-term care eligibility relatively easy to get, but to ensure that anyone sheltering wealth who relied on Medicaid, would pay it back out of their estates.

We figured that would wake up boomer heirs to the risk and cost of long-term care and get them to prepare with private insurance. If they didn’t, they and their aging parents would have to use their home equity either directly with reverse mortgages or indirectly by going on Medicaid and paying it back.

We sought to eliminate Medicaid’s perverse incentives that discouraged responsible long-term care planning and left people dependent on a financially struggling program for the poor.

Unfortunately, states didn’t implement the new rules consistently; the feds didn’t enforce them; the media didn’t publicize; and consumer behavior didn’t change.

But we continued to make progress awakening the powers that be to the waste and inefficiency of Medicaid long-term care policy. Every time a recession drove welfare rolls up and tax receipts down, bureaucrats and politicians took an interest in ways to cut costs while improving care.

I attended national conferences of the lawyers who specialize in artificially impoverishing affluent clients to qualify them for Medicaid. I publicized their most egregious methods and attracted national media attention to the problem.

I reached out to journalists like Jane Bryant Quinn who took up the issue in numerous nationally syndicated columns excoriating Medicaid planning attorneys and asking “Do Only the Suckers Pay?” for long-term care.

I did more state-level studies throughout the 1990s and 2000s in Florida, Maryland, South Dakota, and New Jersey. I interviewed Medicaid eligibility workers and quoted their complaints about wealthy people getting Medicaid more easily than the poor.

By the mid-1990s scholars favoring a government takeover of long-term care through social insurance—and that’s nearly all of them—began criticizing the effort to target Medicaid to the needy, debunking our argument that Medicaid had become an entitlement program for the middle class and affluent.

They made Strawman arguments against us saying our only complaint was millionaires transferring assets to qualify for Medicaid. That was happening, and the Wall Street Journal highlighted the practice, but it wasn’t the big problem, nor one we emphasized.

The real problem was that the basic eligibility rules allowed most people to qualify easily and the many loopholes, besides asset transfers, let even the affluent qualify.

When the Republicans took Congress in 1994 and President Clinton was under the gun to control government growth, the issue got traction because of renewed concern about controlling budgets.

Frustrated by the inability to control Medicaid costs, Democrats and Republicans passed the Health Insurance Portability and Accountability Act of 1996 making it a crime to transfer assets to qualify for Medicaid.

That was not a policy I promoted and it blew up in their faces. The “Throw Granny in Jail” law was replaced a year later by the “Throw Granny’s Lawyer in Jail” law, which was quickly deemed unenforceable. They couldn’t hold lawyers culpable for offering services that were legal again after “throw granny in jail” was repealed.

Toward the end of the century, the economy improved; the internet boomed; tax revenues poured in. There was no real interest in controlling costs. It was easier to buy off the public and long-term care providers with generous eligibility and higher reimbursements.

But then the 2001 recession hit and interest in controlling costs returned. I’d left LTC, Inc., when General Electric bought the company, and formed the Center for Long-Term Care Reform in 1998, the organization I still manage, dedicated to ensuring quality long-term care for all Americans.

We produced several national studies explaining and promoting our plan to save Medicaid by diverting non-poor people to personally responsible private means of paying for long term care.

We did more state-level studies in Nebraska, Washington State, Kansas, Texas, North Carolina, Rhode Island, California, New York, Georgia, and Virginia.

By this time, opposition became quite virulent from scholars advocating more government financing of long-term care. They could see momentum building for another federal law supporting our position.

They pulled out all the stops, writing articles and conducting studies, mostly searching big data bases for nonexistent evidence that people were spending down their life savings on long-term care all across America.

My co-founder of the Center for Long-Term Care Reform had moved on to become Chief Health Counsel for the U.S. House Committee on Oversight and Reform. He drafted legislation to strengthen transfer of assets rules further, to cap Medicaid’s home equity exemption for the first time, and to close other loopholes.

I testified before Congress and secured a contract with the American Health Care Association to work half time in DC for six months promoting our analysis and recommendations.

Success again! The Deficit Reduction Act of 2005 capped the home equity exemption at half a million dollars, moved the asset transfer look back from three to five years, closed the half-a-loaf loophole, and unleashed the Long-Term Care Partnership program to encourage the purchase of private long-term care insurance.

Nothing has happened since that legislation to give Medicaid back to the poor and encourage everyone else to plan, save, invest or insure for long-term care. Even the Great Recession of 2007-09 didn’t prompt policy makers to revisit these issues.

While some loopholes have been closed and some reforms enacted, it remains easy for middle class and affluent people to qualify for Medicaid long-term care benefits, home equity is rarely used to purchase quality long-term care for home owners, and the market for private long-term care insurance remains stunted.

Why is it so hard to get good long-term care policy accepted and implemented?

Most scholars and policy makers address the symptoms of long-term care—high cost, poor access and quality—and they ignore the cause, excessive government funding and interference in the market.

So they slavishly advocate more government financing and regulation in the form of obligatory social insurance to cover long-term care by expanding Medicare or imposing a new program.

I’ve tried to show in my paper for this conference why long-term care problems exist, and how to fix them by removing policy incentives that discourage responsible long-term care planning and leave people dependent on the welfare program.

Today the boomer Age Wave is shaking things up one last time. Instead of paying into the entitlement programs, they’re withdrawing. They began retiring and taking Social Security at age 62 in 2008. At age 65 in 2011, they turned the Social Security program cash-flow negative.

Boomers began taking Required Minimum Distributions (RMDs) from their tax-deferred retirement accounts in 2016, depleting the supply of private investment capital.

They will reach the critical age (85 years plus) of rising long-term care needs in 2031, right around the time Medicare (2026) and Social Security (2035) are expected to deplete their trust funds, forcing them to reduce benefits.

It is beginning to look like everything I worried might happen, back in 1982, will happen and soon.

Let me conclude by listing some questions I’ve raised today that I’ve tried to answer in the paper.

Why does Medicaid allow people with substantial wealth to take advantage of a financially struggling welfare program?

Why do economists and long-term care analysts ignore the ample evidence that overreliance on government funding caused most of the problems with long-term care services and financing?

Why are long-term care scholars fixated on recommending only new compulsory government funding programs for long-term care?

Why did the progress toward fixing Medicaid slow down after 2001 and stop altogether after 2005?

Can Austrian economic theory answer or at least elucidate these questions?

I hope you will read the paper, consider my analysis, and give me your feedback and advice.

In the meantime, do give serious thought to how you and your family will prepare for the risk and cost of long-term care and become part of the solution instead of the problem.

Thank you.