LTC Bullet: Medicaid and Long-Term Care, the Serial, Part 3

Friday, February 28, 2020


LTC Comment:  The full Medicaid and Long-Term Care monograph is 78 pages, so we’re bringing it to you in bite-sized pieces. Here’s the third one, after the ***news.***

*** HAPPY 20TH: This year’s Intercompany Long-Term Care Insurance Conference, which meets in Denver, March 29 to April 1, is the program’s 20th iteration. To celebrate this memorable achievement, we published a 65-page History of LTC Insurance Conferences. It covers all of the ILTCI events, but also some of the other, earlier, now defunct industry meetings, such as Jesse Slome’s “LTCI Producer Summits” and Greg Luque’s “Forums.” For a quicker read, check out “LTC Bullet: History of LTC Insurance Conferences,” which provides thumbnail summaries of each of the conferences covered in the full report. We offer sincere thanks and congratulations to Jim Glickman and everyone associated with the leading LTC insurance industry conference. May it continue to unite, educate and motivate everyone dedicated to improving long-term care in America for many years to come. ***

*** ILTCI RECOGNITION AWARD nominations are open. The deadline for nominations is March 6 so act now! I just submitted my nomination. Can you guess whom I proposed? The Intercompany Long-Term Care Insurance Conference is sponsoring a third annual award for a person or organization “that has made a significant, long-term contribution towards the attainment of the ILTCI vision. The ILTCI vision is to create an environment for aging in America that includes thoughtful, informed planning that takes into account the most effective and efficient use of resources in addressing the risks and costs of long-term care for all levels of American society. For details and to submit your nomination, go to Past recipients of the award were Marc Cohen and Stephen Moses. ***

*** CLTC MASTER CLASS AT ILTCI 2020: Veteran LTCI expert and trainer Bill Comfort will teach the two-day course March 28-29 at the Intercompany Long-Term Care Insurance Conference in Denver. Watch Video on CLTC Master Classes. The class and conference registrations are discounted now. For inquiries, contact: Audrey Sunner, CLTC, CSA at 919-230-8523 or The Center for Long-Term Care Reform is proud to acknowledge the Certification for Long-Term Care (CLTC) program as a corporate sponsor. ***


LTC Comment: Episode 1 of our serialization of the Center’s newest report described the current method of providing and paying for long-term care, explained the long-term care financing problem in detail, and showed how heavily dependent the existing dysfunctional system is on public, especially Medicaid, financing.

Episode 2 explained how Medicaid became the dominant payor for long-term care, described the severe unintended access and quality problems that ensued, and recounted the long series of fruitless interventions policymakers have attempted aimed at correcting symptoms (high cost, nursing home bias, and poor quality) while ignoring their causes (strong financial incentives for states to maximize Medicaid spending and perverse incentives for consumers to rely on the safety net program rather than prepare to pay privately for long-term care.)

In Episode 3, which follows, Steve Moses explains how scholars have made the same mistakes as policymakers. They lament long-term care’s problems without analyzing their causes. Then they propose expanded government funding and regulation without accounting for the damage such interventions have produced in the past. Steve then addresses the key to unraveling the long-term care conundrum, which is to understand and interpret correctly Medicaid’s long-term care eligibility rules and their impact on consumers’ incentives to plan responsibly (or not) for long-term care risks and costs.

Episode 4 in this series, two weeks from now, will explain how Medicaid’s dominance as the principal funder of long-term care inhibited the private market for home care, which consumers prefer over nursing homes, and crippled the potential private sources of financing, such as home equity conversion and long-term care insurance, that could and should solve the system’s access and quality problems—all this transpiring without most consumers even knowing who pays for long-term care!

Due to email formatting challenges, we’ll leave out the content of the report’s extensive footnotes in this serialized version. But the footnotes are important, and you can find them by clicking through to the unabridged version here. Likewise, citations to sources are given in the form (author, year, page number). To find the full citations for those sources, see the “References” section at the end of the full report.

Here’s the third episode of “Medicaid and Long-Term Care,” by Stephen A. Moses, Center for Long-Term Care Reform, Seattle, Washington, published January 17, 2020. This paper was presented to The Libertarian Scholars Conference on September 28, 2019 in New York City and to The Cato Institute’s State Health Policy Summit on January 3, 2020 in Orlando, Florida.

Conventional Long-Term Care Scholarship

If government policy on long-term care has consistently addressed the symptoms of high cost and poor quality instead of the cause, excessive public financing, so has and does most scholarship. Building on decades of research and special commission reports, a scholarly consensus has formed regarding the long-term care problem and what to do about it. For example, a December 2015 article in Health Affairs (Favreault, Gleckman, and Johnson, 2015, p. 219048) assessed the problem as high and growing care needs, high and growing cost, inadequate private resources to pay for care exacerbated by the lack of private insurance, resulting in high, growing and unsustainable dependency on Medicaid. Without analyzing how or why these conditions obtain, the article recommends ever more government engagement in the market, specifically mandatory, comprehensive public insurance coverage for the catastrophic back end of the long-term care risk. In other words, we are advised to address the symptoms of the long-term care problem by adding more of the generous funding source that arguably caused them in the first place.

That article spawned three major reports in 2016 promoting its analysis and recommendations. Leading Age, a long-term care provider trade association, reviewed the usual symptoms and concluded “a mandatory, universal insurance approach that covers catastrophic events is the most effective pathway to pursue” (Leading Age, 2016, p. 12). The Bipartisan Policy Center, a Washington, DC think tank, concurred with a now rare nod to cost control, recommending: “Pursue the concepts and elements of a public insurance program to protect Americans from catastrophic LTSS expenses, while assuring that it does not add to the federal deficit” (BPC, 2016, p. 21). The “Long-Term Care Financing Collaborative,” a self-described “diverse group of policy experts and senior-level decision makers representing a wide range of interests and ideological views” proposed “A universal catastrophic insurance program aimed at providing financial support to those with high levels of care needs over a long period of time” (LTC Financing Collaborative, 2016, p. 2).

Nor has this emerging agreement on the problem (symptoms) and its preferred solution (more government) receded. Last year, a respected private long-term care insurance analyst teamed up with a researcher who favors public financing options to produce yet another proposal on the same theme. They recommend

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 [activities of daily living] 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 (Cohen, Feder, and Favreault, 2018, p. 7).

Would consumers choose to participate in this complicated scheme? There is no need to ask. The paper does not contain the terms obligatory, involuntary, or compulsory, but they all apply to this proposal. Like Social Security, Medicare and other plans to fix long-term care mentioned above and below, this one also forces people to pay up, take part and accept whatever the government delivers.

Two influential recent articles home in on special challenges facing the middle market and home care. In May 2019, “The Forgotten Middle: Many Middle-Income Seniors Will Have Insufficient Resources for Housing and Health Care” correctly assessed the plight of middle-income seniors whose resources will be inadequate to fund their senior living and long-term care and suggested “lawmakers could consider a new benefit that explicitly funds long-term care (for example, a Medicare ‘Part E’ that shifts funds from Medicare Part A acute care)” (Pearson, et al., 2019, p. 8). In June 2019, “The Financial Burden of Paid Home Care on Older Adults: Oldest and Sickest Are Least Likely to Have Enough Income” argued that home care is desirable; too few people can afford enough of it; so “Government programs could be launched that cover LTSS expenses for the entire duration of an enrollees LTSS” (Johnson and Wang, 2019, p. 1000).

Many similar examples from the past three decades could be adduced. Conventional long-term care scholarship is tediously consistent in these respects. It begins by recounting the dire service delivery and financing challenges consumers face, but without analyzing or commenting on how or why those problems came to be. Then it recommends an expansion of government’s role, usually proposing a new or expanding an existing compulsory public financing program.

The Key: Medicaid Long-Term Care Financial Eligibility

The current paper takes a different approach to analyze the long-term care issue. It described and acknowledged the problems and dysfunctions in long-term care services and financing. But then it traced the history and evolution of those problems linking them causally to the early, substantial and constantly expanding role of government financing and regulation in the long-term care market.

Having shown how and why long-term care problems exist, we can now ask: Why are analysts and policymakers caught in the trap of looking only for government solutions to problems government created? Why do most researchers obsess about the status quo without explaining how it came to be? Why do they despair of financing quality long-term care without vastly expanding government spending? Ideological bias is one explanation, but there may be something more basic and easier to resolve at work. The key to answer these questions lies in understanding how Medicaid long-term care eligibility really works as compared to how it is represented to work by the popular media, by most scholarship, and ostensibly by the federal law and regulations themselves.

The federal rules governing financial eligibility for Medicaid long-term care benefits sound draconian. “Medicaid eligibility depends primarily on income and assets. … In general, aged, blind, and disabled beneficiaries may not have more than $2,000 in countable assets for individuals and $3,000 for couples, a level that has not changed since 1989” (Thach and Wiener, 2018, p. 4). No argument; that is poor. Income eligibility is more complicated than asset eligibility, because states may follow various “alternative or optional eligibility pathways to determine which groups qualify …” (Ibid.). But income eligibility under all those pathways still sounds stringent when represented as allowing only $723 per month of income (LTC Financing Collaborative, 2016, p. 19). These “official” financial eligibility rules seem to say that when it comes to paying for long-term care, you are on your own unless or until you spend down your income and life’s savings into impoverishment.

So quotes like these abound in the mass media:

People who exhaust their savings could wind up on Medicaid, the government health program for the indigent that pays for about half of all nursing home and custodial care (Weston, 2019) .

Essentially, you need to have spent practically all your assets before Medicaid will kick in (Eisenberg, 2017).

People may qualify for Medicaid after they have “spent-down” their assets (Lawrence, 2015).

Well-respected scholars often say the same.

The current program requires people to impoverish themselves (“spend down”) to qualify for coverage (Pearson, et al., 2019, p. 858).

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 (Cohen, Feder, and Favreault, 2018, p. 2).

Medicaid (the federal-state health care program for the poor) covers long-term care costs for individuals below certain income levels, but the deductible for Medicaid is nearly all of an individual's income and assets. As a result, Medicaid is the long-term care coverage of last resort for those with no assets (Banerjee, 2012, p. 4).

Beneficiaries are subject to strict eligibility rules. While these vary from state to state and differ by care setting, they typically limit beneficiaries to $2,000 in financial assets and $723 per month in income (the monthly benefit level for the Supplemental Security Income program). As a result, millions of middle-income families who face catastrophic LTSS costs must impoverish themselves before receiving public support (LTC Financing Collaborative, 2019, p. 19).

The reality of Medicaid long-term care financial eligibility is far more nuanced, generous, and elastic than these quotes convey. While scholars usually and the media sometimes explain (1) how Medicaid allows people with excess income to qualify by spending down privately for care until they reach the required level and (2) how some assets are non-countable and so do not affect eligibility and are not required to be spent down, generally both the media and scholars leave the strong impression that qualifying for Medicaid long-term care benefits is financially devastating and highly undesirable. Media articles usually point their readers to legal experts who can help families reconfigure their income and assets to qualify without spending down. Scholarly articles rarely take that alternative into account. This latter fact is the key to understanding why expanding government spending is usually the only option considered by analysts for reforming long-term care services and financing.

The Fallacy of Impoverishment

Income Eligibility

How does Medicaid long-term care eligibility really work? Most states use “medically needy” eligibility rules, which means people who have too much income can pay privately for their care until their net income level is reduced to the accepted limit (Thach and Wiener, 2018, p. 549). Other states apply “income caps,” usually 300 percent of the Supplemental Security Income (SSI) limit, currently $2,313 per month (Thach and Wiener, 2018, p. 550). But income cap states may allow people with excess income to qualify by setting up special “Miller income diversion trusts,” into which the recipient transfers excess income until the income eligibility level is reached. Then, the trust pays out the money to offset Medicaid’s cost for the recipient’s care (Musumeci, Chidambaram and O’Malley Watts, 2019, p.1451). The result is the same as under the medically needy system. The rule of thumb in all states, whether “medically needy” or “income cap” standards apply, is that anyone with income below the cost of a nursing home can qualify for Medicaid long-term care benefits based on income. As nursing home care is very expensive (roughly $7,500 or $8,500 per month on average and much higher in many urban venues) (Genworth, 2019), people with substantial incomes qualify routinely for Medicaid long-term care benefits throughout the United States. For example, someone with income of $7,500 per month or $90,000 per year would fall in the 84th percentile of income nationally (PK, 2018), but would nevertheless qualify for publicly financed long-term care based on income if that income is expended for medical and/or long-term care expenses including home care, assisted living, or nursing home residency. Medicaid long-term care income eligibility requires a cash flow problem, but not low income.

Asset Eligibility

Similarly, Medicaid’s seemingly harsh asset spend down rules are much less so as applied. Most of the wealth seniors hold is not counted in determining eligibility. Home equity is entirely exempt if a spouse remains in the home. Between $595,000 and $893,000 of home equity, depending on the state (Musumeci, Chidambaram and O’Malley Watts, 2019, p. 1552), continues exempt as of 2020 even if the home is unoccupied as long as the Medicaid recipient expresses a subjective, medically unverified intent to return to the home (Thomson/MEDSTAT, 2005, p. 353). Additional exempt assets, all without any dollar limits, include

  • one income-producing business,54 including the capital and cash flow (Hales and Shandrick, 1992, p. 1555)

  • individual retirement accounts (IRAs) (CANHR, 2019)56 if generating periodic income57 as most are required to do by age 70 ½ in compliance with the required minimum distribution rules (IRS, 201958)

  • term life insurance,59

  • prepaid burial funds for the immediate family,60

  • one automobile,61

  • household goods and personal effects including heirlooms.62

Thus federal law and regulations, which state Medicaid agencies are supposed to follow, allow applicants and recipients to possess virtually unlimited assets while receiving benefits. It is true that state Medicaid programs are technically required to recover such sheltered assets from the estates of deceased recipients, but enforcement of that requirement is inconsistent, complicated by regulations severely limiting lien placement, and relatively easy to avoid, especially with legal advice.63

Married applicants receive additional financial eligibility considerations. Community spouses of institutionalized Medicaid recipients may retain a “Minimum Monthly Maintenance Needs Allowance” (MMMNA) of between $2,113.75 and $3,216.00 per month (ACA, 2020, MMMNA64) plus a “Community Spouse Resource Allowance” (CSRA) of half the couple’s joint assets not to exceed $128,640 but no less than $25,728 (ACA, 2020, CSRA65). These allowances began at $1,500 per month and $60,000, respectively, when the Medicare Catastrophic Coverage Act of 1988 established them. By law, they increase annually with inflation. The MMMNA and CSRA were created to end the “spousal impoverishment” that could occur previously when the institutionalized recipient’s (usually the man’s) income was captured as required by federal law to offset Medicaid’s cost of his or her care.

   Although there is considerable variation in state Medicaid eligibility rules, DeNardi, et al. concluded there was “little practical difference in Medicaid eligibility across the different states” due to medical and long-term care expense deductions. They explain that “most individuals in nursing homes incur medical expenses far greater than 300 percent of the SSI level,” thus achieving eligibility (De Nardi, French, Jones and Gooptu, 2011, p. 26).

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