LTC Bullet: What if Most People Don’t Spend Down for Medicaid LTC? Friday, June 2, 2023 Seattle— LTC Comment: Analysts make long-term care financing look very bleak—and therefore in need of a big, new government program—by ignoring Medicaid’s huge, damaging role. Why, how, and what to do about it, after the ***news.*** ***
2023 SPOUSAL IMPOVERISHMENT NUMBERS are out. Center members can find
them for this year and every other year back to 1991 in our “members
only zone.” You’ll need your user name and password to access The
Zone. Contact
damon@centerltc.com for a reminder or to join and get a UN/PW. These
new numbers reflect a 8.2% cost of living increase. Here are some
highlights: The Medicaid home equity exemption is now at least $688,000
and as high as $1,033,000 in some states. The Community Spouse Resource
Allowance that started at $60,000 in 1988 is now $148,620. The Maximum
Monthly Maintenance Needs Allowance that began at $1,500 when the Medicare
Catastrophic Coverage Act of 1988 ended Medicaid spousal impoverishment is
now $3,715.50. For insights on what these numbers mean for LTC financing
policy and Medicaid spend down risk, read the rest of today’s LTC
Bullet. *** LTC BULLET: WHAT IF MOST PEOPLE DON’T SPEND DOWN FOR MEDICAID LTC? LTC Comment: The National Council on Aging (NCOA) and The LeadingAge LTSS Center @UMass Boston published an Issue Brief titled “The Continued Toll of Financial Insecurity in Retirement” in February. Its authors include Rocki Basel, PhD and Susan Silberman, PhD of NCOA; and Jane Tavares, PhD, Marc Cohen, PhD, and Molly Wylie, MS of the LeadingAge LTSS Center. One of the authors, Marc Cohen, is a longtime friend and fellow LTC analyst. NPR interviewed him about the new report in a piece titled “The cost of long-term care in the U.S. is outpacing the income and savings of older adults.” Marc summarized the Issue Brief’s dismal findings and concluded “that middle-income Americans are particularly vulnerable due to a lack of affordable care options. And for those earning too much to qualify for Medicaid — but not enough to cover the growing cost of care — there are few options. … There's a private insurance market that provides private insurance for long-term care, but those policies are pretty much out of the financial reach of middle-income Americans. To fill this gap in care, … some states have considered an employer-provided social insurance program for long-term care that’s modeled off Social Security.” Let’s quickly review the Issue Brief’s discouraging results and then ask these questions: Are people’s incomes and assets really preventing their eligibility for Medicaid LTC benefits? Is private LTC insurance hopelessly overpriced for the middle class and so nevermore a part of the solution? To make up the LTC financing shortfall, do we really have to have another state or federal social insurance program? What if there were a better way to finance LTC for rich and poor alike, revitalize private LTC insurance, and do it all without a big, new, compulsory, payroll-funded, government Ponzi scheme? Wouldn’t that be great? Read on. We quote the Issue Brief and then comment. Issue Brief: “Over a 20-year period, more than 25% of adults age 50 and over will experience a shock resulting in a 75% or more drop in net wealth. Among adults age 70 and older, more than two-thirds will experience at least one negative shock with financial consequences over a nine-year period.” (Emphasis in the original.) LTC Comment: Ouch! At least there is a social safety net in place and some private charity remaining to help those most in need. But it gets worse … Issue Brief: “One of the most significant costs burdening older adults is long-term care services and supports (LTSS), ranging from non-medical assistance with activities of daily living to medical care in a skilled nursing facility. While many Americans underestimate the need for LTSS, over half of adults 65 and older will need LTSS for less than two years, and about one in seven will require care for more than five years. Financing even one year of care can prove unwieldy for most Americans. In 2018, the average yearly cost of a private room in a nursing home was $105,485, and that of a home health care aide was $37,440.” LTC Comment: More recent data are somewhat less daunting: “While individuals on average will need 0.8 years of paid LTSS, 55% of older adults will not use any paid LTSS. About 24% of older adults (or about half of paid LTSS users) will receive less than a year of paid LTSS (measured in service days), and about 4% of older adults will use five years or more.” On the other hand, more recent (2021) data show higher costs: $108,405 for a year in a private nursing home room and $61,776 for a home health aide ($27 per hour, 44 hours per week, 52 weeks per year). Definitely, not a pretty picture. Issue Brief: “As Medicare does not absorb the shock of LTSS costs, this financial risk is often faced directly by older adults and their families or by social safety net programs such as Medicaid.” LTC Comment: OK, but what is the balance between the risk “faced directly by older adults and their families or by social safety net programs such as Medicaid.” We’re expected to presume that wide swaths of aging Americans are forced into poverty by high LTC costs resulting in their becoming impoverished and on Medicaid eventually. Is there any evidence that occurs? Not in this Issue Brief. In fact, the Health and Retirement Study (HRS) on which the Issue Brief is based provides zero evidence of asset spend down for LTC incidental to Medicaid LTC eligibility. The HRS documents only “transitions” to Medicaid, which could occur due to Medicaid planning, i.e., artificial self-impoverishment, conducted years before LTC is needed and Medicaid eligibility occurs. So, what does the Issue Brief tell us about aging Americans’ ability to purchase LTC with their own resources? Issue Brief: “Though the value of financial assets marginally increased or stayed the same for 80% of older adults from 2016 to 2018, the bottom 20%, approximately 11 million households, have no assets. This group has a 2018 median income of $16,989 and would be unable to rely on personal finances to pay for LTSS, especially with rising costs of care. The next three quintiles (21– 40%, 41–60%, and 61–80%) of older adults saw modest increases in their financial assets between 2016 and 2018, but these individuals would still be unable to afford more than two years of nursing home care in a semi-private room or four years in an assisted living community if their median income and household value of financial assets were added together. Despite adults’ preference to age in place, 60% of adults would be unable to afford two years of in-home long-term services and supports. Therefore, although the need for services both in the short- and long-term remains a reality for many older Americans, most do not have the financial resources to afford either.” LTC Comment: So, the bottom quintile has no assets and very low income. That’s practically the definition of someone who qualifies for Medicaid LTC. But what about the next three higher quintiles? According to the Issue Brief, these folks can afford two years of nursing home care, four years in an assisted living facility, and 40% of them could manage two years of in-home LTC. Sounds like they’re in pretty could shape since the Issue Brief says “over half of adults 65 and older will need LTSS for less than two years.” But, here’s the kicker. If these middle-income people are spending their money on LTC, where is the evidence? Nursing home private-pay revenue has plummeted to about 7 percent so that’s not where it’s going. Maybe these folks are spending their substantial savings on home care. But no, Medicare (37.2%) and Medicaid (34.2%) paid 71.4% of the $125.2 billion Americans spent on home health care in 2021. Private health insurance (not LTC insurance) paid another 12.7%. Only 10.3% of home health care costs were paid out of pocket. So that’s not where all this wealth is being spent. Maybe people are spending down for assisted living. Some surely do but “Almost 1 in 5 [ALF] residents relies on Medicaid to pay for daily services (18%),” “48% of ALFs are Medicaid certified” and only “a small minority of state Medicaid programs do not cover services in assisted living.” (Find these quotes under the source’s “Finance” tab.) Bottom line: there is no evidence that private-pay LTC spend down is consuming significant amounts of middle class savings. What’s happening instead? Let’s consider those questions we raised earlier. Are people’s incomes and assets really preventing their eligibility for Medicaid LTC benefits? Click through to the Issue Brief and scroll down to “FIGURE 1. Older Adult Households Divided into Financial Quintiles based on Net Value of Total Wealth.” Look at the income, savings and home equity amounts for the fourth wealth quintile, representing 61-80% of older adults. Their total household income is $52,229. Would that disqualify them for Medicaid LTC benefits? Would that force them to spend down into impoverishment before getting help? No. The rule of thumb is that income below the cost of a nursing home is not disqualifying. That’s because private health and LTC expenditures are deducted from income before comparing it to Medicaid’s allowable limit. A well spouse, if there is one, would keep a spousal impoverishment protection “maximum monthly maintenance needs allowance” of $2,465 or $29,580 per year. Only the remaining income balance in the recipient’s name would go to offset Medicaid’s cost for his/her care. Thus, while some private income goes for care, this out-of-pocket cost, mostly Social Security income, merely reduces Medicaid’s share of the dismally low reimbursement, often less than the cost of care, that the LTC provider receives. Although the recipient is paying out of pocket, he/she is not commanding the better access and higher quality care associated with paying privately. He/she is trapped in the lower Medicaid level of America’s two-tier LTC system. Well, what about assets? The “net value of primary residence,” i.e. home equity, of folks in the fourth wealth quintile is $220,000. Would that interfere with Medicaid LTC eligibility compelling asset spend down? Well, no. Medicaid exempts a minimum of $688,000 of home equity and up to $1,033,000 in some states. Even the richest people, in the 91-100% decile of the Issue Brief’s Figure 1, would qualify for Medicaid based on their home equity of $400,000. But, as everyone knows, you can’t have more than $2,000 in “countable” assets and still qualify for Medicaid LTC. So, what is the fourth quintile’s “Household Value of Financial Assets (non-housing, median)” and would that disqualify them for Medicaid? That total is $130,000. Way more than $2,000. But, we’re just getting started. First, if there is a spouse, compute the couple’s jointly owned assets, and set aside half, not to exceed $148, 620 but never less than $29,724, for the “community spouse.” Back out the non-countable assets people own such as “pre-paid burial and funeral expenses, an automobile, term life insurance, life insurance policies with a combined cash value limited to $1,500, household furnishings / appliances, and personal items, such as clothing and engagement / wedding rings.” Very few people in the fourth quintile of wealth will have much left, but whatever remains can easily be converted to non-countable status by investing more money in the home or purchasing any of the items just listed. Do you think that people confronting high LTC costs ignore those generous Medicaid financial eligibility limits and pay out-of-pocket? Do they plunge themselves into real impoverishment from a sense of personal responsibility or shame at depending on public assistance? Some do. More used to do. But nowadays information on how to qualify for Medicaid without spending down for care is universally available in magazine articles, self-help books, and on the internet. Google “Medicaid planning in [your state],” if you have any doubt. Even state Medicaid eligibility workers routinely explain to middle class applicants how to speed up or entirely eliminate their “spend down” process by purchasing exempt assets. Workers report that people now think of Medicaid (welfare) as though it were an entitlement like Medicare. They ask themselves, as Jane Bryant Quinn did in her 12/18/89 Newsweek column, “Do Only the Suckers Pay?” So, no, ignoring easy access to Medicaid LTC benefits and paying out of pocket, is not the rule. It is the exception. Is private LTC insurance hopelessly overpriced for the middle class and so nevermore a part of the solution? It is so disappointing and disheartening to see former supporter of private LTC insurance, not to mention potential buyers and current owners, abandoning the product in favor of more government dependency. We need instead to reconceptualize LTC risk based on new data, some of which is recounted in the Issue Brief, but much more of which is at our fingertips in the recent research on LTC risk and cost. For example, if most people can afford a couple years of LTC as the Issue Brief acknowledges, but they have no reason to spend their own money for LTC because even the folks in the fourth wealth quintile are immediately eligible for Medicaid without spending down, why not change the rules and realign the incentives. Let’s say we eliminate all the ways people qualify for Medicaid while preserving wealth for people under 65 today. Then we tell younger folks they only need to insure for their average LTC risk, not for the whole potential catastrophic risk. That would collapse the premiums they would need to pay to a level affordable even by the middle class at a time in their lives when they’re also coping with house and car payments, retirement and education savings. They’d buy this coverage because they could no longer ignore LTC risk, wait to see if they ever need expensive care and, if they do, go on Medicaid and still preserve most of their wealth. What about that remaining catastrophic risk? Medicaid can handle it if most people are protected for those first couple years of LTC need and because the eligibility loopholes that allow wealth preservation are gone, the assets that are no longer sheltered or divested will go to fund LTC in the private market for anyone who failed to insure. To make up the LTC financing shortfall, do we really have to have another state or federal social insurance program? No. People respond to incentives. Stop giving them an easy way to avoid LTC risk and cost while preserving their wealth and they’ll look creatively for ways to cover that risk. They will find many possibilities such as tapping home equity, life insurance, retirement savings and many other sources of wealth that currently dodge LTC responsibility. All that’s needed is a real incentive in public policy for people to take personal responsibility and prepare, putting to use some of the wealth that Medicaid diverts from private LTC spending now. What if there were a better way to finance LTC for rich and poor alike, revitalize private LTC insurance, and do it all without a big, new, compulsory, payroll-funded, government Ponzi scheme? Wouldn’t that be great? Yes, and the proposal to achieve that is on its way. Stay tuned! |