LTC Bullet: “Dying Broke” Was Dead Wrong

Friday, December 15, 2023

Seattle—

LTC Comment: Who knows more about long-term care (LTC) than KFF and the New York Times? Answer: anyone who deals in facts and logic instead of anecdotes and ideology. We explain after the ***news.***

*** REGISTER NOW for the 2024 Intercompany Long Term Care Insurance Conference! Plan now for the March 17 - 20, 2024 convocation at the Town & Country Resort in San Diego, CA. Organizers say the “agenda includes numerous educational sessions over two days across seven tracks with ample time for networking and reconnecting with colleagues. Contact them at info@iltciconf.org if you’d like to exhibit or sponsor. Go here to register and here to book your hotel. The host hotel room block is almost full, so get this done soon. I’ll attend the meeting, cover it for media, and regale anyone interested with the findings and recommendations from two new studies: “Long-Term Care: The Problem” and “Long-Term Care: The Solution.” ***

***  THE NAKED TRUTH about long-term care:

12/2023, “Naked,” by Ron Hagelman, Broker World
Quote: “Stephen has laid out a blueprint that attacks the problem at its core. …
Step One: Eliminate the Moral Hazard. Shut down all planning tools used to avoid personal responsibility—to include purchase of exempt assets, eliminate home equity exemptions, prohibit asset protection trusts and Medicaid compliant annuities. And perhaps most importantly extend the look back period to 20 years and then ‘monitor and enforce compliance.’
Step Two: Publicize the now exposed true risk.
Step Three: Reconceptualize the actual size of the risk.
Step Four: Proselytize affordable planning at younger ages.”
LTC Comment: I thank my friend, Broker World columnist and all-around LTC advocate, Ron Hagelman, for this thoughtful summary and exposition of key facts and recommendations (“the naked truth”) in the Paragon Health Institute’s “Long-Term Care: The Problem” and “Long-Term Care: The Solution.” Read Ron first and then the papers to see for yourself.

*** JOIN AND SUBSCRIBE. Center members receive our LTC Bullets and LTC E-Alerts. Center president Steve Moses reads everything relevant to LTC in the popular and academic media. He distills the essence of all important articles and reports in LTC Clippings. He gives you the date, title, author, a representative quote and his interpretation of the publications’ meaning and significance. You get one or two extra emails daily, but you save time you’d otherwise spend researching issues and client questions on your own. All members receive a compilation of the week’s LTC Clippings every Monday in our LTC E-Alert. Premium members receive the Clippings in real time. Check out our Membership Levels and Benefits here. Learn about our “Members-Only Zone” here. You’ll be amazed how economical joining the Center and gaining access to all our online content is. We’re fighting the good fight for rational LTC financing policy. Join our team here. Still undecided? Contact damon@centerltc.com or smoses@centerltc.com. ***

 

LTC BULLET: “DYING BROKE” WAS DEAD WRONG

LTC Comment: The New York Times and KFF (formerly the Kaiser Family Foundation) partnered to examine “the ways in which the financial and emotional toll of providing and paying for long-term care are wreaking havoc on the lives of millions of Americans.” Their investigative series, titled “Dying Broke,” began with an alarming article: “Facing Financial Ruin as Costs Soar for Elder Care.” Like so much of what passes as investigative journalism in the LTC services and financing field, this report bewails the dismal conditions currently, warns of an aging onslaught that will make everything worse, and laments inadequate LTC funding from public and private sources, but says nothing about what caused these problems nor what to do about them, other than asking government to spend more.

The Paragon Health Institute has published two reports that address both the cause of these problems (“Long-Term Care: The Problem”) and how to solve them (“Long-Term Care: The Solution”) without spending more government money. The following applies insights from those Paragon papers to explain what’s wrong with the KFF/NYT’s findings and analysis. Our perspective follows these quotes from “Dying Broke.”

KFF/NYT: “Millions of families are facing such daunting life choices — and potential financial ruin — as the escalating costs of in-home care, assisted living facilities, and nursing homes devour the savings and incomes of older Americans and their relatives.”

“‘People are exposed to the possibility of depleting almost all their wealth,’ said Richard Johnson, director of the program on retirement policy at the Urban Institute.”

LTC Comment: Are LTC costs truly devouring the savings and incomes of aging Americans and their families? Dying Broke offers anecdotes and asserts that people are vulnerable to catastrophic LTC spend down, but it provides zero evidence that such devastating expenditures actually happen. Our study, “Long-Term Care: The Problem,” explains that government, mostly Medicaid and Medicare, funds the vast majority of all formal paid LTC. Private LTC financing has dwindled from around half in 1970 to a quarter today, most of which is income, not assets, that people already on Medicaid have to contribute. If so many peoples’ savings are devastated by catastrophic LTC costs, shouldn’t that fact show up in the data?

KFF/NYT: “The prospect of dying broke looms as an imminent threat for the boomer generation, which vastly expanded the middle class and looked hopefully toward a comfortable retirement on the backbone of 401(k)s and pensions. Roughly 10,000 of them will turn 65 every day until 2030, expecting to live into their 80s and 90s as the price tag for long-term care explodes, outpacing inflation and reaching a half-trillion dollars a year, according to federal researchers.”

LTC Comment: The oft-reported datum that 10,000 boomers turn 65 daily is rarely balanced by the fact that about 5,700 of them die each day and a third are already dead and free of future LTC risk or cost. Of that half-trillion dollars per year spent on LTC, Medicaid pays 44%; Medicare, 20%; other public sources, 7%; private insurance, 8%; and other private sources (mostly philanthropic), 7%; making a total of 86% that people do not pay out of their own pockets. Of the remaining 14% that the government reports as “out-of-pocket” LTC spending, half or more comes from Social Security and other income that people already on Medicaid are required to contribute to offset the cost of their government-funded care. In other words, only 7% of LTC expenditures nationwide could possibly come from people’s savings. Hardly devastating and certainly not a mandate for more government deficit spending.

KFF/NYT: “The United States has no coherent system of long-term care, mostly a patchwork. The private market, where a minuscule portion of families buy long-term care insurance, has shriveled, reduced over years of giant rate hikes by insurers that had underestimated how much care people would actually use. Labor shortages have left families searching for workers willing to care for their elders in the home. And the cost of a spot in an assisted living facility has soared to an unaffordable level for most middle-class Americans. They have to run out of money to qualify for nursing home care paid for by the government.”

LTC Comment: This paragraph combines a lot of truth, misunderstanding and falsehood. It’s true America’s LTC services and financing system is an incoherent mess, that too few families own private LTC insurance, that we face a dire shortage of caregivers and that care costs are going through the roof. What matters, however, is why these conditions persist. On that, KFF and NYT blank out. The answer lies in correcting the falsehood that people “have to run out of money to qualify” for government LTC financing. If that were true, more people would worry and plan for LTC, more would buy private insurance, and more would pay privately at market rates for home and community-based care resolving the worker shortages as competitive market forces contain costs.

KFF/NYT:  “Medicaid, the federal-state program, covers long-term care, usually in a nursing home, but only for the poor. Middle-class people must exhaust their assets to qualify, forcing them to sell much of their property and to empty their bank accounts.”

Paragon: Archimedes said “Give me a lever long enough and a fulcrum on which to place it, and I shall move the world.” The “fallacy of impoverishment,” the idea that Medicaid requires catastrophic impoverishment to qualify for LTC benefits, is the lever long enough and the fulcrum strong enough to explain all of the problems with LTC and to plot a course to a solution. If people really had to “exhaust their assets to qualify,” if generations of Americans had been wiped out financially by LTC costs, we wouldn’t be in the mess we’re in. People would have quickly taken the risk and cost of LTC seriously and prepared. But the truth is that Medicaid allows practically unlimited income and assets to remain with people who receive its publicly financed LTC benefits. How and why that is true and the dire ramifications for the LTC services and financing system, we explain in “Long-Term Care: The Problem” and “Long-Term Care: The Solution.”

KFF/NYT: “The only true safety net for many Americans is Medicaid, which represents, by far, the largest single source of funding for long-term care.

“More than 4 in 5 middle-class people 65 or older who need long-term care for five years or more will eventually enroll, according to an analysis for the federal government by the Urban Institute. Almost half of upper-middle-class couples with lifetime earnings of more than $4.75 million will also end up on Medicaid.

“Qualifying for a slot in a nursing home paid by Medicaid can be formidable, with many families spending thousands of dollars on lawyers and consultants to navigate state rules. Homes may be sold or couples may contemplate divorce to become eligible.”

LTC Comment: There you have it. Just about everyone who has high LTC expenses eventually ends up on Medicaid. But have they really impoverished themselves to qualify? That’s what KFF/NYT assume. They cite the “Health and Retirement Study” (HRS), but the HRS says nothing about how much people spend on health and LTC expenses before they become eligible for Medicaid. HRS only records “transitions” to Medicaid. As we explain in “Long-Term Care: The Problem” and “Long-Term Care: The Solution,” most people can easily qualify financially for Medicaid LTC benefits because private health and LTC expenses are deducted from income before the “low-income” criterion is applied (or in some states income diversion trusts achieve the same purpose) and most assets seniors own are exempt from eligibility limits or can be easily converted to exempt form. On top of that, Medicaid planners, including specialized lawyers and other financial professionals, qualify even high net worth clients using special trusts and annuities, while holding back “key money” to ensure their affluent clients have access to the best facilities and care available through Medicaid. Poor people Medicaid is supposed to serve don’t have key money so they end up in the least desirable care Medicaid offers.

In summary:

“‘Dying Broke’ Was Dead Wrong”
by
Stephen A. Moses
<656 words>

Who knows more about long-term care (LTC) than KFF and the New York Times? Answer: anyone who deals in facts and logic instead of anecdotes and ideology.

KFF and NYT joined forces to frighten the public about LTC risk and cost. Their article series Dying Broke, begins with “Facing Financial Ruin as Costs Soar for Elder Care.” If those titles sound familiar it is because the media barraged the country with the same warnings for decades.

If LTC is such a huge risk and cost, if people are being impoverished in large numbers by its cost, if families are buckling under the strain of providing care the government funds inadequately, then why hasn’t something been done? Why the hand-wringing without action or change?

The answer lies in elites’ misunderstanding of the LTC problems’ cause. They believe poor care access and quality, nursing home bias, caregiver shortages, and excessive reliance on over-stressed family caregivers come from too little government spending for LTC. Ironically, the exact opposite is true.

Government spent too much for LTC and in the wrong ways. Medicaid made nursing homes the dominant venue of care by paying for them exclusively. Medicaid crowded out private savings and LTC insurance by enabling people to preserve wealth and receive publicly funded care late in life. Medicaid reimbursed providers too little to fund quality care or attract paid caregivers.

What makes KFF/NYT cling to the simplistic explanation that government spends too little and ignore the obvious, but more complicated cause? A progressive “LTC Narrative” dominates their thinking and obscures reality. Here are some examples from Dying Broke.

According to “Facing Financial Ruin as Costs Soar for Elder Care,” “Millions of families are facing … daunting life choices — and potential financial ruin — as the escalating costs of in-home care, assisted living facilities, and nursing homes devour the savings and incomes of older Americans and their relatives.” Shouldn’t we expect evidence to support such a dire statement? None is offered.

The article continues “Medicaid, the federal-state program, covers long-term care, usually in a nursing home, but only for the poor. Middle-class people must exhaust their assets to qualify, forcing them to sell much of their property and to empty their bank accounts.” That is certainly the conventional wisdom about Medicaid, but is it true? Blank out.

And still: “The only true safety net for many Americans is Medicaid, which represents, by far, the largest single source of funding for long-term care. More than 4 in 5 middle-class people 65 or older who need long-term care for five years or more will eventually enroll, according to an analysis for the federal government by the Urban Institute. Almost half of upper-middle-class couples with lifetime earnings of more than $4.75 million will also end up on Medicaid.”

So, this is the narrative: LTC wipes out the savings of millions because the main funder, Medicaid, requires impoverishment causing even upper-middle-class couples with millions in savings to qualify for public welfare. But what happens to that narrative if none of this is true?

What if Medicaid does not require low income or exhausting assets to qualify for LTC benefits? What if there is no evidence of widespread catastrophic spend down caused by LTC costs? What if millionaires qualify for Medicaid without spending down and while retaining their wealth for heirs? If all that’s true, it throws the LTC narrative into a cocked hat and invites an entirely different analysis leading to radically different recommendations.

The Paragon Health Institute’s October 2022 paper “Long-Term Care: The Problem” substantiates those unconventional points and explains how Medicaid caused LTC’s problems. Its October 2023 paper “Long-Term Care: The Solution” proposes new public policy to save Medicaid for the neediest and uplift LTC services with an infusion of private financing.

Discard the LTC narrative; focus on facts; think clearly about public policy incentives; and real change becomes possible, even likely.