March 27, 2020
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 fifth one, after the ***news.***
THE TEST: Consensus has been forming among analysts for the past several
years about the most politically expedient way to improve long-term care
financing policy. The best articulation of the proposal I’ve seen goes
like this. We should set up “A public catastrophic insurance program for
LTSS costs that takes effect after an income-related waiting period has
been met.” (Cohen,
Feder, and Favreault, 2018, p. 7)
What this means is that the federal and/or state governments should back
up catastrophic long-term care expenses by borrowing more money than we
have already (nearly $24 trillion), as
there is no un-borrowed money to spend.
If we’re going to try this, now is the time. The Federal Reserve
has just removed all limits on government borrowing. Congress is about to
lift all limits on spending. If it is possible to solve problems by
printing money and spending it without limits, then now’s the time to
throw long-term care into the mix as well. Will it work? What do you
think? That’s THE TEST. If you want to know what I think, read the
report serialized in today’s LTC
PREDICTIONS: We all lament cancellation of the 2020 ILTCI conference that
would have begun in a few days. Fill that void vicariously by reading our History
of LTC Insurance Conferences (2019).
Here’s a little peek back at the Jacksonville, Florida 17th Annual
Inter-Company Long-Term Care Insurance Conference’s closing general
session on March 28, 2017, which explored the topic “New
President and Congress: Implications for Aging and LTC Finance.” Participants
were asked to vote on several questions. One of them follows including my
response. See the others in “LTC Bullet:
LTC Policy Poll Results,” April
“Q7. Do you think the next four years will bring an improved economic climate? Or will we see a continuation of low interest rates?
Improved economic climate/higher interest rates = 76%
Comment: I think these voters are vastly over-optimistic. I’d agree
with the stay-the-same or get-worse minority. The current “economic
recovery” is long in the tooth; the “Trump trade” is already
petering out as health and tax reform languish; we may already be in a
recession; the Federal Reserve’s tightening cycle has nearly run its
course; after perhaps one more interest rate increase, the next step is
down and most likely we’ll see more quantitative easing (QE4). That
means more and more debt with the age wave and entitlement insolvencies
looming. The U.S. dollar is unsupported by real value and very vulnerable;
foreign countries that give us real economic goods in exchange for paper
(bonds that the U.S. cannot ever afford to redeem) could wise up any time,
stop buying our debt, and start selling it in competition with The Fed;
carrying costs on our $20 trillion debt will
force a reversal of The Fed’s tightening soon as the economy worsens.
The credit bubble, inflating for a decade, will pop. Sadly for the Trump
Administration, the wages for the economic sins of its predecessors will
come due in its first term. (Tickle your calendar to review this
prediction on election day November 3, 2020. I’ll do the same.)”
Comment: I was a little early with this prediction. It took the current
pandemic to prick the asset bubble I described, but here we are. What
comes next is the critical TEST for the U.S. economy and for long-term
care financing. Stay tuned. ***
BULLET: MEDICAID AND LONG-TERM CARE, THE SERIAL, PART 5
Comment: Episode 1 of our
serialization of the Center’s
newest reportdescribed the
current defective method of providing and paying for long-term care. Episode 2 explained how
Medicaid became the dominant payor for long-term care, the dire
consequences that ensued, and central planners’ futile efforts to fix
the broken system. Episode 3showed how
scholars made the same mistakes as policymakers, lamenting long-term
care’s problems without analyzing their causes, and recommending more of
the same interventions that caused the problems in the first place.Episode 4 focused on how
affluent people qualify for Medicaid long-term care benefits, why they
ignore the risk and cost of long-term care until they need it, and how the
government has tried, mostly unsuccessfully, to curtail artificial
self-impoverishment to qualify for benefits.
Episode 5, which follows, Steve Moses explains how and why most long-term
care analysts ignore or misrepresent the vast literature on qualifying for
Medicaid long-term care benefits while avoiding spend down of wealth.
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
the fifth 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,
Why Do Analysts Ignore this Vast Literature on Medicaid Eligibility Planning?
Long-term care researchers rarely mention, and never delve deeply into, the Medicaid planning literature. They pretend these easier pathways to eligibility are not widely used. Analysts might argue that widely available consumer information and the formal legal literature on Medicaid planning are irrelevant because the fact that people can qualify for Medicaid while preserving most of their wealth does not mean they do it. All that matters is the evidence showing whether people do or do not spend down. Yet, when analysts ignore the evidence of easy financial eligibility and widespread Medicaid planning, they are predisposed to expect more rather than less genuine spend down. If they knew and understood the methods, techniques, and incentives to use them described in this literature, they would be more likely to look for, find and understand evidence that disproves the presumption of widespread asset spend down for care.
Analysts know the official laws and regulations governing Medicaid long-term care eligibility are complicated and pliant. Yet they frequently apply only the ostensibly severe standards to data on seniors’ wealth and then conclude people must be spending down millions before they qualify. If Medicaid denies access to applicants with more than $723 per month of income and $2,000 in assets, then surely, they reason, the vast majority of people on Medicaid have spent down, often catastrophically before qualifying. With that mistaken assumption firmly fixed in their minds, analysts conduct studies and search giant data bases looking for evidence to support it. This confirmation bias skews what they find.
Analysts could avoid such bias by reviewing and taking into account the legal literature on how to qualify for Medicaid without spending down for care. But they do not, which is a peculiar oversight as the evidence adduced and referenced above is inescapable. How and why do scholars discuss Medicaid long-term care financial eligibility while avoiding the facts of easy access to Medicaid?
of and Equivocation on Critical Concepts and Facts
Long-term care scholarship does include several excellent explanations of the complicated federal and state Medicaid long-term care financial eligibility rules such as Musumeci, Chidambaram and O’Malley Watts, 2019. But these treatments rarely draw out the ramifications of allowing relatively high-income people with substantial wealth to qualify for public benefits. Nor do they discuss how the superficially strict but fundamentally generous income and asset rules can be stretched to expand eligibility to include even the very well-to-do. When analysts do acknowledge that Medicaid long-term care benefits reach more than the poor, they nearly always equivocate on key concepts such as impoverishment, spend down, decumulation, median wealth, Medicaid planning and out-of-pocket expenses. Moreover, they use highly dubious data sources to substantiate their conclusions. These examples will clarify this point.
Medicaid long-term care eligibility requires inadequate cash flow, i.e. insufficient income, to cover all of an individual’s medical and long-term care costs. But it does not require low income, low assets, or financial destitution. Yet a typical analysis claims “Medicaid only covers the long-term care costs of the indigent” (Friedberg, Hou, Sun, and Webb, 2014, p. 1). Synonyms for the term “indigent” include “poor, impecunious, destitute, penniless, impoverished, poverty-stricken, down and out, pauperized, without a penny to one's name,” and many more (Dictionary definition of indigent). Clearly, if people with substantial income and assets can qualify for Medicaid long-term care benefits, then eligibility does not require impoverishment, much less indigence. The right conclusion to reach about Medicaid’s role in long-term care financing is that it substantially ameliorates the risk and cost of long-term care, not that it impoverishes people.
Medicaid financial eligibility rules allow people to spend down their private income and assets to reach eligibility limits. Income spend down must be done to purchase medical or long-term care services (Medicaid.gov, 2019)69. But asset spend down does not have the same requirement (ElderLawAnswers, 201870). Excess assets may be spent on or converted to exempt resources. There is no requirement to spend down assets on medical or long-term care expenses (Schneider and Huber, 1989, p. 14271). An expensive birthday party or “one last tour of Reno’s finest establishments” (Gilfix and Woolpert, p. 4272) are viable asset spend down options. Yet the presumption that wide swaths of the American public are forced to spend down their life’s savings on long-term care has prevailed in the research literature for decades.
When several “spend down” studies in the late 1980s and early 1990s set out to prove widespread asset spend down, they found it was far less common than previously believed. A 1992 analysis concluded: “Based on the studies conducted to date, it appears thatsomewhere between one in four and one in five persons who originally enter nursing homes as private payers convert to Medicaid before final discharge (Spend-Down I)” (Adams, Meiners and Burwell, 1992). Moreover, neither these early studies nor more recent ones distinguished between real spend down, paying privately for care until eligible, and artificial spend down, qualifying by purchasing exempt assets or otherwise sheltering or divesting wealth. Hence:
Very little is known about what has actually taken place for the individuals whom the foregoing studies have identified as asset spend-downers. Indeed, we cannot actually be sure these individuals have depleted assets; most of the studies can only identify that a change in payor source has taken place (Ibid.).
A well-known, more recent reportfurther exemplifies the point.“Medicaid Spend Down: Implications for Long-Term Services and Supports and Aging Policy” confidently states: “The high cost of long-term services and supports (LTSS) results in catastrophic out-of-pocket costs for many people needing services, some of whom spend down to Medicaid eligibility” (Wiener, et al., 2013, p. 1). Yet what this report calls “spend down” is nothing more than the “transition” from non-Medicaid status to Medicaid eligibility, which as explained above, is achievable without catastrophic financial consequences.
Recent research on asset decumulation in
retirement belies the conventional wisdom that widespread long-term-care
spend down occurs. In a study sponsored by the Employee Benefits Research
Institute, Sudipto Banerjee observed: “One
of the assumptions underlying many models used to measure retirement
income adequacy is that retirees will spend down their accumulated assets
to fund their retirement needs.” Then he asked“While this may make
sense in theory, do people actually behave like this?”
(Banerjee, 2018, p. 4) What he found was stunning. People with relatively
low savings, under $200,000 in non-housing assets, dropped in wealth only
24.4 percent in the first 18 years of retirement, a rate of asset
decumulation “definitely much lower than what has been traditionally
assumed by most retirement models” (Ibid.,
p. 5). Those with $200,000 to $500,000 dropped only 27.2 percent (Ibid.,
p. 7). “So, in this group as well, retirees did not spend down their
assets as quickly as retirement models would generally predict” (Ibid.). Finally, the group with over $500,000 dropped only 11.2
percent. “So, the group with the highest level of assets had the lowest
rate of asset spend down” (Ibid.).
then asks “Why are retirees not spending down their assets?” (Ibid.)
He speculates that people are reluctant to expend their savings because
they do not know how long they will live or how large their medical or
long-term care expenses may be. They may wish to leave a bequest or they
are just being cautious or saving is a habit for them. But there could be
a much simpler explanation. Once in retirement, consumers who safely
ignored the risk and cost of long-term care during their work lives
finally become concerned after their employment income has ended. Decades
of academic studies and media reports convince them they will lose
everything if they succumb to the high risk of needing long-term care. So,
as best they can, people preserve their assets and spend only income. But
catastrophic spend down for long-term care is a myth because Medicaid pays
for most expensive long-term care, exempts most assets, is easy to get
after care is needed without spending down wealth significantly and only
requires income as the patient’s contribution to the cost of care.
Consequently, after decades living in retirement, most people at most
levels of wealth spend down very little.
Other research does show that people do spend
down very rapidly at the very end of life, especially in the last year.
But, again, no one knows for sure how much of this depletion of measurable
wealth represents real or artificial spend down. French, et
al., found that medical spending before death, combined with burial
expenses explained only “about 24 percent of the decline in assets of
the soon-to-be deceased and about 37 percent of the decline in assets in
the last year of life” (French, De Nardi,
Jones, Baker, and Doctor, 2006, p.
2). The bottom line question, however, is how much Medicaid actually helps
affluent people defray the cost of late-life chronic illness and the
answer is striking. For households at the top of the income distribution,
Jones, et al., found
covers 21 percent of lifetime costs at age 70, with the fraction rising to
nearly 30 percent at age 100. While most high-income households do not
receive Medicaid, those that do qualify under the Medically Needy
provision, which assists households whose financial resources have been
exhausted by medical expenses [N.B.: Or by Medicaid planning, a key point
unmentioned in this article]. Such households tend to have high medical
expenses and tend to receive large Medicaid benefits (Jones, Bailey,
De Nardi, French, McGee, and Kirschner,
2018, p. 24).
fact that Medicaid offsets upwards of one quarter of the lifetime medical
and long-term care expenses of high income households is staggering and
belies the common presumption that people must and do spend down into
impoverishment to obtain benefits.
Analysts focus on people with median or less
income and assets, but they routinely evade the more interesting questions
of whether and how people with much higher wealth qualify for Medicaid.
For example, in testimony before the Commission on Long-Term Care, Richard
W. Johnson of the Urban Institute summarized his research findings that
people who end up in nursing homes on Medicaid tend to have relatively low
incomes and assets. Then he concluded
older adults who end up on the program would never have been able to earn
enough income or accumulate enough wealth to cover their nursing home
costs. It seems likely that Medicaid will continue to play an important
role in long-term care financing as long as those with long-term care
needs are disproportionately those with limited financial resources
(Johnson, 2013, p. 12).
should not evoke surprise that poor people qualify for Medicaid or that
most people who qualify for Medicaid are, and many always were, poor.
Helping the poor is the program’s statutory purpose. But, what about
people who do have income and assets well above the median? Take Medicare
beneficiaries for example. The Kaiser Family Foundation states
While a small share of the Medicare population lives on relatively high incomes, most are of modest means, with half of people on Medicare living on less than $26,200 and one quarter living on less than $15,250 in 2016. The typical beneficiary has some savings and home equity, but the range of asset values among beneficiaries is wide and varies greatly across demographic characteristics. . . . As policymakers consider options for decreasing federal Medicare spending andaddressing the federal debt and deficit, these findings raise questions about the extent to which the next generation of Medicare beneficiaries will be able to bear a larger share of costs (Jacobson, Griffin, Neuman, and Smith, 2017, pp. 6-7).
essence, Kaiser says Medicare beneficiaries are so poor that it behooves
policymakers not to consider “decreasing federal Medicare spending”
when they are “addressing the federal debt and deficit.” But, what
about Medicare beneficiaries who are not so poor? Would they still qualify
for Medicaid long-term care benefits?
According to the Kaiser issue brief, half of all Medicare beneficiaries have incomes of $26,200 or less (Ibid.). That is more than double the $12,490 poverty guideline for a single person as of 2017, but poor enough to be sure. These are the people we might hope the Medicaid long-term care safety net protects. In fact, it does. Anyone needing formal long-term care with that level of income would qualify easily anywhere in the United States.
But what about the other half of Medicare beneficiaries? Forty-five percent of them had incomes between $26,200 and $103,450. That is hardly impoverished. Could someone with an annual income of up to $103,450, at the 95th percentile of all Medicare beneficiaries, qualify for Medicaid LTC benefits? Yes. All it would take is paying the cost of a nursing home out of pocket at a little more than the median national annual rate for a semi-private bed ($89,292), hardly uncommon in high-cost states like California, New York or Massachusetts. Anyone in the $26,200 to $103,450 range would qualify in most states as long as their total uncompensated medical and long-term care expenses exceeded their income, as they likely would for people who need expensive long-term services and supports.
Turning to the savings of Medicare beneficiaries, we find the same upside down policy incentives as for income. The one-half of beneficiaries with the least savings qualify easily for Medicaid LTC benefits, but so do most of the upper half.
Half of Medicare beneficiaries have savings of $74,450 or less, including “retirement account holdings (such as IRAs or 401Ks) and other financial assets, including savings accounts, bonds and stocks” (Ibid., p. 3). Although their savings exceed the usual Medicaid limit of $2,000 in countable assets, these people can easily purchase extra home equity and other exempt assets, in any amount, such as personal belongings, home furnishings, prepaid burial plans, term life insurance, an automobile, etc., in order to reduce their countable resources and reach the asset eligibility limit.
But,what about the 45 percent of Medicare beneficiaries who have savings between $74,450 and $1.4 million? These higher-savings seniors generally have greater access to professional financial advice on how to protect their wealth from long-term care expenditures. They can avail themselves of Medicaid’s $595,000 to $893,000 home equity exemption and purchase other exempt assets as well; they can take advantage of loopholes favoring the affluent such as Medicaid-friendly annuities, irrevocable income-only trusts, spousal refusal and reverse half-a-loaf strategies; or they can simply divest their savings five years or more before applying for Medicaid as most Medicaid planning attorneys recommend.
it is easy and financially beneficial to qualify for Medicaid long-term
care benefits while sheltering or divesting up to $1.4 million (the 95th
percentile of Medicare beneficiaries’ savings) or more, Medicaid
planners do a land-office business often in practices with multiple
Medicaid planning is the practice of reconfiguring income and assets, with or without professional legal advice, to achieve financial eligibility for Medicaid long-term care benefits while minimizing financial consequences. Analysts seldom cite the extensive legal literature on Medicaid planning nor do they acknowledge the omnipresent information on its many methods and techniques available online and in the popular media. Instead, when they write about decumulating wealth to qualify for Medicaid, they assume and imply that savings are used to purchase long-term care rather than being divested, diverted, or sheltered to achieve eligibility.
In the rare instances when analysts consider the possibility that people might qualify for Medicaid without spending down wealth, they write only about “asset transfers” without considering other far more common and effective Medicaid planning techniques. For example: "[C]ritics contend that . . . Medicaid pays for the care of most nursing home residents because people with the resources to afford their own care—middle-income and wealthier people, even 'millionaires'—transfer their assets to qualify for public subsidies intended for the poor” (O’Brien, 2005, p. 2). First, no one contends that “most nursing home residents” transferred assets. Asset transfers are very expensive for taxpayers, having increased Medicaid spending by as much as “1 percent of total Medicaid spending for long-term care” (Waidmann and Liu, 2006, p. 1) or $1.7 billion as of 2016. But asset transfers are only the tip of the Medicaid planning iceberg, a minor factor compared to the more common methods of artificial self-impoverishment. Yet the O’Brien article makes only this passing reference to “establishing trusts,giving cash gifts to children and grandchildren, or otherwise concealingtheir ability to pay for their own care by converting countable assets toexempt forms (by spending assets on a car or on a home or home renovation,since those assets are not counted in making a Medicaid eligibilitydetermination)”(O’Brien, 2005, p. 2). By focusing exclusively on asset transfers while ignoring the abundant evidence for the more important Medicaid planning techniques, this article and most of its type violate the Strawman logical fallacy.74
Furthermore, formal Medicaid planning itself pales in significance compared to the simple reality explained above that most income and assets do not impede access to Medicaid long-term care benefits. Average middle class people qualify fairly easily without using asset transfers or other Medicaid planning techniques that, when employed, enable even the wealthy to qualify by following sophisticated legal advice.
Long-term care researchers sometimes debunk the idea that Medicaid planning is common among the well-to-do by suggesting that Medicaid’s reputation for poor access and quality would discourage people with financial means from seeking eligibility. Two points rebut that argument. First, the principal drivers behind Medicaid planning are not the ailing parents, but rather the adult children who want to protect their inheritances and therefore have a financial conflict of interest. Second, Medicaid planners routinely advise clients and their families not to worry about Medicaid’s poor reputation. By holding back enough “key money” for the parent to pay privately for a few months, they can buy their way into the best facilities which have relatively few Medicaid beds. Nursing homes routinely give admission preference to higher-paying private payers (Gandhi, 2019, p.175). Then when the last of the cash runs out, the attorney files the Medicaid application and the client remains in the preferred facility because state and federal laws prevent expelling residents simply because their source of payment changes from private to Medicaid. Ironically, poor people for whom Medicaid is supposed to be a safety net, lack the key money to ensure access to the best care. They go to the Medicaid facilities with the bad reputations.
Some analysts wrongly insist Medicaid requires impoverishment by claiming out-of-pocket expenditures are higher than they really are. For example, Melissa Favreault and Judith Dey conclude “Families will pay about half of the costs themselves out-of-pocket ….” (Favreault and Dey, 2016, p. 1). 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, which as explained above, are critical to sustain Medicaid’s viability as the dominant long-term care financing source. The truth is that out-of-pocket long-term care costs have been declining for half a century. In 1970, five years after Medicaid began picking up the long-term care tab, nearly half of nursing home expenditures still came from private resources. That share has dropped to almost one quarter as of 2017, including the spend-through of Social Security income, as explained earlier. Bottom line, over 90 percent of the cost of nursing home care in the United States is explained without counting out-of-pocket asset, as opposed to income, spend down (Colello, 2018, p. 176).
The situation with home health care financing is very similar. According to CMS, of the $102.2 billion America spent on home health care in 2018, Medicare covered 39.4 percent and Medicaid 35.1 percent, totaling 74.5 percent.Private insurance paid 11.9 percent. Only 9.9 percent of home health care costs were paid out of pocket, roughly one dollar out of every $10, and some portion of that amount was income spend down that Medicaid requires from recipients. The remainder came from several small public and private financing sources(CMS, 2020, Table 14).
When economists and health policy analysts claim that older people approaching the need for long-term care retain few assets and spend down rapidly, they generally draw their evidence from survey data provided by the Health and Retirement Study (HRS) and its auxiliary, the Asset and Health Dynamics among the Oldest Old (AHEAD) study. These longitudinal surveys contain information on home values, automobile ownership, liquid assets, farms and other businesses, retirement accounts, and other assets (De Nardi, French and Jones, 2016). Noteworthy is the fact that each of these financial holdings, as explained above,is either expressly exempt under federal law or easily converted into an exempt asset for purposes of achieving Medicaid long-term care eligibility. In other words, it would not matter for purposes of determining Medicaid long-term care eligibility whether such assets were retained or spent down.
Furthermore, the HRS and AHEADdata are highly dubious regarding amounts held in each of these asset classes.One expert describes “measurement errors in the data, particularly those arising from item nonresponse and frominaccurate respondent reports of the ownership and level of assets” (Venti, 2011, p. 3). Another identifies several other problems with the data including
The Health and Retirement Study contains no information on health and long-term services and supports expenditures, including out-of-pocket expenditures. Thus, it is not possible to directly link transition to Medicaid with out-of-pocket expenditures for health and long-term services and supports. … Finally, information on people who are cognitively impaired and who die is derived from proxy respondents, often relatives, who may not know about specific long-term services and supports use or Medicaid eligibility (Wiener, et al., 2013, p. 50).
There are many reasons why survey respondents and their representatives might fail to report income and assets to surveyors or even purposefully misrepresent the facts. People who have hidden or reconfigured their wealth to qualify for public welfare benefits may be ashamed of having done so or simply unaware that their heirs did this on their behalf. Seniors reporting on themselves may be cognitively impaired or intimidated by self-interested family members. Heirs who benefit from preserving parents’ estates by putting them on Medicaid may prefer to conceal the facts. Lawyers who do Medicaid planning are protected from disclosure by attorney/client privilege, while long-term care providers and Medicaid eligibility staff, who often know which affluent locals are taking advantage of Medicaid, cannot disclose the information because of legally enforced confidentiality. Getting to the truth in such matters is extremely difficult. Yet analysts routinely accept the HRS/AHEAD data as though it were unchallengeable. They often treat such data as incontrovertible proof of widespread catastrophic long-term care spend down.
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