LTC Bullet: Rethink LTC Financing

Friday, February 19, 2021

Seattle—

LTC Comment: We review a study that, correctly interpreted, would bust the LTC financing debate wide open, after the ***news.***

*** THE 2021 INTERCOMPANY LONG-TERM CARE INSURANCE CONFERENCE will convene virtually and for FREE April 13th – 29^th. Expect 40+ sessions from the usual tracks, but apparently minus Public Policy & Alternative Solutions (my favorite), and adding an Aging in Place Solutions track. ILTCI’s 2021 Virtual Conference will be presented 4 hours per day on Tuesdays and Thursdays over three weeks beginning April 13th. Choose from 2 sessions per time slot! CLICK HERE to view the schedule when it becomes available. Barry Fisher, Conference Chairperson and Vince Bodnar, Conference Co-Chairperson say: “Registration is expected to open later this month. Join us and get the inside scoop on current trends in the long-term care insurance industry and what the future holds. We look forward to seeing you on April 13th. ***
 

LTC BULLET: RETHINK LTC FINANCING

LTC Comment: The long-term care financing conversation has settled into a comfortable narrative that goes something like this. The need for long-term care is growing and overwhelming both private and public funding sources. Medicaid requires impoverishment. Private LTC insurance failed. So we need a new compulsory tax-based government program to pay for long-term care. But what if private insurance failed largely because Medicaid does not require impoverishment? What if public LTC funding caused, and more of it would only worsen, the crisis? Let’s consider some new evidence.

Very little scholarly work tackles the critical, but complicated topic of Medicaid long-term care eligibility in any meaningful way. You’ll see the statement “Medicaid requires impoverishment” or variations of it in most peer-reviewed articles on long-term care. But analysis that approaches the highly nuanced truth of that subject is rare indeed. For example, you will virtually never find anything in the scholarly literature about people with substantial wealth qualifying for Medicaid LTC benefits by taking advantage of simple and/or sophisticated self-qualification methods. Scholars evade that subject despite the fact that such methods are widely available in popular books and articles and from online advertising, law journal articles and thousands of Medicaid planning specialists throughout the country.

So, because its Abstract promised to show that many more people could qualify for Medicaid LTC benefits besides the poor, I couldn’t wait to read this article:

Robert Hest, Giovaan Alarcon & Lynn A. Blewett (2020): Modeling Financial Eligibility for Medicaid Long-term Services and Supports, Journal of Aging & Social Policy, DOI: 10.1080/08959420.2020.1740638. To link to this paywalled article, click here. (I want to thank LaRhae Knatterud of the Minnesota Department of Human Services and lead author Robert Hest for their time explaining this article’s background, methods and findings to me on a Zoom call and for listening and responding to my positive and critical feedback.)

The article’s “Abstract” states that the authors modeled “the impact of changing income, home equity, and asset limitations on Medicaid eligibility across states” and “found that one in five elderly adults (10 million individuals) meet all three tests and would be financially eligible for Medicaid LTSS.”

Wow! They concluded that 22 percent of all elderly Americans, more than double the official poverty rate of 9.2 percent (KFH, 2018), would qualify for Medicaid LTC benefits. That sure doesn’t support the conventional academic wisdom that Medicaid requires impoverishment. So I hastened eagerly to delve into the study’s details.

What I found pleased and disappointed me. The work is ground-breaking, the results surprising, and their true meaning far more important than the authors themselves realize. Instead, they ignored key evidence in order to conform their findings to the current “LTC Narrative”--that more social insurance is the only hope for long-term care and that targeting financial eligibility for Medicaid to the neediest would be ineffective and unadvisable. To support that assessment, here are some quotes from the article followed by my analysis:

JASP Article: “Medicaid plays a significant role in financing long-term services and supports (LTSS) for low-income elderly (65+) in the United States.” 

LTC Comment: True, but Medicaid also “plays a significant role in financing” long-term care for higher income people, because medical and LTC expenses are usually deducted from income before income eligibility is determined. The constant reference in the media and scholarly literature to Medicaid helping only low-income people diverts attention from the fact that people with substantial incomes also qualify routinely.

JASP Article: “Given the high cost of LTSS, individuals often exhaust their personal resources in paying for services and must rely on Medicaid to finance ongoing care.” (p. 1)

LTC Comment: Neither this article, nor any peer-reviewed journal article I can recall, provides evidence for that statement. It is certainly true of low income/low asset people who are quickly wiped out financially by Medicaid eligibility rules. It is definitely not true of higher income/higher asset people with financial savvy and access to legal advice. See for example the 29-page “Bibliography of Books, Elder Law Treatises and Law Journal Articles on Medicaid Planning Listed Chronologically” in How to Fix Long-Term Care Financing (Moses, 2017). That source contains hundreds of techniques elder law attorneys use to qualify their affluent clients for Medicaid LTC benefits. With so much legal smoke, is it reasonable to ignore the fire, i.e. widespread use of Medicaid by prosperous people the program was never intended to serve? Yet the JASP article does not mention the possibility that people with incomes and assets much higher than the amounts they modeled could have achieved eligibility by means of self-impoverishment methods widely recommended in the popular and legal media.

JASP Article: “To qualify for Medicaid payment of LTSS, most individuals must spend nearly all of their income on their care.” (p. 4)

LTC Comment: It is true income must be spent down on care-related expenses, but that gives the lie to the common notion that only low-income people qualify for Medicaid. People who need long-term care have very high medical and LTC expenses. So, because those expenses are deducted before their income eligibility is determined, they can have very high incomes indeed and still qualify for benefits. Furthermore, while it is true that income must be spent for care, it assuredly is not true that assets must be spent on care, although that claim is made in the literature. In fact, there is no limit on how many assets an individual or couple may retain while on Medicaid as long as the wealth is held in exempt form, such as a home, IRAs making periodic payments, an automobile, prepaid burial benefits, household goods, family heirlooms, etc. Countable assets are easily converted to exempt assets as the extensive Medicaid planning literature cited above frequently observes.

JASP Article: “Under the Deficit Reduction Act of 2005, the applicant’s homestead is an excluded asset if the individual lives in the residence, is expected to return to the residence, or a community spouse or dependent relative lives in the residence (ElderLaw Answers, 2018a). … In some states, the home is not considered when determining Medicaid eligibility if the nursing home resident plans to return to the home; in other states, the resident must prove that they are likely to return home (U.S. Department of Health and Human Services, 2005).” (p. 5)

LTC Comment: Actually, the terms “expected to return,” “plans to return,” and “likely to return” are unofficial and inaccurate. Rather, the federal Medicaid criterion for permitting the home equity exemption is a totally subjective “intent to return” expressed by the recipient or a representative with no verification whatsoever required.

JASP Article: “Our data come from the 2014 Health and Retirement Study (HRS), a longitudinal household survey of Americans age 50 or older ….” (p. 6)

“We also want to note that our primary data source, the Health and Retirement Study, though now said to be representative of the institutionalized population, was not originally designed to be representative of that population and some concerns remain about the sample’s representativeness of the nursing home population, especially when used longitudinally (RAND Center for the Study of Aging, 2019; Sonnega et al., 2014).” (p. 12)

LTC Comment: The JASP article relies on HRS data to determine the wealth (income and assets) of people to whom the authors then apply Medicaid LTC financial eligibility standards. But what if the HRS data, commonly assumed to be a gold-standard source, are really highly dubious? That would mean HRS respondents might actually have much more income and assets than they report. Or it could mean that the income and assets they report are correct but that they arrived at the reported levels not by spending their wealth on long-term care but by taking advantage of Medicaid’s generous and elastic financial eligibility rules or by retaining the services of an elder law attorney specializing in Medicaid planning.

I found the HRS data highly questionable in “How to Fix Long-Term Care Financing” (pps. 16-17). For example: “One expert found significant data quality issues in the surveys due to “measurement errors in the data, particularly those arising from item nonresponse and from inaccurate respondent reports of the ownership and level of assets.” (Venti, p. 3) “Furthermore,” as I explained in the report, “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 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 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 wealthy 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.” (p. 16)

JASP Article: “We find that applying the most restrictive income allowances across the states would result in an estimated 6.8 million individuals potentially losing financial eligibility for Medicaid LTSS.” (p. 7)

LTC Comment: So, don’t tighten income allowances. It is well accepted that loss of income is the “deductible” people must pay to get Medicaid to cover their LTC expenses. The real potential savings are on the asset side of the ledger. But federal law does not permit states to do what would need to be done to divert many more people away from Medicaid dependency. That is, change the home equity exemption so that home equity goes to fund better LTSS in homes instead of passing as a windfall to heirs at government expense. Loss of the home equity exemption would make people think and plan earlier for LTC resulting in fewer ending up on Medicaid. Eliminating some of the most common Medicaid planning strategies would also help to divert the middle class away from Medicaid without negatively affecting, in fact actually helping, the needy for whom more program resources would remain available.

Having interviewed hundreds of Medicaid LTC eligibility workers over the years, I found little relationship between the ostensibly draconian income and asset eligibility rules and the way the system works in practice. Workers told me they’re frustrated that people of few means quickly get wiped out financially whereas people with substantial wealth qualify immediately and easily because lawyers fill out their applications, know all the loopholes, provide all the documentation, and follow up until eligibility is granted.

JASP Article: “The population of elderly adults studied has an average age of 74.6 and is 56.3 percent female. Among the population, the median household income is 40,912, USD the median value of household net assets is 79,400 USD (excluding housing assets), and the median net primary residence value is 100,000. USD.” (p. 7)

LTC Comment: These are very high medians, which indicates that half of the studied population has even higher incomes and assets. Remember, this study found that 22 percent of the studied population not the median households would be “financially eligible for Medicaid LTSS” (p. 7). In How to Fix Long-Term Care Financing (pps. 8-9), I found that while half of all Medicare beneficiaries had annual incomes below $26,200 in 2016, 45 percent had annual incomes between $26,200 and $103,450, all of whom could qualify for Medicaid LTC benefits based on income if their deductible medical and LTC expenses were high enough. Furthermore, I found that while half of all Medicare beneficiaries had savings of $74,450 or less in 2016, 45 percent of them had savings between $74,450 and $1.4 million, all easily converted to Medicaid LTC asset eligibility with the simplest kinds of Medicaid planning measures. In other words, up to the 95^th percentile of Medicare beneficiaries could qualify for Medicaid LTC eligibility and, in the real world, they often do. This analysis applies equally well to the current study’s findings.

JASP Article: “If the most common state thresholds were applied across all states, we estimate that nearly the entire elderly population would meet the home equity threshold of 552,000. USD Just more than half (54 percent) would meet the home equity and income test, and only 22 percent, or 10 million adults age 65 and older, would meet all three tests – home equity, income, and assets – and be financially eligible for Medicaid LTSS.” (p. 7)

LTC Comment: Now, that statement is far more dramatic than it appears to be on the surface. Let’s deconstruct it. Nearly the entire elderly population would meet the home equity threshold of $552,000, but that was the exempt home equity amount as of 2015. The comparable amount for 2021 is $603,000. In nine states, the home equity exemption was $828,000 in 2015, but it is $906,000 today, because the exempt amount increases every year with inflation. What is the point of having a limit on home equity that does not exclude anyone? What is the public policy reasoning for preventing so much private wealth from funding quality long-term care for prosperous people? Over half the study population (54 percent) meet the home equity and income test? More than one-fifth meet all three (home equity, income and asset) tests? These figures apply to the whole population not just to the median? So much for the fallacy that Medicaid requires impoverishment.

JASP Article: “We found that the population that would be made financially ineligible for Medicaid LTSS by restricting income allowances and thresholds likely has a greater need for services, is less likely to have a spouse who could potentially provide informal care, has fewer financial resources to pay for formal care, and is less likely to be currently using formal LTSS compared to the population ineligible for Medicaid LTSS under the most common income allowances and thresholds. This indicates that Medicaid LTSS eligibility is already narrowly targeted under the most common allowances and thresholds.” (p. 11)

LTC Comment: That statement aligns with the fact that current Medicaid financial eligibility rules are devastating for low income, low asset people. They’re wiped out financially as soon as they begin to need expensive long-term care. But the study’s conclusion that “Medicaid LTSS eligibility is already narrowly targeted” is untrue. Higher income people qualify because their health and LTC expenses are deducted before their income eligibility is determined. Higher asset people qualify because they can easily convert assets into exempt form. Much higher asset people qualify by retaining the services of Medicaid planning attorneys, services and techniques this research and most other research of its kind completely ignore..

JASP Article: “On the surface, this [$552,000 home equity exemption] may seem a generous threshold; however, most states have estate recovery laws that allow a state to seek retroactive payments for LTSS from an enrollee’s estate upon their death (ElderLaw Answers, 2017).” (p. 11)

LTC Comment: Estate recovery was made “mandatory” in the Omnibus Budget Reconciliation Act of 1993, but unfortunately the federal government did not enforce the requirement, states did not administer it fully or consistently, the media did not publicize it, and consequently consumer behavior did not adapt to plan for long-term care in order to avoid estate recovery. By citing “ElderLaw Answers,” the study’s authors display a closed-minded bias. ElderLaw Answers is published by Medicaid planning lawyers whose principal source of revenue is affluent clients they convert to Medicaid eligibility by circumventing the same income and asset limits the study’s authors claim are so restrictive. Did the study’s authors not consider this blaring conflict of interest?

JASP Article: “We believe Minnesota’s eligibility model represents the key components of financial eligibility used by all states and provides a reasonable approximation of the impact of changes to these components on eligibility levels.” (p. 12)

LTC Comment: The study’s authors acknowledge that one of the limitations of their work is the assumption that “Minnesota’s eligibility model represents the key components of financial eligibility used by all states.” Given the constraints of such research, it’s reasonable to accept that limitation. But then, why not ask what methods of artificial self-impoverishment (Medicaid planning) are effective in Minnesota as well? A simple internet search for “Medicaid planning in Minnesota” reveals scores of Medicaid planners available throughout the state to use hundreds of simple and more sophisticated methods to get around Minnesota’s ostensibly strict but actually generous and elastic Medicaid financial eligibility rules.

A few examples: the Medicaid Asset Protection Trust; the “Family Pot Trust;” “Advanced Medicaid Planning Techniques: Trusts, Private Annuities, Spousal Transfers, Caregiver Agreements;” “Elder Law & Medicaid Services: We help clients qualify for government medical benefits legally and ensure their estates are preserved for their families, instead of their nest egg being wiped out by high nursing home expenses.”; “Life Estates.” I found these sources in a few minutes perusing the internet. What value can “modeling” Medicaid financial eligibility rules possibly have when it ignores how Medicaid eligibility qualification is actually done?

JASP Article: “Our study highlights the already strict eligibility levels that limit access to Medicaid LTSS.”

LTC Comment: This study does nothing of the sort. It completely ignores the well-documented evidence of widespread Medicaid planning which allows people far above Medicaid’s apparent financial eligibility limits to qualify. Modeling financial eligibility rules that are actually circumvented routinely in real life is more misleading than informative.

JASP Article: “The Medicaid program for LTSS among the 65+ population is already well targeted and restricting eligibility would likely exclude individuals in need of services. Few states have opted to further restrict access to needed services and are instead opting to find more ways to keep people living independently in the community.” (p. 12)

LTC Comment: As we’ve shown, Medicaid is definitely not “already well targeted.” Few states have opted to target services to the needy because federal law prevents them from changing eligibility rules to exclude the affluent and achieve that objective.

JASP Article: “We caution policymakers who feel pressure to constrain eligibility for Medicaid LTSS as a cost-savings measure against taking this action.” (p. 13)

LTC Comment: This is a wrong conclusion unjustified by findings that ignore the ease of converting countable into non-countable assets and disregard the potential for home equity conversion to fund long-term care privately. In fact, changes in federal law recommended in How to Fix Long-Term Care Financing would allow states to target scarce Medicaid resources to the needy thus impelling those with means to plan early for long-term care and avoid government dependency later on.

Closing LTC Comment: The JASP article dramatically shows that over twice the proportion of elderly poor in America would qualify for Medicaid LTC benefits based on income and assets. It proves this without considering the possibility that many more people, with much higher income and assets, qualify using widely known and applied techniques of Medicaid planning. Only by ignoring the vast legal and popular literature on how to qualify for Medicaid LTC benefits without spending down can the authors cling to the conventional “LTC Narrative” that “a broader finance solution that spreads out the cost risk via a social insurance program” (p. 13) is necessary. I implore these authors and their scholarly colleagues to ask Medicaid LTC eligibility workers how Medicaid eligibility really works and to read the legal literature on qualifying for Medicaid that I painstakingly documented in How to Fix Long-Term Care Financing, pps. 34-63. Then, try modeling reality instead of the Medicaid spend-down myth. If I can help in any way, I would be happy to do so.