LTC Bullet: MACPAC Misfires
Friday, March 4, 2021
LTC Comment: MACPAC proposals would cripple Medicaid long-term care and aggravate inequality. Details after the ***news.***
*** WHY LTCI FAILS: Don’t miss Steve Moses’s article of that title in the March issue of Broker World magazine. Read it here. Then subscribe to the insurance trade journal to receive future issues. While you’re there, catch Margie Barrie and Leni Webber’s “COVID-19 and Long Term Care Planning,” expanding on a topic we addressed in “LTC Bullet: Long-Term Care and the Pandemic.” ***
MEETS: Yesterday, the Medicaid and CHIP Payment and Access Commission met
online. What to do about Medicaid estate recoveries was not on the agenda.
But the Commission’s Executive Director assures me that “We have read your
comments [I sent her a draft of today’s LTC Bullet] and will share
them with members of the Commission. … The full report, with a detailed
explanation of MACPAC's analysis and recommendations, will be out on March
15.” We’ll watch for that report and update you on whether or not it
corrects the deficiencies identified below. ***
LTC BULLET: MACPAC MISFIRES
The issue in a nutshell:
LTC Comment: The Medicaid and CHIP Payment and Access Commission (MACPAC) proposes to undercut a critical part of the long-term care financing system. To comprehend what MACPAC recommends and why it would be so detrimental if Congress accepted their advice, we must first review how the United States finances long-term care.
The vast majority of long-term care in the U.S. is provided for free by spouses, families and friends at tremendous financial and emotional stress. When free care is unavailable or exhausted and expensive formal care becomes necessary, Medicaid is the primary payer. Although it is a means-tested public assistance program, Medicaid has come to be the primary source of long-term care financing for the middle class as well as the poor. That is true because, although Medicaid’s financial eligibility rules sound very restrictive, the way the program works in practice is much more elastic and generous.
Medicaid LTSS Financial Eligibility
Most writers claim Medicaid benefits only go to “low-income” people, but medical and long-term care expenses are subtracted from income before eligibility is determined. So, very-high- income people do qualify for benefits if their health care expenses are commensurately elevated, as they usually are for people who need long-term care. The rule of thumb is that Medicaid’s eligibility cut-off for monthly income is roughly the same as the cost of a month in a nursing home, about $7,500 on average nationally for a semi-private room. That’s $90,000 per year, hardly low income.
The seemingly draconian limit on countable assets, $2,000 in most states, is also much less onerous than it appears. That’s because non-countable assets are practically unlimited and countable assets are easily converted to non-countable or exempt assets. Home equity, for example, is completely exempt up to $603,000 in most states and up to $906,000 in nine states. Recent research concluded that Medicaid’s home equity “limits” exclude almost no one. Other non-countable assets, allowed in unlimited amounts, include one automobile, Individual Retirement Accounts (IRAs) that are in payout status as they must be at age 72, one business including the capital and cash flow, term life insurance, household goods and personal belongings including family heirlooms, prepaid burial plans, and others. Lawyers who help affluent clients qualify for Medicaid long-term care benefits by means of sophisticated annuities, trusts, and other asset sheltering techniques, also routinely provide long lists of non-countable assets people can buy to “spend down” artificially to Medicaid’s countable asset limit.
Is Such Easy Access to Medicaid’s Extended Care Benefits Intentional?
Does this sound like a crazy system that could never have been intentionally imposed on unsuspecting taxpayers? If you think that, you are wrong. Medicaid long-term care benefits were originally much more generous than now. From the program’s beginning in 1965 until 1980, federal law expressly permitted asset transfers to qualify for benefits. Even millionaires could give away all their wealth to anyone else and qualify immediately. Unsurprisingly, Medicaid long-term care expenditures exploded from the first day. So a long series of Congresses and Presidents passed laws and imposed regulations that discouraged artificial self-impoverishment to qualify. (See “Appendix I: Supplemental Bibliography” (pps. 34-63) in How to Fix Long-Term Care Financing for the whole history of this process.)
Still, Medicaid long-term care costs continued to escalate throughout the 1980s. Something had to be done to control costs. But it was neither desirable nor politically feasible to stanch Medicaid’s financial hemorrhaging by forcing people into impoverishment before they could get help from the government. So the powers-that-be hit upon an ingenious solution. Let people keep their wealth while they get help with long-term care from Medicaid, but make sure they pay it back after they die out of their estates. That way Medicaid would no longer discourage people from planning early for long-term care. The new system was on the principle “pay now or pay later.” Medicaid would no longer reward heirs for waiting until their parents needed long-term care and then relying on taxpayers to indemnify their inheritances.
This scheme became law in the Omnibus Budget Reconciliation Act of 1993. It was reinforced by the Deficit Reduction Act of 2005. OBRA ’93 made transfer of assets restrictions longer and stronger to encourage people to hold onto their wealth while they received Medicaid benefits. But it made estate recovery mandatory so every state in the country would be required to track exempt wealth and recover it later to reimburse Medicaid. The DRA ’05 closed more of the eligibility loopholes that caused wealth to leak out of estates before it could be recovered later, but the DRA also put the first limit ever on home equity to convey that Medicaid’s generosity is not unlimited.
The Critical Role of Estate Recoveries
So, easy access to Medicaid LTC benefits for the middle class and affluent was not unintentional. It was just supposed to be mitigated by means of mandatory estate recovery. To avoid Medicaid dependency followed by repayment of benefits received from one’s estate, sensible people would plan early and save, invest or insure for long-term care. But to this day, very few people worry about long-term care until they need it. They end up on Medicaid as the path of least resistance, qualify under the program’s generous financial eligibility criteria, and often evade estate recovery with the help of Medicaid planning specialists. What happened?
Transfer of assets restrictions, while occasionally tightened were never made tight enough. Liens to hold property until later recovery remained voluntary and were fraught with loopholes. Likewise estate recovery rules were too easy to circumvent. But most importantly, the federal government did not enforce transfer of assets, lien and estate recovery rules effectively; the states did not implement the requirements consistently; the media didn’t publicize the risk of estate recovery liability; so the public continued to ignore long-term care risks and costs, failed to save, invest or insure, and ended up more dependent than ever on public assistance. That’s the mess in which America’s long-term care financing system remains today. So what should and should not be done?
MACPAC Would Weaken, not Strengthen Estate Recoveries
Let’s circle back to MACPAC now. What has the Commission recommended that Congress change about Medicaid’s long-term care program? These are the proposals approved at the Commission’s January 2021 meeting followed by our analysis.
MACPAC Recommendation #1: “Congress should amend Section 1917(b)(1) of Title XIX of the Social Security Act to make Medicaid estate recovery optional for the populations and services for which it is required under current law.”
LTC Comment: Making estate recovery optional for state Medicaid programs would cripple its ability to recover and reuse nontax revenue for the benefit of genuinely needy recipients, thus further aggravating the program’s financial and racial inequality. Estate recovery saves Medicaid money, preserves scarce resources for those who need them most, encourages early and responsible planning, and discourages abuse of Medicaid by people who should, could and would have paid for their own long-term care absent perverse policy incentives to ignore that risk and cost. Estate recovery should be encouraged and strengthened, not hobbled. Eliminate statutory and regulatory obstacles that prevent efficient enforcement. Stop the well-to-do from evading recovery with the help of legal enablers.
MACPAC Recommendation #2: “Congress should amend Section 1917 of Title XIX of the Social Security Act to allow states providing long-term services and supports under managed care arrangements to pursue estate recovery based on the cost of care when the cost of services used by a beneficiary were less than the capitation payment made to a managed care plan.”
LTC Comment: Medicaid estate recovery ensures that assets sheltered during recipients’ lives are used after their deaths to repay funds advanced by Medicaid for their care. Whether Medicaid pays a monthly fee to Medicare, private health insurance premiums, managed care rates, or fees for service, the principle is the same. Medicaid advanced funds to relieve the recipient of an onerous expense and the recipient’s estate should reimburse the full amount advanced to the extent the estate is sufficient to do so. Medicaid exists to help people in need fund long-term care, not to protect estates or indemnify heirs. Families who wish to preserve estates should consider reverse mortgages or private long-term care insurance to fund long-term care instead of relying on Medicaid and then evading or minimizing estate recovery.
MACPAC Recommendation #3: “Congress should amend Section 1917 of Title XIX of the Social Security Act to direct the Secretary of the U.S. Department of Health and Human Services to set minimum standards for hardship waivers under the Medicaid estate recovery program. States should not be allowed to pursue recovery for: (1) any asset that is the sole income-producing asset of survivors; (2) homes of modest value; or (3) any estate valued under a certain threshold. The Secretary should continue to allow states to use additional hardship waiver standards.”
LTC Comment: Clumsy restrictions like these only hamstring Medicaid estate recovery efforts more than they already are without serving any legitimate purpose. Medicaid estate recovery units do not pursue recoveries unless they are cost effective and humane. To do so would be political suicide. Hardship waivers must be based on whether there is an eligible person who faces a hardship. The MACPAC proposals ignore that precept. Regardless of the value of the house or the small amount left in the estate, the Medicaid program should be reimbursed for the costs of care paid on behalf of the deceased Medicaid recipient unless a qualified heir is actually facing hardship. Heirs should not receive taxpayer financed benefits just because their parents lived in modest houses or had nominal bank accounts at death. Research, referenced below, indicates that Medicaid estate recovery can return 15 times or more the cost of recovery to state and federal revenues. They can only do that by prioritizing their efforts and following good business practices that do not bring political disapproval onto the program.
MACPAC Proposals Are Shortsighted and Counterproductive
Clearly, MACPAC looked at estate recoveries through a microscope instead of taking a wider, telescopic view of their importance for responsible public policy. It is very clear from their staff reports going back to 2015 that the Commission was never provided the rationale behind and the history of estate recoveries. There is no reference, for example, to the US Department of Health and Human Services Inspector General Report from 1988 that analyzed the potential for estate recoveries, recommended strong transfer of assets restrictions, mandatory liens and estate recoveries, and explained how these measures could mitigate exploding Medicaid long-term care costs and incentivize Americans to plan early and responsibly for long-term care.
Here’s an excerpt from that report, Medicaid Estate Recoveries: National Program Inspection, Office of Inspector General, 1988:
A large nontax revenue source generated by Medicaid estate recoveries could be recycled to help the truly destitute. It is possible, however, that enhanced estate recoveries would have more far-reaching effects on long-term care funding. Faced with the certainty--which is almost nonexistent today--that accepting care from Medicaid means paying back the cost out of one’s estate, people might seek other alternatives. Such alternatives include Social Health Maintenance Organizations (SHMO' s), continuing care communities, targeted savings accounts and private long-term care insurance. To pay for these nonpublic assistance options, the elderly would have to turn more to private home equity conversion or to assistance from their adult children. It is their children, after all, who stand to inherit whatever property remains after the costs of long-term care are paid and who currently reap the windfall of Medicaid subsidies. We must emphasize that the issue is enrichment of nonneedy adult heirs, not denial of care to the elderly. For those who opt to rely on Medicaid, or have no other choice, eligibility conditional upon a promise (secured by an automatic lien) to repay benefits from their estates would assure all elderly people of (1) access to care, (2) retention of home property as long as it is needed by spouse and dependents, and (3) the dignity of paying their own way in the end. (pps. 47-48, emphasis added)
For the full picture, see the Medicaid Estate Recoveries report’s recommendations at pages 50 to 53. They propose to strengthen rules that discourage asset divestiture, encourage families to keep and use their property while receiving Medicaid long-term care benefits, but also ensure that protected wealth goes to repay Medicaid for benefits received rather than passing as a taxpayer financed indemnity to heirs. Several of these recommendations became law in OBRA ’93, DRA ’05 and other legislation over the years, but they have never been adequately implemented or enforced. They should be expanded, reinforced and carried out, not diluted as MACPAC proposes. In a subsequent LTC Bullet, we will republish the Inspector General’s recommendations and explain why they should be fully implemented now more than ever. (Full disclosure: I led the IG’s 1988 estate recovery study and wrote the agency’s report.)
This is the honorable principle behind Medicaid estate recoveries:
We have very limited dollars available for public assistance. We must take care of the truly poor and disadvantaged first. The middle class and well-to-do should pay privately for long-term care to the extent they are able without suffering financial devastation. Prosperous people who rely on Medicaid for long-term care should reimburse the taxpayers from their estates before giving away their wealth to heirs. Seniors and their heirs who wish to avoid such recovery from the estate should plan ahead, use their own financial resources first (including home equity by means of reverse mortgages) to pay for home and community-based services and/or purchase quality private long-term care insurance to finance their care.
We can return dignity to the Medicaid long-term care program. It isn’t welfare if you pay it back. That’s what Medicaid estate recoveries enable recipients and their families to do, while at the same time, preserving more resources for the needy and underprivileged.
A wag once defined “commission” as a group of people who’ve done nothing individually who come together to conclude that nothing can be done. If MACPAC isn’t to be a case in point, they should review this new, actually old and heretofore ignored, evidence about Medicaid estate recoveries before making such counterproductive recommendations to Congress. Save Medicaid long-term care from the unintended consequences of misplaced good intentions.