LTC Bullet: The Key to LTC

Friday, March 19, 2021


LTC Comment: Solving the long-term care financing crisis isn’t so hard if you avoid ideology and take human nature into account. We explain after the ***news.***

*** TODAY'S LTC BULLET is sponsored by Claude Thau, who provides many unique services to advisors as National Brokerage Director for USA-BGA in the individual, worksite and affinity LTCi markets.  Advisors like his unique, simple and effective LTCi presentation and his revolutionary “Range of Exposure” tool which, among other things, projects a client’s (joint for a couple) mean age of LTC, likely annual cost and length of need based on age, gender, marital status, success goal (% chance of not outliving their assets), etc.  Claude is the lead author of Milliman’s annual Broker World LTCi Survey & a past Chair of the Center for Long-Term Care Financing. Contact him at 913-707-8863 or to discuss how he might help you. ***

*** DEBT BOMB, tick, tick, tick: Have you checked the US Debt Clock lately? The Treasury is hemorrhaging debt and the Federal Reserve is monetizing it apace. Federal spending this year is $8.0 trillion, but tax revenue is less than $3.5 trillion. How can that be? The Fed is printing the money, creating it out of thin air, to fund the difference between tax inflow and spending outgo. Bottom line, we’re pulling capital out of the productive economy to shower it on everyone and everything not producing anything. The result is more money and less to buy with it. As Elon Musk said: “If you don’t make stuff, there is no stuff.” Is this the elusive free lunch of Modern Monetary Theory? Hardly. The bill will come due in the form of inflation, the most pernicious tax that hurts the poor most of all. So much for the sanctimonious, hypocritical effusions of politicians and analysts who just want to “help people” by spending money the economy has not earned. ***


LTC Comment: Long-term care services and financing in the USA are in a world of hurt. More and more people need care; families are stretched thin to provide free care; government programs are inadequate (Medicare) or pay too little (Medicaid) to ensure quality care in the most appropriate venue; private financing from personal spending, home equity or private insurance is extremely limited. The situation gets worse every year. Most analysts prescribe more government spending and regulation, but there is no evidence that vast increases in public spending and control have helped rather than worsened long-term care access and quality so far.

In fact, little has changed for the better since I first analyzed long-term care in the early 1980s. Then as now most people ignored long-term care risk and cost until they suddenly needed expensive care at which time the option of qualifying for Medicaid opened up for them. Generous income and asset eligibility rules eased the way onto public assistance creating a moral hazard for the aging infirm and a conflict of interest for their heirs. Pay privately and be wiped out financially or let Medicaid foot the bill and accept the downsides of limited choice, poor quality and mostly nursing home care. This was the Hobson’s choice, take it or leave it, most families faced. Of course, most families took the path of least resistance. They accepted public assistance, placed their elders in Medicaid nursing homes, and thus perpetuated the system that persists to this day.

As I began to study this problem in 1982, two paths to a solution opened up before me. We could change Medicaid LTC eligibility rules so they truly require impoverishment. That would remove the moral hazard and the perverse incentive to rely on public assistance, but it would be harsh and politically infeasible. The other way would be to keep Medicaid LTC eligibility generous, even make it more so, but require that assets preserved during a recipient’s lifetime while his or her care was covered by Medicaid should be recovered later, from the recipient’s estate, after no exempt relative still depended on them. The key to this “kinder gentler” solution was estate recovery. That would remove the incentive to ignore LTC risk and cost until confronted with the need and it would give seniors their dignity back. It isn’t welfare if you repay Medicaid.

I developed these ideas and documented them in a report for the HCFA titled “The Medicaid Estate Recoveries Study.” It is still available online here. Although HCFA did not publish this study, the USDHHS Office of Inspector General and the then General Accounting Office (now Government Accountability Office) both picked up on it and conducted their own national studies developing the theme. The Inspector General hired me out of HCFA so that I could conduct the IG study and write its report: “Medicaid Estate Recoveries: National Program Inspection.” It remains available on the IG’s website here.

Following are the Inspector General’s recommendations. They were designed to keep Medicaid long-term care eligibility readily available for people, even those with substantial wealth, who had insufficient cash flow to afford needed care and would be devastated financially if they had to pay up front. The quid pro quo for this public munificence was that costs expended by Medicaid would be recovered from each recipient’s estate. The goal of these recommendations was to awaken the public to the need to plan for long-term care, reward personal responsibility and early planning, prepare them to pay privately when and if expensive care became necessary, encourage the use of home equity conversion and private insurance, create a new nontax revenue source for Medicaid, and hence over time return Medicaid mostly to people in true need and make it a better, more well-financed program for all.

Now, please read the IG’s recommendations from “Medicaid Estate Recoveries: National Program Inspection.” The recommendations that later became federal law are bolded. I’ll return at the end with an “LTC Comment” to explain what happened: which recommendations became law and when, why the goal of saving Medicaid LTC by encouraging personal responsibility has failed so far, and what would need to be done to fix the long-term care services and financing crisis now.

The following is a verbatim quote from “Medicaid Estate Recoveries: National Program Inspection,” pages 50-53.


FINDING: Some HCFA, SSI, and state Medicaid policies promote retention of assets during Medicaid eligibility while others encourage precipitous liquidation of property with concomitant losses in value. Assets retained by recipients, in the absence of estate recovery programs, pass unencumbered to heirs at the expense of the taxpayers. Assets liquidated, sheltered or concealed to obtain eligibility are lost as a long-term care funding resource also. Incapacitated elderly people are sometimes financially abused by people who want to take their property, while at the same time, qualifying them for Medicaid nursing home benefits.

RECOMMENDATION: Change Medicaid rules to permit families to retain and manage property while their elders receive long-term care. Specifically: eliminate SSI "intent to return"  rules as they apply to Medicaid long-term care recipients. Reinstate and broaden the "bona fide effort to sell" exemption. Allow Medicaid recipients to retain more income-producing property such as "contracts of deeds" or rental homes. Require agreement to liens and estate recoveries as a condition of Medicaid eligibility for people with property. Encourage State Medicaid programs to protect recipients and their property from financial exploitation through conservatorships, legal representation, and property management when necessary.

IMPACT: This policy would ease the financial impact of catastrophic long-term care costs on the elderly and their families, giving them time to cope with the problem. Total Medicaid costs would decline as estate recoveries increase.


FINDING: Despite almost universal State implementation of the TEFRA authority to restrict transfers of assets for the purpose of obtaining Medicaid eligibility, people are still able to give away property to qualify for assistance. This may be done by using the legal "loopholes" recommended in law journal articles or by deceit and concealment.

RECOMMENDATION: Strengthen the transfer of assets rules so that people cannot give away property to qualify for Medicaid. Specifically: improve State verification of property and transfers. Clarify that the "transfer of assets" restrictions apply to all property including that which is, or would be, exempt from eligibility determination. Expressly prohibit the transfer of property to spouses and other dependents which is permitted under current law. Extend the current 2-year "look-back" period to 5 or more years. Have HCFA publish regulations on transfer of assets.

IMPACT: More property will be retained by recipients to reimburse Medicaid for their cost of care after they and their dependents are no longer in need.


FINDING: State Medicaid programs need a way to track property owned by recipients and ensure that it is not transferred or otherwise disposed before recovery of Medicaid benefits can be accomplished. Liens achieve these objectives most efficiently. While permitting liens, TEFRA placed so many qualifications on their use that only two states have employed liens to secure property for recovery of benefits correctly paid.

RECOMMENDATION: Require a legal instrument as a condition of Medicaid eligibility to secure property owned by applicants and recipients for later recovery. Specifically: Make liens, or some other form of encumbrance, a condition of eligibility so that the recipient’s interest in any property solely or jointly owned will inure, up to the cost of care paid by Medicaid, to the Medicaid program when neither the recipient nor dependents need the property further. Promote home equity conversion by using liens, "voluntary mortgages,” open-ended mortgages "and accounts receivable to let people extract their equities gradually while they receive assistance.

IMPACT: Mandatory liens would secure the State and Federal Government’s investment and permit Medicaid recipients to retain needed property while receiving highly expensive, but essential care.


FINDING: Less than half of the States pursue Medicaid estate recoveries for benefits correctly paid. Of those which do, a few are very effective, but most are not. The HCFA and State Medicaid managements place little emphasis on retention of recipient property or estate recoveries. The TEFRA authority for estate recoveries, as for transfer of assets restrictions and liens, is only voluntary. Many State staff believe that TEFRA limitations hobble estate recoveries without safe­guarding legitimate recipient interests.

RECOMMENDATION: Increase estate recoveries as a nontax revenue source for the Medicaid program while steadfastly protecting the property rights of recipients and their dependents. Specifically: Make estate recovery programs mandatory like other forms of third party liability. Provide technical assistance on estate recoveries, so that States can implement quickly and easily to generate an immediate cash flow for the Medicaid program. Promote awareness of the importance of real property ownership and estate recoveries for Medicaid funding. Allow estate recovery of benefits received before age 65. Permit estate recovery in cases of joint tenancy with right of survivorship. Require spousal and dependent recoveries upon death or seniority (of a minor child.)

IMPACT: Based on Oregon' s experience--even under current restrictive laws, regulations and policies--estate recoveries can recoup 5.2 percent of Medicaid nursing home costs, 5.0 percent of Medicaid payments to people over age 65, and 1. 7 percent of total Medicaid vendor payments. With enhanced legal authorities and greater programmatic emphasis, the contribution of estate recoveries to Medicaid’s program resources could be truly staggering.


FINDING: We have a great deal of circumstantial evidence about public assistance resource avoidance and estate planning to qualify for Medicaid. No hard data are available, however, on the extent of these practices. We also are unaware of how much Federal money is spent by the Legal Services Corporation and other national programs to promote Medicaid eligibility for people with property. We cannot account, without further review, for large discrepancies in amounts of estate recoveries reported to us versus "probate recoveries" reported to HCFA (for purposes of reimbursing the Federal share of recoveries. Finally, a priori, it would seem that the ability to receive Medicaid while preserving assets is a strong disincentive to the purchase of private long-term care insurance. Is this true, and if so, would programmatic changes such as those recommended here remove the disincentive and promote nonpublic assistance options to funding long-term care?

RECOMMENDATION: At a minimum, the following actions should be taken:

  • Conduct a comprehensive study of the transfer of assets problem to estimate how much equity is being diverted from long-term care costs at the expense of the Medicaid program. To what extent is the Federal Government funding this diversion by training attorneys and counseling prospective Medicaid recipients?

  • Conduct a thorough audit of Medicaid estate recovery programs to determine if the Federal Government is receiving its full share of the proceeds.

  • Perform a review to determine whether the availability of Medicaid without encumbering assets has a chilling effect on the marketability of private sector risk-sharing products such as long-term care insurance.

IMPACT: Results of these studies could point the way to a more equitable and efficient utilization of economic resources for the satisfaction of catastrophic long-term care needs.

LTC Comment: The USDHHS Inspector General’s report “Medicaid Estate Recoveries: National Program Inspection” proposed a straight forward solution for long-term care financing. Let Medicaid pay for long-term care when people lack sufficient income to pay privately, but counterbalance that considerable benefit with a guarantee secured by a lien that families do not divest their wealth before or while receiving publicly financed care and a requirement that benefits received be paid back out of estates whenever recovery does not create a financial hardship on heirs. The goals of this proposal were to eliminate the tragedy of catastrophic LTC spenddown, create an incentive for people to plan early for long-term care by saving, investing, or insuring privately, to generate a large new nontax revenue source for Medicaid, and to reduce dependency on Medicaid by the middle class so that it could become a better program for a smaller number of genuinely needy recipients.

So what happened? We got part way there statutorily. As the highlights in the proceeding quotation indicate, Medicaid estate recoveries became mandatory. That occurred in the Omnibus Budget Reconciliation Act of 1993 (OBRA ’93). Several federal laws strengthened the transfer of assets restrictions, gradually extending the look back period from two years to five years in the Deficit Reduction Act of 2005 (DRA ’05). DRA ’05 also put the first cap ever on Medicaid’s home equity exemption potentially encouraging home equity conversion to fund LTC in lieu of Medicaid although the cap was too high at $500,000 increasing with inflation to achieve that objective. Transfer of assets restrictions were extended to include transfers of an exempt home which transfers were previously permitted without affecting eligibility. The HCFA finally published regulations on asset transfers after a long delay. Other federal statutes allowed estate recovery of benefits received before age 65 and permitted estate recovery in cases of joint tenancy with right of survivorship.

All these measures were steps in the right direction. But other key recommendations by the Inspector General were left unfulfilled. Liens to hold property during Medicaid eligibility were never required so wealth continued to disappear while recipients received Medicaid LTC coverage. None of the recommended studies to elucidate the reality and potential of eligibility controls, liens and estate recoveries were ever conducted. Most importantly the federal government did not enforce the new restrictions aggressively; most states did not implement them fully and some ignored the federal mandates entirely; the media did not publicize the estate recovery liability; so the public blithely continued to ignore LTC risk and cost until they needed expensive care and Medicaid eligibility opened up as a slick way to avoid personal financial loss.

So what’s the lesson to be learned? Clearly we need to revisit the analysis and recommendations in the IG report, implement them fully, enforce them aggressively, publicize them widely, and get long-term care financing back on an even keel, dominantly financed privately by home equity conversion and, ultimately, by a revitalized private long-term care insurance market. What we do not need is more government money flowing into a system that defies human nature by disincentivizing personal responsibility and rewarding the failure to plan for long-term care. Yet that is exactly what MACPAC (the Medicaid and CHIP Payment and Access Commission) proposes to do as we explained recently in “LTC Bullet: MACPAC Misfires.”

Here’s the latest. On March 15, 2021, MACPAC published its annual “Report to Congress on Medicaid and CHIP.” According to that report:

Chapter 3 makes recommendations to ease the burden of Medicaid estate recovery, which often falls on those with modest means, and may disproportionally affect people of color and perpetuate intergenerational poverty. Federal law requires state Medicaid programs to seek recovery from the estates of certain deceased beneficiaries for payments for long-term services and supports (LTSS) and other services. The Commission recommends returning to prior law, making estate recovery optional, rather than mandatory. It also recommends allowing states that cover LTSS under managed care to pursue recovery based on the cost of services where it is less than the capitation payment paid to a managed care plan; and directs the Secretary of the U.S. Department of Health and Human Services (HHS) to establish minimum hardship waiver standards, including a minimum estate value threshold for estate recovery.

If Congress were to follow these recommendations, the country’s long-term care financing system would be further hampered in its ability to supply quality care for all Americans. It is clear from MACPAC’s report that the commission’s “research” on the subject of Medicaid estate recoveries included extensive consultation with elder law attorneys who make their livings putting affluent people on Medicaid and helping them evade estate recovery. Of course Medicaid planners oppose eligibility controls and estate recovery. The few mentions in the report of “state officials” reflect mostly favorable attitudes toward controlling eligibility and requiring estate recoveries, but it is clear MACPAC did not engage closely with front line Medicaid eligibility workers. Those workers in my experience, having interviewed hundreds of them over decades, passionately favor targeting Medicaid to people in need and recovering from estates of people who shelter wealth. Almost to a person they expressed anger and frustration that it’s so hard to qualify the poor for care, but lawyers fill out applications thick with documentation for their wealthy clients who then qualify easily for Medicaid.

The system MACPAC seeks to sustain and empower by curtailing Medicaid estate recovery is corrupt. It rewards irresponsibility. It discourages early LTC planning. It tips LTC toward public financing and away from private sources such as home equity conversion, private LTC insurance and estate recovery. Human nature being what it is people will always adapt to the rules government imposes in order to maximize their interests. That’s not a bad thing unless government rules incentivize bad behavior as they do now and as MACPAC would further encourage. Instead we should strengthen estate recovery rules so people benefit by planning early for long-term care, saving, investing or insuring, using home equity to get the best care in the most appropriate venue, staying off Medicaid and out of nursing homes.