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“Medicaid and Long-Term
Care”
by
Stephen A. Moses
presented to the
Libertarian Scholars Conference
September 28, 2019
New York City
Good morning. I’m going to speak with
you today about long-term care and Medicaid.
Long-term care includes a broad range
of social, medical and custodial services that caregivers provide for
three months or longer to help disabled people perform activities of daily
living such as eating, bathing, and toileting.
Now, how many of you think long-term
care sounds like a scintillating topic for a speech? You just can’t wait
to hear what I have to say?
Right, I have my work cut out for me.
So, let me frame this topic with a
personal story that I hope will engage your interest and cover the
main themes of my paper.
In the early 1980s, I was working for
the federal Department of HEW, predecessor of the current HHS. I’d landed
in the Seattle regional office of the HCFA, predecessor of CMS.
Federal agencies just kept going
defunct after I worked there.
Anyway, I was the Medicaid state
representative for Oregon. That’s the liaison job between the federal
government, which partially funds and oversees Medicaid and the state,
which partially funds and administers the program.
My job was to make sure Oregon
administered Medicaid in accordance with federal laws and regulations.
In the course of a routine annual
review, I discovered a program in Oregon that surprised me.
The state Medicaid agency was filing
claims on the estates of deceased Medicaid recipients to recover the cost
of benefits correctly paid for eligible recipients in order to reimburse
the program (and taxpayers) for the cost of their care.
That was a shock. It contradicted
everything I thought I knew about Medicaid. Isn’t it welfare? Doesn’t it
require impoverishment to qualify?
If so, how was it possible that people
spent years in nursing homes on Medicaid at enormous state and federal
expense, but when they died, they still had significant wealth to be
recovered from their estates?
So I did some research. What I found
blew me away.
Despite the conventional wisdom that
Medicaid eligibility required low income and virtually no assets, I
learned that for people over the age of 65 who needed nursing-home level
of care, income rarely blocked eligibility and the vast majority of all
assets were not counted for purposes of determining their eligibility.
That’s still true today and if you
want to know the details of how it works, please read my paper. I could
easily use up all my time today just explaining the complexities of
Medicaid financial eligibility.
Anyway, it made sense that people on
Medicaid retain substantial wealth and that Oregon could recover large
amounts from their estates. But that got me wondering about the viability
of such a system.
Demographically, the baby boomer
generation was moving through social history like a pig through a python
shaking up everything along the way. School shortages in the 1950’s;
drugs, sex, Rock‘n’Roll in the 60’s; stagflation in the 70s; and so on.
What would the boomers do to America’s entitlement programs when they
retired in 3 or 4 decades?
Already, long-term care services and
financing, dominated by Medicaid regulation and funding, were a mess,
fraught with problems of access, quality, low reimbursement,
discrimination and institutional bias. On top of that, Medicaid long-term
care was exploding in cost.
I concluded that as long as Medicaid
was easily available to everyone while allowing them to retain their
biggest asset, home equity, no one would plan ahead privately for the risk
and cost of long-term care. Sooner or later, everyone would end up on
Medicaid.
Clearly, something had to be done and
my little state of Oregon was doing it. They’d made a deal with the
public:
OK, you need long-term care now and
you can’t afford it, fine, Medicaid will pay but we’ll make sure your
heirs pay it all back from your estate. If you and they don’t like that,
then pay your own way by spending down your savings, using your home
equity or buying private insurance.
Interesting, I thought. Are other
states doing this? A quick review showed most were not. In fact, from its
founding in 1965 until 1980, Medicaid law explicitly permitted asset
transfers to qualify for long-term care benefits. Anyone could give away
everything and qualify overnight.
I learned that in 1982, the Tax Equity
and Fiscal Responsibility Act allowed, but did not require state Medicaid
programs to penalize asset transfers done for the purpose of qualifying
for Medicaid, to place liens on real property to prevent its divestiture,
and to recover from estates.
So I did a study. I asked: What if
every state in the country made the same deal with its citizens as Oregon?
The findings were dramatic, showing widespread overuse of Medicaid by the
middle class and affluent as well as substantial potential savings by
discouraging that practice and recovering from estates.
But my federal supervisors did not
think a regional staffer should be doing a national study, so they
suppressed my work threatening me with negative personnel actions if I
distributed my report. But I’d already sent my draft to GAO and the IG of
DHHS.
Both of those agencies began national
studies of the subject. The Inspector General hired me away from HCFA to
direct its study and write the report, which was published in June 1988.
That study found that if every state
recovered from estates at the same rate as Oregon, estate recoveries could
increase by over half a billion dollars, saving about five percent of
Medicaid long-term care expenditures. That was three decades ago when a
billion dollars was still “real money.”
But we also found that the extra
estate recoveries could be much higher and overall savings far greater if
people couldn’t divest assets before becoming eligible for Medicaid.
So the report also recommended
stronger transfer of assets restrictions and mandatory liens on real
property to ensure that wealth would remain available to recover later.
The next question to ask was Qui Bono?
If these recommendations became law, who would benefit? Of course,
Medicaid would spend less, relieving taxpayers. The public would have a
better safety net and the poor, who really need Medicaid’s help, could be
better served if the affluent weren’t diverting scarce welfare resources
to their own benefit.
But if Medicaid weren’t paying for
long-term care for the middle class and affluent, who would?
There were two sources of private
financing that might mitigate dependency on Medicaid for long-term care:
home equity conversion and private long-term care insurance.
Why home equity? Same reason Willie
Sutton robbed banks. That’s where the money is. Literally trillions of
dollars were being exempted from long-term care cost by Medicaid’s
unlimited home equity exemption.
And private long-term care insurance?
Maybe people would actually buy the struggling new, very expensive
product, if they couldn’t ignore long-term care risk, wait to see if they
ever need expensive care, and then shift the cost to taxpayers if
necessary.
By this time I was convinced I
couldn’t get the policies I was recommending into law while working within
government. So I left the Inspector General in 1989 to become Research
Director for a small long-term care insurance marketing firm called LTC,
Inc.
Free of the constraints of government
employment, I aggressively promoted my analysis and recommendations. I
published articles, contacted journalists, buttonholed Congressmen and
staff, spoke at industry conferences for insurance, nursing homes, CPAs,
financial planners, and many others. I conducted and published state-level
studies in Massachusetts, Minnesota, Wisconsin, Kentucky and Montana.
And then, Success! We got most of what
we wanted in the Omnibus Budget Reconciliation Act of 1993. It made estate
recovery mandatory, extended the look back period on asset transfers to
three years, removed the 30-month cap on the eligibility penalty, ended
pyramid divestment and closed other financial eligibility loopholes.
The plan was to keep Medicaid
long-term care eligibility relatively easy to get, but to ensure that
anyone sheltering wealth who relied on Medicaid, would pay it back out of
their estates.
We figured that would wake up boomer
heirs to the risk and cost of long-term care and get them to prepare with
private insurance. If they didn’t, they and their aging parents would have
to use their home equity either directly with reverse mortgages or
indirectly by going on Medicaid and paying it back.
We sought to eliminate Medicaid’s
perverse incentives that discouraged responsible long-term care planning
and left people dependent on a financially struggling program for the
poor.
Unfortunately, states didn’t implement
the new rules consistently; the feds didn’t enforce them; the media didn’t
publicize; and consumer behavior didn’t change.
But we continued to make progress
awakening the powers that be to the waste and inefficiency of Medicaid
long-term care policy. Every time a recession drove welfare rolls up and
tax receipts down, bureaucrats and politicians took an interest in ways to
cut costs while improving care.
I attended national conferences of the
lawyers who specialize in artificially impoverishing affluent clients to
qualify them for Medicaid. I publicized their most egregious methods and
attracted national media attention to the problem.
I reached out to journalists like Jane
Bryant Quinn who took up the issue in numerous nationally syndicated
columns excoriating Medicaid planning attorneys and asking “Do Only the
Suckers Pay?” for long-term care.
I did more state-level studies
throughout the 1990s and 2000s in Florida, Maryland, South Dakota, and New
Jersey. I interviewed Medicaid eligibility workers and quoted their
complaints about wealthy people getting Medicaid more easily than the
poor.
By the mid-1990s scholars favoring a
government takeover of long-term care through social insurance—and that’s
nearly all of them—began criticizing the effort to target Medicaid to the
needy, debunking our argument that Medicaid had become an entitlement
program for the middle class and affluent.
They made Strawman arguments against
us saying our only complaint was millionaires transferring assets to
qualify for Medicaid. That was happening, and the Wall Street Journal
highlighted the practice, but it wasn’t the big problem, nor one we
emphasized.
The real problem was that the basic
eligibility rules allowed most people to qualify easily and the many
loopholes, besides asset transfers, let even the affluent qualify.
When the Republicans took Congress in
1994 and President Clinton was under the gun to control government growth,
the issue got traction because of renewed concern about controlling
budgets.
Frustrated by the inability to control
Medicaid costs, Democrats and Republicans passed the Health Insurance
Portability and Accountability Act of 1996 making it a crime to transfer
assets to qualify for Medicaid.
That was not a policy I promoted and
it blew up in their faces. The “Throw Granny in Jail” law was replaced a
year later by the “Throw Granny’s Lawyer in Jail” law, which was quickly
deemed unenforceable. They couldn’t hold lawyers culpable for offering
services that were legal again after “throw granny in jail” was repealed.
Toward the end of the century, the
economy improved; the internet boomed; tax revenues poured in. There was
no real interest in controlling costs. It was easier to buy off the public
and long-term care providers with generous eligibility and higher
reimbursements.
But then the 2001 recession hit and
interest in controlling costs returned. I’d left LTC, Inc., when General
Electric bought the company, and formed the Center for Long-Term Care
Reform in 1998, the organization I still manage, dedicated to ensuring
quality long-term care for all Americans.
We produced several national studies
explaining and promoting our plan to save Medicaid by diverting non-poor
people to personally responsible private means of paying for long term
care.
We did more state-level studies in
Nebraska, Washington State, Kansas, Texas, North Carolina, Rhode Island,
California, New York, Georgia, and Virginia.
By this time, opposition became quite
virulent from scholars advocating more government financing of long-term
care. They could see momentum building for another federal law supporting
our position.
They pulled out all the stops, writing
articles and conducting studies, mostly searching big data bases for
nonexistent evidence that people were spending down their life savings on
long-term care all across America.
My co-founder of the Center for
Long-Term Care Reform had moved on to become Chief Health Counsel for the
U.S. House Committee on Oversight and Reform. He drafted legislation to
strengthen transfer of assets rules further, to cap Medicaid’s home equity
exemption for the first time, and to close other loopholes.
I testified before Congress and
secured a contract with the American Health Care Association to work half
time in DC for six months promoting our analysis and recommendations.
Success again! The Deficit Reduction
Act of 2005 capped the home equity exemption at half a million dollars,
moved the asset transfer look back from three to five years, closed the
half-a-loaf loophole, and unleashed the Long-Term Care Partnership program
to encourage the purchase of private long-term care insurance.
Nothing has happened since that
legislation to give Medicaid back to the poor and encourage everyone else
to plan, save, invest or insure for long-term care. Even the Great
Recession of 2007-09 didn’t prompt policy makers to revisit these issues.
While some loopholes have been closed
and some reforms enacted, it remains easy for middle class and affluent
people to qualify for Medicaid long-term care benefits, home equity is
rarely used to purchase quality long-term care for home owners, and the
market for private long-term care insurance remains stunted.
Why is it so hard to get good
long-term care policy accepted and implemented?
Most scholars and policy makers
address the symptoms of long-term care—high cost, poor access and
quality—and they ignore the cause, excessive government funding and
interference in the market.
So they slavishly advocate more
government financing and regulation in the form of obligatory social
insurance to cover long-term care by expanding Medicare or imposing a new
program.
I’ve tried to show in my paper for
this conference why long-term care problems exist, and how to fix them by
removing policy incentives that discourage responsible long-term care
planning and leave people dependent on the welfare program.
Today the boomer Age Wave is shaking
things up one last time. Instead of paying into the entitlement programs,
they’re withdrawing. They began retiring and taking Social Security at age
62 in 2008. At age 65 in 2011, they turned the Social Security program
cash-flow negative.
Boomers began taking Required Minimum
Distributions (RMDs) from their tax-deferred retirement accounts in 2016,
depleting the supply of private investment capital.
They will reach the critical age (85
years plus) of rising long-term care needs in 2031, right around the time
Medicare (2026) and Social Security (2035) are expected to deplete their
trust funds, forcing them to reduce benefits.
It is beginning to look like
everything I worried might happen, back in 1982, will happen and soon.
Let me conclude by listing some
questions I’ve raised today that I’ve tried to answer in the paper.
Why does Medicaid allow people with
substantial wealth to take advantage of a financially struggling welfare
program?
Why do economists and long-term care
analysts ignore the ample evidence that overreliance on government funding
caused most of the problems with long-term care services and financing?
Why are long-term care scholars
fixated on recommending only new compulsory government funding programs
for long-term care?
Why did the progress toward fixing
Medicaid slow down after 2001 and stop altogether after 2005?
Can Austrian economic theory answer or
at least elucidate these questions?
I hope you will read the paper,
consider my analysis, and give me your feedback and advice.
In the meantime, do give serious
thought to how you and your family will prepare for the risk and cost of
long-term care and become part of the solution instead of the problem.
Thank you. |
