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Thank
you for inviting me to Notre Dame Law School.
It is an honor to address you and to share the podium with such
distinguished co-presenters. My
background includes 18 years as a career U.S. government employee working a
decade with Medicaid and long-term care issues for the HCFA and the DHHS Office
of Inspector General. I'm
currently president of the Center for Long-Term Care Reform, a private think
tank and public policy advocacy organization dedicated to ensuring quality
long-term care for all Americans. I
chose "The Brave New World of Long-Term Care" as my topic today.
But let me start by describing the "Pusillanimous Old World of
Long-Term Care," that is, the status quo. America
has a welfare-financed, institution-based long-term care system in wealthiest
country in the world where no one wants to go to a nursing home. Long-term
care in the United States is characterized by access and quality problems,
dismally low reimbursement levels, discrimination against public benefits
recipients, institutional bias, loss of independence, welfare stigma, and
imminent insolvency. Most
Americans don't worry about long-term care until they need it.
Consequently, few save, invest or insure for the risk and they usually
end up on public assistance. How
in the world did we get into this mess? Well,
it's pretty simple. Government
started paying for nursing home care in 1965 through Medicaid and Medicare.
Its good intentions had unanticipated and extremely unfortunate
consequences. Because
nursing home care was free, institutionalization predominated.
Home and community-based care languished for decades.
Since
the government paid for nursing home care, no one bought private insurance
against the long-term care risk. Costs
exploded of course as they always do when a benefit is free to consumers. To
control costs, Medicaid tried to contain expenses by paying too little for care
thus causing access and quality problems. When
that didn't control costs, government tried to restrict access to Medicaid by
making eligibility harder to get, by requiring recovery from recipients'
estates, and even by making it a crime to transfer assets to qualify or
penalizing financial advisors for rendering advice to do so for a fee. Those
measures failed because Medicaid eligibility rules are generous to begin with
and so elastic that they are easily stretched to cover even affluent people. How
can that be when Medicaid long-term care eligibility requires impoverishment? Simple,
it doesn't. There is no limit on
how much income people can have as long as their medical expenses, including
private nursing home care, are high enough. There
is no limit on assets either as long as they are held in exempt form such as a
home, business, automobile, prepaid burial expenses, term life insurance, home
furnishings and other personal belongings, etc. Bottom
line, most elderly people who have a nursing-home level of care need, qualify
for Medicaid. Lawyers and other
advisors who specialize in artificially impoverishing people can easily qualify
people far above these already generous levels. Medicaid
eligibility is a very complicated topic. I
do not have time to explain in detail today. But I invite you to read my monograph titled "Aging
America's Achilles' Heel: Medicaid
Long-Term Care" at www.centerltc.com. After
over 40 years of publicly financed long-term care, consumers are anesthetized to
the high risk and catastrophic costs because government pays for the vast
majority of all long-term care in the United States. Amy
Finkelstein and Jeffrey Brown of the National Bureau of Economic Research (www.nber.org)
have confirmed this fact in two papers. They
found that two-thirds to 90 percent of the potential market for private LTC
insurance has been crowded out by Medicaid. The
key point is that Medicaid and Medicare took on too much of the burden of
long-term care financing, distorted the market so as to impede development of a
home and community-based care infrastructure and to discourage private insurance
to pay for it. Both
programs are both now spiraling toward financial collapse. The
good news is that if we stop doing what we've always done, we'll get a different
result. After all, isn't that the
very definition of "sanity." If
the current problems of long-term care have been caused by excessive dependency
on public financing, the solution is clear: Target
Medicaid to the truly needy and others will plan early to save, invest or insure
for long-term care. That
is finally starting to happen. The
Deficit Reduction Act of 2005 took several baby steps in that direction. Before
the DRA, anyone could shelter unlimited assets in a home and contiguous
property. Now there is a cap on
home equity of $500,000 (or $750,000 at state discretion). With
the average home equity in America only $86,000, that's only a start.
But keep in mind, Britain, with its socialized health care system, only
allows people $36,000 of home equity while receiving publicly financed long-term
care. The
DRA extends the look-back period for asset transfers done to qualify for
Medicaid to five years. This is
also just a start as the average period of time from onset to death in
Alzheimer's Disease is eight years. Medicaid
planners are already urging people to begin much earlier to plan for public
welfare. In
Germany, another European socialized system, the look-back period for asset
transfers is 10 years, double ours. Ironically,
America's long-term care system is far more generously available than are some
of the ostensibly socialized systems in Europe. The
DRA changed the penalty period for asset transfers done to qualify for Medicaid
to eliminate the half-a-loaf strategy, the single commonest technique used to
impoverish people artificially for Medicaid. Critics
have claimed that imposing the asset transfer penalty later than before will
cause people in need of care to be denied access, but that won't happen.
Why? Because we've
eliminated the main reason to transfer assets in the first place. But
even if someone does accidentally end up penalized for transferring assets, in
need of care, but penniless and ineligible for Medicaid, the DRA strengthened
the provisions for undue hardship waivers to protect such people. The
DRA also blocked several other abuses previously used to divert people to
Medicaid who should have paid their own way for long-term care.
There
are more restrictions on the use of annuities to convert countable,
disqualifying assets into non-disqualifying income. The income first rule has replaced the asset first option,
thus preventing huge extra asset exemptions for community spouses. I've
described these and other provisions in the Deficit Reduction Act bearing on
Medicaid eligibility in testimony before Congress which you can find and read at
www.centerltc.com. Finally,
the DRA did two other critical things related to long-term care.
LTC Partnerships may now be expanded to all states.
That's nice but not decisive. The
Partnerships allow people who buy LTC insurance to exempt extra assets from
Medicaid spend down. So,
if there is no real spend down requirement as in the past, the Partnerships
have, and indeed they have had in the four states that tried them already,
little effect. The
last key thing the DRA did was to unleash Medicaid to pay for more home and
community based services instead of nursing home care.
States will no longer have to obtain waivers to cover HCBS; they can do
so under their regular Medicaid state plans. This
is a double-edged sword, however, unless states also control the hemorrhage in
Medicaid eligibility. HCBS and
assisted living are popular services that everyone wants. When private LTC insurance started paying for them, costs and
premiums exploded. Government is
about to learn the same bitter lesson. The
Deficit Reduction Act with its constraints on Medicaid long-term care
eligibility and its encouragement of personal responsibility through private
insurance and home equity conversion is definitely the direction in which we
must move. When
we target Medicaid's scarce resources to the genuinely needy, they'll get better
care across a wider spectrum of services. When
more people pay privately for long-term care, they'll command red-carpet access
to top-quality care at the most appropriate level of care. When
people with money have to pay for their own long-term care, they will buy LTC
insurance and use their home equity, which means those businesses will boom,
provide more jobs and pay more taxes. When
long-term care providers have more private payers, nursing homes, assisted
living facilities, and all other caregivers will be more financially solvent.
Debt and equity capital, desperately need to finance the construction and
operation of long-term care facilities will return to the marketplace. Finally,
what's wrong with other proposals commonly offered to solve this problem? Many
seek to solve the problems of long-term care service delivery and financing with
compulsion. They want to force
people to pay for LTC insurance or load up Medicare with a long-term care
benefit. That won't work and it
hasn't worked. If
excessive public financing has caused the problems we have now, then trying to
solve them by adding more government financing would be like trying to put out a
fire by dousing it with gasoline. Social
Security and Medicare have unfunded liabilities totalling $86 trillion at latest
count. To fix them, we'd have to
double payroll taxes or halve their benefits.
Neither is politically popular. The
more likely outcome is that these programs will be means-tested.
In other words, they will be turned into welfare programs.
In time they'll lose political support in the same way Medicaid already
has. Adding
long-term care to Medicare, therefore, would be like adding deck chairs to the
Titanic after the incident with the iceberg. Here's
the irony: our problems in
long-term care are self-inflicted by well-intentioned but perversely
counterproductive public policy. The
good news is that the problems are easy to fix. We
can do it responsibly through public policy or we can just stand by and let the
existing social insurance and welfare house of cards collapse. The
Brave New World of Long-Term Care is here.
My advice to you as individuals, families and citizens is to take
responsibility for your own long-term care.
Plan early and save, invest or insure. Maybe
you can't solve the public policy problem alone but you can protect yourselves
and your families. Doing
so is an important contribution. After
all, as a wag once said: "The
best way to help the poor is not to become one of them." Politically,
my advice to you is to support targeting Medicaid to the poor in order to save
the fraying safety net and supplement long-term care with private financing
sources. Do
you wonder how the new Democratic majority in Congress will lean? Remember:
some of the most stringent controls on Medicaid long-term care
eligibility in the past came under Democratic Presidents and Congresses. Besides,
for Democrats, this is a "fairness" issue. Why use scarce public resources to indemnify well-to-do heirs
of affluent seniors? They're
probably all Republicans anyway! That's
all I can say in 15 minutes. If
you're interested in more, check out www.centerltc.com.
Feel free to call or email me anytime.
I've got plenty of business cards here so you can find me. Thanks
for your attention. |
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