LTC Bullet: Hoist with its Own Petard

Friday, April 28, 2017

Seattle—

LTC Comment: This Kaiser Family Foundation “Issue Brief” blows up its own argument, after the ***news.*** [omitted]

 

LTC BULLET: HOIST WITH ITS OWN PETARD

LTC Comment: Medicare beneficiaries are so poor that it behooves policymakers not to consider “decreasing federal Medicare spending” when they are “addressing the federal debt and deficit.” That’s the argument Kaiser Family Foundation scholars Gretchen Jacobson, Shannon Griffin, Tricia Neuman, and Karen Smith try to make in the latest (April 2017) update of KFF’s “Issue Brief” titled “Income and Assets of Medicare Beneficiaries, 2016-2035.”

What they inadvertently prove instead is that most Medicare beneficiaries are actually quite well off. What they miss entirely is that affluent beneficiaries capture a disproportionate share of Medicaid’s long-term care benefits. Bottom line, both Medicare and Medicaid could benefit from public policy changes to direct their scarce resources to enrollees who are most in need.

Here’s the crux of the KFF argument:

While a small share of the Medicare population lives on relatively high incomes, most are of modest means, with half of people on Medicare living on less than $26,200 and one quarter living on less than $15,250 in 2016. The typical beneficiary has some savings and home equity, but the range of asset values among beneficiaries is wide and varies greatly across demographic characteristics. . . . As policymakers consider options for decreasing federal Medicare spending and addressing the federal debt and deficit, these findings raise questions about the extent to which the next generation of Medicare beneficiaries will be able to bear a larger share of costs. (pps. 6-7)

OK, that’s one way of looking at the data. Here’s another.

Income

Half of all Medicare beneficiaries have incomes of $26,200 or less. That’s more than double the $12,060 poverty guideline for a single person as of 2017, but poor enough to be sure.[1] These are the people we would hope the Medicaid long-term care safety net protects. In fact, it does. Anyone needing formal long-term care with that level of income would qualify easily anywhere in the USA.[2]

But what about the other half of Medicare beneficiaries? Forty-five percent of them had incomes between $26,200 and $103,450. Hardly impoverished. Could someone with an annual income of $103,450, at the 95th percentile of all Medicare beneficiaries, qualify for Medicaid LTC benefits? Yes. All it would take is the cost of a nursing home at a little more than the median national rate for a semi-private bed ($82,128), hardly uncommon in high-cost states like California, New York or Massachusetts. Anyone in the $26,200 to $103,450 range would qualify in most states as long as their total uncompensated medical and long-term care expenses exceeded their income, as they likely would for people who need expensive long-term services and supports.

Several scholars have recognized this reality. Research published in the American Economic Review, for example, found not only that retirees with high incomes can enroll in Medicaid, but that when they do, the cost to taxpayers is actually higher than the cost for low-income individuals.[3]

Savings

Turning to savings of Medicare beneficiaries, we find the same upside down policy incentives. The half of beneficiaries with the least savings qualify easily for Medicaid LTC benefits, but so do most of the upper half.

Half of Medicare beneficiaries have savings of $74,450 or less, including “retirement account holdings (such as IRAs or 401Ks) and other financial assets, including savings accounts, bonds and stocks.” (p. 3) Although their savings exceed the usual Medicaid limit of $2,000 in countable assets, these people can easily purchase extra home equity and other exempt assets, in any amount, such as personal belongings, home furnishings, IRAs, prepaid burial plans, term life insurance, an automobile, etc., in order to reduce their countable resources and reach the asset eligibility limit.

But what about the 45 percent of Medicare beneficiaries who have savings between $74,450 and $1.4 million. These higher-savings seniors generally have greater access to professional financial advice on how to protect their wealth from long-term care expenditures. They can avail themselves of Medicaid’s $560,000 to $840,000 home equity exemption and purchase other exempt assets as well; they can take advantage of loopholes favoring the affluent such as Medicaid-friendly annuities, irrevocable income-only trusts, and reverse half-a-loaf strategies; or they can simply divest their savings five years or more before applying for Medicaid as most elder law attorneys recommend.

Because it’s easy and financially beneficial to qualify for Medicaid LTC benefits while sheltering or divesting up to $1.4 million (the 95th percentile of Medicare beneficiaries’ savings) or more, Medicaid planning attorneys do a land-office business often in practices with multiple geographic locations. Dubious? Google “Medicaid planning in [your state]” for proof.

Home Equity

By now it should come as no surprise that the same topsy-turvy public policy applies to home equity as well.

Seventy-six percent of Medicare beneficiaries owned home equity in 2016. Their median equity was just $70,950. (p. 5) Only five percent of enrollees had home equity of more than $466,600, with just one percent owning equity worth $873,150 or more. Given Medicaid’s high home equity exemption ranging from $560,000 to $840,000 – depending on the state – it is unlikely that this limit disqualifies many people.

Once again, the lower financial half of Medicare beneficiaries qualify easily for Medicaid LTC benefits based on home equity, but so do the upper half!

LTC Comment: This KFF issue brief tries to sidetrack policymakers from addressing Medicare’s fatal fiscal flaws by focusing on beneficiaries below the financial median. But, contra the KFF argument and conclusions, most Medicare beneficiaries are doing quite well financially. Furthermore and ironically, with tragic consequences for the genuinely needy half of beneficiaries, the better off group is co-opting desperately needed long-term care resources that should go to the needier group.

The fact that affluent whites live longer than poor minorities, consume a disproportionate share of Medicaid’s scarce resources, and plan for that eventuality as a result of incentives created by existing policies raises serious ethical questions—not because Medicaid forces people into impoverishment as usually assumed, but for precisely the opposite reason.

 

[1] U.S. Federal Poverty Guidelines Used to Determine Financial Eligibility for Certain Federal Programs; https://aspe.hhs.gov/poverty-guidelines.

[2] Thirty-four states have “medically needy” Medicaid programs. “The medically needy program provides states the option to extend Medicaid eligibility to individuals with high medical expenses whose income exceeds the maximum threshold, but who would otherwise be eligible for Medicaid.” (Kaiser Commission on Medicaid and the Uninsured, “The Medicaid Medically Needy Program: Spending and Enrollment Update,” Issue Brief, December 2012; https://kaiserfamilyfoundation.files.wordpress.com/2013/01/4096.pdf) “But some states set a hard limit on the income permissible to qualify for Medicaid -- no [income] spend-down is allowed. In these states, known as ‘income cap’ states, eligibility for Medicaid benefits is barred if the nursing home resident's income exceeds $2,199 a month (for 2016), unless the excess income above this amount is paid into a ‘(d)(4)(B)’ or ‘Miller’ trust.” (Elderlaw Answers, “How Does Medicaid Treat Income?,” cited August 8, 2016; http://www.elderlawanswers.com/how-does-medicaid-treat-income-12017)

[3] De Nardi M, French E, Jones JB. Medicaid insurance in old age. Am Econ Rev. 2016;106(11):3480-520.