LTC Bullet:  Remember the Middle

Friday, May 10, 2019


LTC Comment: A recent Health Affairs article accurately assessed the plight of middle-income seniors whose resources will be inadequate to fund their senior living and long-term care. But the article proposed interventions that would exacerbate the problem. We explain after the ***news.***

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LTC Comment: The May print issue of Health Affairs contains an article published earlier online titled “The Forgotten Middle: Many Middle-Income Seniors Will Have Insufficient Resources For Housing And Health Care.” In it, authors Caroline F. Pearson, Charlene C. Quinn, Sai Loganathan, A. Rupa Datta, Beth Burnham Mace, and David C. Grabowski

project that by 2029 there will be 14.4 million middle-income seniors, 60 percent of whom will have mobility limitations and 20 percent of whom will have high health care and functional needs. While many of these seniors will likely need the level of care provided in seniors housing, we project that 54 percent of seniors will not have sufficient financial resources to pay for it. This gap suggests a role for public policy and the private sector in meeting future long-term care and housing needs for middle-income seniors. (Abstract, p. 1)

The new private sector role these authors propose is to cut senior living providers’ profits and subsidize “lower-income residents with higher-paying residents.” The new role they propose for public policy is to add long-term care coverage to Medicare and loosen eligibility for Medicaid benefits so that long-term care recipients don’t have to “impoverish” themselves. The irony in these proposals is that government financing and other political interference in the long-term care market is what caused the problems these authors seek to solve … with more of the same.

What are those problems? What caused them in the first place? And what public and private sector measures would truly correct them?

The Health Affairs article correctly identifies critical problems with senior living and long-term care financing. To wit: middle-income seniors face a high risk they will need assistance with activities of daily living as they age. The most desirable, least institutional venues in which to live and receive care, such as their homes, independent or assisted living, are beyond the financial means of many. This situation will get worse over time as fewer unpaid caregivers are available and more middle-income seniors with greater needs overwhelm the current safety net. Medicaid and Medicare are severely challenged financially already. Neither personal savings nor private long-term-care insurance are adequate now or promising.

The litany of senior living and long-term care challenges middle-income seniors face screams out for answers to these questions: How did long-term care service delivery and financing in the United States become so dysfunctional? Why are we still unprepared at the crest of an age wave we’ve known was coming for decades? Where did the nursing home bias in our system come from despite consumers’ preference for aging in place? Why do we only now finally have attractive senior housing options? What caused non-institutional alternatives like assisted living and home and community based care to be out of reach for so many middle-income seniors? Why are public long-term care financing sources like Medicaid, Medicare and the VA stretched to the breaking point, but private financing options like saving, investment and insurance languish? It is folly to bewail the long-term care system’s problems and to propose solutions without first answering those questions. But that is exactly what the Health Affairs article does.

Let us instead answer those questions, explain why the problems exist, challenge some of the mistaken assumptions in the article, and see if we’re led to different corrective actions.

As life spans extended through the first half of the 20th century, the chronic illnesses of old age struck rapidly growing numbers of aging Americans. It was obvious shortly after mid-century that a post-war baby-boom would one day require expensive long-term care. Government tried to get in front of that need by creating Medicaid for long-term care in 1965. But originally and for decades thereafter Medicaid paid only for nursing home care. Until 1985, no limits restricted transferring assets to qualify for Medicaid benefits. Easy access to government-financed long-term care after care was needed had profound effects on the long-term care market.

The nursing home industry prospered and grew. Government-subsidized institutional care crowded out a market for home and community-based care. With most expensive long-term care funded by Medicaid, consumers had little incentive to worry about the future financial consequences of long-term care risk and cost. In time, however, Medicaid’s low reimbursements made nursing home care so undesirable that by the 1980s the private sector began making more attractive assisted living facilities available. But home care and assisted living were slow to catch on because they required consumers to pay privately.

In a nutshell, easy access to free or subsidized nursing home care desensitized the public to long-term care risk leaving many unprotected by savings or insurance when faced with this terrible choice: put aging loved ones in a nursing home on public assistance and preserve their wealth for inheritance or spend it on access to private-pay home care or assisted living? The first option was too tempting for too many families who could, should and would have funded a private market for home and community based care, including assisted living, decades earlier if it were not for competition with the government-funded nursing home leviathan.

So, this is the real reason we have middle-income seniors facing a growing need for non-institutional senior living and long-term care which they cannot afford. To fix the problem, we need to eliminate competition from Medicaid nursing home care so that more desirable senior living options can prosper in the private market and so that people will understand the need to save, invest or insure privately for long-term care. The worst possible interventions would be to limit senior living industry profitability and expand government financing. To stifle the source of high quality non-institutional care while supplementing the source of institutional bias makes no sense. Yet these are the options the Health Affairs article proposes.

What prevents scholars like the authors of this paper from understanding the real problem and proposing viable solutions? Mistaken assumptions they do not question.

For example, they say in the article “The current [Medicaid] program requires people to impoverish themselves (‘spend down’) to qualify for coverage.” (p. 8) This statement is objectively false. Income below the cost of a nursing home rarely prevents Medicaid LTC eligibility. Virtually unlimited assets listed below are exempt from Medicaid spend down. Even wealthier individuals qualify with the help of special “Medicaid planning” attorneys. Mandatory estate recovery is easily evaded. The truth is most seniors qualify quickly and easily for Medicaid long-term care benefits with little or no spend down. There is no wonder so many of their families choose preserving inheritances using Medicaid over spending privately for home care or assisted living.

This is another mistaken assumption: “Our definition of middle income was motivated in part by the seniors housing options that exist in the market today. We conservatively selected a definition that identified seniors who would be unlikely to qualify for Medicaid long-term care.” (p. 6) How do they define middle income? “In 2029, for people ages 75–84, that middle-income definition corresponds to annuitized financial resources of $25,001–$74,298 in 2014 dollars. For those ages 85 and older, middle income is $24,450– $95,051.” (p. 3) Would people with those asset levels be “unlikely to qualify for Medicaid long-term care?”

Hardly. By doing little more than speaking with a state Medicaid eligibility worker, applicants or their families can learn of Medicaid’s virtually unlimited asset exemptions, including $585,000 to $878,000 in home equity and, without dollar limits, one income-producing business, including the capital and cash flow, IRAs generating periodic income, prepaid burial funds for the immediate family, one automobile, home furnishings, personal belongings including heirlooms, and more. Medicaid eligibility workers often suggest to applicants or their representatives that they purchase exempt assets, especially prepaid burial plans, to avoid spending their remaining resources on private long-term care. People with asset levels in the range identified in the article as “middle-income” have no need to consult a Medicaid planner. They can qualify doing nothing more than converting from countable to exempt assets.

Ironically, the real problems America’s long-term care financing system faces are that it already funds most expensive long-term care for most people, that its primary funding source Medicaid is already hopelessly over-extended, and that unless eligibility is somehow restricted so that more middle-income seniors prepare privately for the cost, the coming onslaught of aging boomers will sink the whole convoluted scheme.

For evidence and details beyond what can be delivered in this brief article, see my monograph How to Fix Long-Term Care Financing, published jointly by the Center for Long-Term Care Reform and the Foundation for Government Accountability in 2017.