LTC Bullet: Middle Market Mayhem

Friday, June 7, 2019


LTC Comment: LTC analysts, advocates, and providers are wringing their hands about the middle market’s future inability to afford seniors living. We mitigate the problem and re-offer a 25-year-old solution after the ***news.***

*** TODAY'S LTC BULLET is sponsored by Claude Thau, whose revolutionary “Range of Exposure” tool projects clients’ likelihood (joint for a couple) of spending $100,000; $250K; $500K or over $1,000,000 on LTC, based on their personal characteristics, and estimates how much of their cost in each range would be covered by various traditional or linked insurance designs. He also offers other ways to educate and help clients make informed final decisions in 15-20 minutes! Change work-site LTCi from a series of proposal deliveries to an interactive consultation! Claude is the lead author of Milliman’s annual Broker World LTCi Survey & a past Chair of the Center for Long-Term Care Financing. You can reach him at 913-403-5824 or ***

*** MOVIE NEWS: On March 13, 2019, My Million Dollar Mom writer producer Ross Schriftman and Kevin Jameson from the Dementia Society of America were invited to the State Capital where Rep. Thomas Murt declared May as Dementia Awareness Month in Pennsylvania. Here’s a clip of the15-minute press conference: ***


LTC Comment: All of a sudden, everyone is worried about the middle market for seniors housing.

An article in the May print issue of Health Affairs reported that in just 10 years we’ll have 14.4 million middle-income seniors, three in five with mobility limitations and one in five with high health care and functional needs, over half of whom will have insufficient financial resources to pay for seniors housing.

This finding set off an onslaught of national media coverage, lamenting the problem and urging action, usually more government spending. We critiqued the Health Affairs piece in LTC Bullet: Remember the Middle, pointing out that its proposed solution, i.e. more government spending, would only make the problem worse.

The National Investment Center (NIC) took a deeper dive into the issue with “The Forgotten Middle: Middle Market Seniors Housing Study.” They found that reducing the annual cost of seniors housing by $15,000, from $60,000 to $45,000 per year, would expand the middle market for seniors housing by 3.6 million individuals enabling 71 percent of middle-income seniors to afford the product.

My, that sounds much more manageable than the scary numbers purveyed by alarmists seeking more government largesse. Still, lowering the cost of seniors housing by 25 percent is probably unrealistic. But how about putting an extra $15,000 per year in the pockets of seniors housing customers? That would achieve the same objective.

How can we do that? Well, an annual long-term care insurance benefit of $15,000 would only cost a fraction of the premium required for the full coverage that consumers find so daunting. Although such limited coverage wouldn’t help much with the cost of a nursing home, it would be a huge benefit for the middle-income seniors who need care, helping them remain at home or in assisted living and off Medicaid nursing home rolls for longer.

Unfortunately, current laws and regulations place a minimum on long-term care insurance coverage of $18,000. Companies are not allowed to sell less. That problem is easily solvable. The goal should be to make inexpensive LTC insurance coverage available that is sufficient, when added to consumers’ other resources, to enable them to afford more seniors housing and delay their dependency on Medicaid for nursing home care.

But given the public’s reluctance to purchase long-term care insurance, would people buy even this more affordable protection? Now we’re right back to the same old questions that have perplexed analysts for decades: why don’t people who can afford long-term care insurance buy it and what could be done to persuade them to do so?

Nearly a quarter century ago, I wrote a paper published by the American Seniors Housing Association titled “Long-Term Care Public Policy & the Future of Seniors Housing.” Although currently out of print, it proposed “a strategy for the seniors housing industry to serve beneficially and profitably the enormous lower-middle and middle-class market segment currently lost to Medicaid nursing homes.” Here’s the conclusion of that paper, which I believe remains as apt an analysis and solution today as it was then for the same perennial problem.

Excerpt from “Long-Term Care Public Policy & the Future of Seniors Housing,” by Stephen A. Moses

VI. Conclusions and Public Policy Recommendations

The 1970's should have been the golden age of seniors housing in America. The gerontological wedge pushed into American demographics during that decade could have opened an era of unprecedented entrepreneurial problem solving. By now [1995], we would have a market-driven continuum of care seamlessly covering everything from chore services to assisted living to sub-acute care. We would also have an infrastructure of long-term care insurance and home equity conversion to finance it. Public welfare might still have a role to play in long-term care, but that role would not be the tragedy of today's perverse incentives and unsatisfactory outcomes.

Instead, with every benevolent intent, Medicaid co-opted long-term care by the late 1960's. It impeded the private market for low-cost seniors services and housing by providing free and subsidized nursing home care. It stifled competition, thereby impairing access and quality by artificially constricting bed supply and reimbursement rates. It drove the middle-income consumer out of the private long-term care marketplace by creating a ponderous, publicly-financed monopsony.

In time, Medicaid overwhelmed the nursing home industry with regulations intended to correct the very problems that the program itself engendered. Nevertheless, in the absence of affordable alternatives and the means to pay for them, middle class Americans in the hundreds of thousands are still being herded into Medicaid-financed nursing homes by well-intentioned public administrators and Medicaid estate planning attorneys.

What is the solution? The general profile of a solution is easy to discern. We need a private and public long-term care financing system that (1) educates the public about the enormous financial risk of long-term care, (2) provides incentives for people to plan early and insure fully, (3) offers a broad range of highly affordable seniors housing alternatives, and (4) supports a fiscally viable social safety net for people who cannot pay for their own care. The far tougher issue is how we get from here (the current, failed, publicly financed system) to there (a new, rational, market-based system).

One way is to eliminate all public financing for long-term care. This would immediately compel all Americans to take the risk of long-term care seriously. Consumers would rush to seniors housing, home equity conversion, and long-term care insurance like passengers on a sinking ship to the lifeboats. This approach, however, is anathema to most Americans and politically infeasible.

There is a more benevolent way. We could eliminate the perverse incentives in the current system that discourage long-term care planning and leave seniors dependent on Medicaid by default. This strategy would insure that the truly needy still have access to care while giving the middle class (and their heirs) a big incentive to avoid public assistance.

One such approach would be to embrace and vigorously enforce the authorities in OBRA '93 that empower state Medicaid programs to close eligibility loopholes and increase estate recoveries. The problem with building on OBRA '93, however, is that Medicaid estate planners have already found ways around most of its provisions. A better plan is to start fresh with a comprehensive program and save enhancements on OBRA '93 as a fall-back position if a stronger approach fails.

Political circumstances and events are gelling this year [1995] in such a way as to make major changes in the long-term care financing system highly likely. Compelled by fiscal necessity, Congress is moving almost inescapably toward radical reform of Medicaid. Whether long-term care remains a federal responsibility or is sent to the states in the form of a block grant, it will probably lose its entitlement status soon and much of its federal financing will disappear over time. [Ironically, we’re on this brink again in 2019.]

The best strategy for advocates of a market-based, long-term care solution today is to show public policy makers how to maximize Medicaid savings while minimizing political sensitivity. The following six-part proposal, based on numerous studies conducted over the past 12 years,1 would save at least 20 percent of Medicaid nursing home costs (more than $5 billion per year nationally) while improving access to and quality of long-term care. Model legislation to implement this plan is already being developed for the American Legislative Exchange Council.2

First, retain a public long-term care program with eligibility criteria at least as generous as Medicaid's. This strategy is necessary to deflect political attacks and guarantee protection for seniors who are already too old, too sick, or too impoverished to obtain care in any other way.

Second, eliminate asset divestiture altogether as a means to qualify for public long-term care assistance. Seniors who struggled through the Depression, fought WWII, and scrimped and saved to put aside a nest egg should not be pressured by public policy (and greedy heirs) to give away their life savings to qualify for welfare.

Third, require security as a condition of eligibility for anyone who receives public long-term care benefits while retaining exempt assets. No other financial institution in America will loan someone $200,000 or $300,000 (the cost of a long nursing home stay) without security. The government can no longer afford to do so either.

Fourth, implement and enforce a strong estate recovery program to assure that people who receive publicly financed long-term care will have to pay it back either out of their own estates or from the estates of their last surviving, exempt, dependent relatives. This will restore the dignity of middle-class seniors who are currently being trapped on public assistance. It is not welfare if you pay it back.

Fifth, encourage the public to avoid the risk of estate recoveries by planning ahead to stay off the public long-term care program. Seniors are the richest cohort in American society. With the proper incentives, far more of them can afford private long-term care insurance and seniors housing than are purchasing these products now.

Sixth, channel ten percent of the proceeds from estate recoveries into a program to educate the public on (1) the risks and costs of long-term care, (2) the availability of insurance and seniors housing options, (3) the disadvantages of public financing such as strict eligibility constraints and mandatory estate recovery, and (4) the importance of planning many years before long-term care is needed.

Implementing this program will change consumer behavior radically. To avoid estate recovery and other problems of public financing, consumers will be far more likely to explore private long-term care options first. They will discover, for example, that the average cost of congregate seniors housing and assisted living is only $1,300 and $1,900 respectively [in 1995]. This will no longer seem expensive when they compare it to paying for less desirable, publicly-financed nursing home care out of their estates.

Instead of encouraging their parents to visit Medicaid estate planners, heirs will have an incentive to help their parents purchase private long-term care insurance and pay for seniors housing. Their choice is to pay a little bit now or a lot more later out of their inheritances. Today's seniors are about to bequeath $10.4 trillion to the baby boom generation.3 [Today the big bequest is about to pass from baby boomers to their Gen X and Millennial heirs.] The old folks have the assets and their adult children have the cash flow. With the right public policy incentives in place, these two generations will work together to protect their legacies.

Finally, with appropriate incentives, seniors will tap their biggest financial resource to pay for long-term care. Seventy-seven percent of seniors own their homes. Of these, 83 percent own them free and clear. Today, fully $1.5 trillion dollars lies fallow in the elderly's home equity.4 With the value of the house at risk of estate recovery, seniors and their heirs will finally seek out home equity conversion to generate the cash flow to pay for seniors housing, purchase long-term care insurance, and avoid welfare dependency.

Adoption and aggressive enforcement of these public policy initiatives will

  • save the taxpayers billions of dollars every year,
  • protect public long-term care financing from its impending collapse,
  • unleash the seniors housing, home equity conversion, and long-term care insurance industries to achieve their true potential,
  • empower more members of the proud WWII generation to avoid the indignity of welfare, and
  • improve access to quality long-term care for rich and poor Americans alike.  

All that is required is the vision to see the way, the courage to embrace the change, and the will to stay the course.

[Most of these references can still be found at] Chronological list of research studies and publications by Stephen A. Moses on which this paper is based: The Magic Bullet: How to Pay for Universal Long-Term Care, A Case Study in Illinois, LTC, Incorporated, Seattle, Washington, 1995; The Perils of Medicaid: A New Perspective on Public and Private Long-Term Care Financing, LTC, Incorporated, Kirkland, Washington, 1995; The Florida Fulcrum: A Cost-Saving Strategy to Pay for Long-Term Care, LTC, Incorporated, Seattle, Washington, 1994; Long-Term Care in Montana: A Blueprint for Cost-Effective Reform, LTC, Incorporated, Kirkland, Washington, 1993; Medicaid Estate Recoveries in Maine: Planning to Increase Non-Tax Revenue and Program Fairness, LTC, Incorporated, Kirkland, Washington, 1993; Medicaid Estate Planning: Analysis of GAO's Massachusetts Report and Senate/House Conference Language, LTC, Incorporated, Kirkland, Washington, 1993; Medicaid Estate Planning in Kentucky: How to Identify, Measure and Eliminate Legal Excesses, LTC, Incorporated, Kirkland, Washington, 1993; "Planning for Long-Term Care Without Public Assistance," Journal of Accountancy, Vol. 175, No. 2, February 1993, pps. 40-44; "Health and Long-Term Care Insurance," chapter in Louis A. Mezzullo and Mark Woolpert, editors, Advising the Elderly Client, Clark Boardman Callaghan, New York, 1992; A Minnesota Prospectus for the Senior Financial Security Program LTC, Incorporated, Kirkland, Washington, 1992; The Senior Financial Security Program: A Plan for Long-Term Care Reform in Wisconsin, LTC, Incorporated, Kirkland, Washington, 1992; Medicaid Loopholes: A Statutory Analysis with Recommendations, LTC, Incorporated, Kirkland, Washington, 1991; The Myth of Medicaid Spend-Down, LTC, Incorporated, Kirkland, Washington, 1991; "The Fallacy of Impoverishment," The Gerontologist, Vol. 30, No. 1, February 1990, pps. 21-25; Medicaid Estate Recoveries in Massachusetts: How to Increase Non-Tax Revenue and Program Fairness, LTC, Incorporated, Kirkland, Washington, 1990; Transfer of Assets in the Medicaid Program: A Case Study in Washington State, Office of Inspector General, OAI-09-88-01340, Washington, DC, 1989; Medicaid Estate Recoveries: A Management Advisory Report, Office of Inspector General, Office of Analysis and Inspections, OAI-09-89-89190, Washington, DC, December 1988; Medicaid Estate Recoveries, Office of Inspector General, Office of Analysis and Inspections, OAI-09-86-00078, San Francisco, California, June 1988.

2 Stephen A. Moses, Long-Term Care Financing Under a Medicaid Block Grant: Notes Toward a Model State Statute, presented to The American Legislative Exchange Council on August 1, 1995 by LTC, Incorporated, Seattle, Washington.

3 "Boomers will inherit some $10.4 trillion from 1990 to 2040--for a mean inheritance of some $90,000, according to Robert B. Avery and Michael S. Rendall, professors of consumer economics and housing at Cornell University." (Business Week, 9/12/94, p. 64)

4 American Housing Survey for the United States in 1991, Bureau of the Census.