Long-Term Care: The Solution (The Serial, Part 2)

LTC Bullet: Long-Term Care: The Solution (The Serial, Part 2)

Friday, November 3, 2023

Seattle—

LTC Comment: Today we offer easy access to a must-read new study by Center president Steve Moses, after the ***news.***

*** ILTCI REGISTRATION OPEN: “Registration is Now Open for the 2024 Intercompany Long Term Care Insurance Conference!” reports the meeting’s organizing committee. “Our in-person conference will be March 17 - 20, 2024 at the newly remodeled Town & Country Resort in San Diego, CA. Our agenda includes numerous educational sessions over two days across seven tracks with ample time for networking and reconnecting with colleagues. We still have room for exhibitors and sponsors! Please contact us at info@iltciconf.org if you are interested in either opportunity to showcase your products and services to our attendees.” Click here to register and here to reserve your hotel. I’ll be there covering the conference as I have been for most of its predecessors as recounted in History of LTC Insurance Conferences (2021). Read our coverage of this year’s conference in LTC Bullet: Virtual Visit to ILTCI 2023. ***

*** APPEAL: The Center for Long-Term Care Reform, in partnership with the Paragon Health Institute, is embarking on a campaign to improve LTC services and financing. In “Long-Term Care: The Problem,” we explained what’s wrong and why. In “Long-Term Care: The Solution,” we discard the failed policies of the past and propose a radical new approach based on engaging vast sources of private wealth currently diverted from LTC funding. We will reach out to the media, brief federal and state policy and law makers, speak at conferences, and write for publication, all toward the end of achieving the policy goals in “Long-Term Care: The Solution.” Will you help us in this effort? Join the Center or contribute online here. Check out the Center’s “Membership Levels and Benefits” schedule here. Most corporate memberships include a briefing by Center president and “LTC Solution” author Stephen Moses. Call or write for more information: 206-283-7036; damon@centerltc.com; smoses@centerltc.com. LTC policy has floundered for too long. Let’s get this done! ***

LTC BULLET: LONG-TERM CARE: THE SOLUTION (THE SERIAL, Part 2)

LTC Comment: The Paragon Health Institute published “Long-Term Care: The Solution” on October 3. This new report is long and complicated, but important. So LTC Bullets will deliver it to you in bite-sized pieces over the next few weeks. Today, read “The LTC Solution” (introduction), “What Did Not Work,” and “What Happened and Why Action Is Imperative Now.” Next time: a whole new approach to LTC financing that will unleash the potential of private financing, including insurance.

Excerpts from “Long-Term Care: The Solution”
by
Stephen A. Moses
President, Center for Long-Term Care Reform

The LTC Solution

In “Long-Term Care: The Problem,”[4] I described the lessons of LTC history. Public programs have paid for most expensive LTC since 1965. Government policies diverted the public from early private LTC planning and left too many people dependent on welfare-financed nursing home care. Private sector entrepreneurs interceded repeatedly with preferred options such as assisted living, private home care, and insurance. But the dominance of Medicaid and Medicare financing for nursing homes prevented alternative modes of LTC service delivery and financing from fully developing based on consumer preferences. Given the damage government financing and interference have caused, what are the best LTC policy options going forward?

America’s many LTC service delivery and financing problems are understandable, manageable, and correctable. The fundamental issue is that people do not plan, prepare, save, invest, or insure early enough to be able to pay for LTC when they need it, usually much later in life. The current challenge facing policymakers is twofold: (1) how to get people to think about and plan for LTC in their younger, working years, when LTC risk and cost seem distant and low compared to more immediate needs, and (2) how to provide and pay for LTC in the future for burgeoning numbers of aging people who are unprepared to meet its cost. The growing emphasis on healthy aging, with its resulting expansion of lifespans, will make these imperatives more important than ever to achieve.[5]

The reason most people do not plan early enough for LTC is that, since its establishment in 1965, Medicaid has paid for most expensive formal LTC not only for the poor but also for the middle class and many affluent people. The fallacy of impoverishment—the mistaken belief that eligibility for Medicaid’s LTC benefits requires spend down of income and assets into destitution—has prevented analysts from seeing this connection between Medicaid’s availability and the public’s seemingly irrational denial of LTC risk. The problem is not that people intentionally plan to use Medicaid if they ever need LTC. Few know who pays for LTC, and most wrongly believe Medicare does.[6] Rather, Medicaid’s actual availability when care is needed (usually many years later) enables consumers’ denial of the risk and cost and leaves them unprepared and unprotected when confronted with chronic long-term illness.

Thus, the fundamental solution to the LTC policy problem is to direct the public’s attention to this large risk and cost earlier—before it is too late for them to prepare personally. That has been a major goal of LTC public policy ever since Medicaid’s LTC expenditures spiked far above original expectations in the 1970s. Through the 1980s and 1990s and into the mid-2000s, policymakers of both political parties sought to ensure that escalating Medicaid LTC expenditures went only to the people who needed them most. Numerous laws attempted to discourage the overuse of Medicaid LTC benefits by people who could and should pay for their own care. Those measures’ objective was to convince consumers that they should prepare for likely LTC costs in the future in order to avoid possibly devastating LTC expenditures that could consume their life savings. Although they were largely unsuccessful, the measures intended to scare the public straight point the way toward a better solution. But before designing and implementing a successful solution, it is crucial first to understand what policies failed and why they failed.

What Did Not Work

Congress did not include LTC in Medicare but added nursing home coverage for the poor to Medicaid, recognizing its growing need and costs for an aging population. Medicaid expenditures exceeded expectations from the start of the program.[7] LTC costs in Medicaid increased especially rapidly.[8] Medicaid extended eligibility to anyone unable to afford nursing home care,[9] and it reduced or eliminated strict eligibility criteria, transfer of assets restrictions, and mandatory liens that were previously commonplace in state welfare programs.[10] This easy access to Medicaid nursing home care created a moral hazard that desensitized the public to LTC risk and cost.[11] So long as LTC constituted a small risk of a catastrophic loss sometime in the distant future that a government program would then cover if necessary, most people ignored the risk. Most of those who later confronted catastrophic LTC costs ended up on Medicaid whether or not they knew from the beginning that Medicaid would pay.

Presidents and Congresses of both parties tried to subdue Medicaid LTC expenditure growth by suppressing the tendency to ignore LTC and rely on Medicaid in a long series of statutory and regulatory reforms. President Carter and a Democrat-controlled House and Senate took the initial step to rein in Medicaid LTC benefits in 1980 by imposing the program’s first ever limit on asset transfers to qualify for the program.[12] That measure triggered the first law journal article on how to circumvent Medicaid eligibility rules and become eligible while preserving wealth.[13]

In 1982, President Reagan signed legislation passed by a Democratic House and a Republican Senate that lengthened and strengthened asset transfer restrictions and allowed states to impose liens to secure property for later recovery from recipients’ estates.[14] In 1988, with Democrats controlling both houses of Congress, President Reagan signed legislation that, for the first time, required state Medicaid programs to penalize people who made inappropriate asset transfers.[15] None of these measures succeeded in controlling LTC spending growth. Medicaid planning articles multiplied in formal legal publications and in the popular media. The techniques to qualify for Medicaid included hiding money, transferring assets, juggling resources, changing wills and titles to property, and setting up a Medicaid trust to access benefits without spending down savings.[16]

In the late 1980s, studies by the Office of the Inspector General (OIG) of the U.S. Department of Health and Human Services (HHS)[17] and the Government Accountability Office (GAO)[18] documented inconsistent state enforcement of the asset transfer, lien, and estate recovery regulations. The OIG report observed: “It is their children, after all, who stand to inherit whatever property remains after the costs of long-term care are paid and who currently reap the windfall of Medicaid subsidies. We must emphasize that the issue is enrichment of nonneedy adult heirs, not denial of care to the elderly.”[19] The government watchdogs recommended tightening Medicaid financial eligibility rules; making estate recoveries mandatory; and conducting further studies to analyze the relationships among Medicaid LTC eligibility, reduced private LTC spending, and low private LTC insurance take-up. A Democrat-controlled Congress concurred in 1993 when President Clinton signed legislation that required estate recoveries and made the asset transfer look-back period longer and stronger.[20] But these efforts did little to reduce reliance on Medicaid LTC and nothing to abate an onslaught of legal treatises, law journal articles, popular books, magazine stories, and advertisements recommending “Medicaid estate planning.”[21]

In 1996, frustrated about continued abuses of Medicaid LTC, a Republican House and Senate sent President Clinton a bill that made it a crime to transfer assets for the purpose of qualifying for Medicaid.[22] He signed what became known as the “Throw Granny in Jail Act.” When senior advocates objected, a Republican Congress replaced it in 1997 with the “Throw Granny’s Lawyer in Jail Law.”[23] President Clinton signed this legislation, which made it a crime to accept a fee for advising a client to transfer assets to qualify for Medicaid, but the Justice Department deemed it unenforceable because transferring assets to qualify was no longer a crime in itself,[24] and a federal judge later ruled the law unconstitutional.[25]

Nothing more was done to restrain Medicaid LTC overuse for almost a decade until a Republican Congress passed the Deficit Reduction Act (DRA), which President Bush signed in 2006. The DRA extended the asset transfer look-back period to a full five years. It also put the first ever cap on Medicaid’s home equity exemption, allowing states to set a limit from $500,000 up to a maximum of $750,000. The DRA’s home equity limit increased annually with inflation, reaching $688,000 and $1,033,000, respectively, in 2023. In 2018, the median home equity of homeowners ages 65 plus was only $143,500.[26] Consequently, Hest, Alarcon, and Blewett “estimate that nearly the entire elderly population would meet the home equity threshold,”[27] rendering it ineffectual to discourage Medicaid LTC eligibility except by the wealthiest. When he signed the DRA, President Bush said, “The bill tightens the loopholes that allowed people to game the system by transferring assets to their children so they can qualify for Medicaid benefits. Along with Governors of both parties, we are sending a clear message: Medicaid will always provide help for those in need, but we will never tolerate waste, fraud, or abuse.”[28]

That was the expressed intent not only of the DRA but of the whole history of bipartisan legislation described above. Yet Medicaid LTC expenditures kept increasing despite this long, concerted effort. The public continued to ignore LTC risk and cost. Since 2006, no Congress has passed legislation to target Medicaid to those most in need. Nor has legislation advanced to encourage middle-class and affluent people to prepare early to be able to pay for their own LTC and avoid Medicaid dependency. Earlier economic recessions had led to legislation designed to spend Medicaid LTC money more wisely, discourage its use by the middle class, and encourage the non-needy to take personal responsibility. But after the Great Recession of December 2007 to June 2009 no further measures of that kind appeared.

What Happened and Why Action Is Imperative Now

Innovative and risky new fiscal and monetary policies in effect since the 1990s explain why politicians permitted Medicaid spending to skyrocket over the past two decades. The Federal Reserve dropped interest rates to near zero. Public funds were spent with little constraint. The national debt soared, but few worried because servicing the debt at miniscule interest rates seemed manageable particularly given politicians’ generally short time horizons. With budgetary pressures relaxed, policymakers felt little incentive to address Medicaid’s excessive LTC spending or to reduce its long-standing moral hazard regarding LTC. But all that is changing today with higher inflation and interest rates and rising fiscal pressures from federal programs, particularly the massive unfunded liabilities of Social Security and Medicare. Budgetary pressures are again forcing policymakers to address Medicaid LTC financing expenditures.

[4] Moses, “Long-Term Care: The Problem.”

[5] For example: “Even making small changes in your daily life can help you live longer and better. In general, you can support your physical health by staying active, eating and sleeping well, and going to the doctor regularly” (National Institutes of Health, National Institute on Aging, “What Do We Know About Healthy Aging?,” https://www.nia.nih.gov/health/what-do-we-know-about-healthy-aging).

[6] “A shocking 56% of boomers mistakenly believe that Medicare will pay for long-term (sometimes called ‘custodial’ care). They are sadly mistaken. Medicare was designed to cover medical care only.” Sara Zeff Geber, “Hey Boomer: Medicare Won’t Cover Your Long-Term Care,” Forbes, July 28, 2021, https://www.forbes.com/sites/sarazeffgeber/2021/07/28/hey-boomer-medicare-wont-cover-your-long-term-care/.

[7] “Because of the attention focused on Medicare, Title XIX [Medicaid] was passed by Congress with little public notice. This relative obscurity was lost when the cost of New York State’s Medicaid program (effective May 1, 1966) became known. Federal cost estimates for the entire Medicaid Program were shown to have been grossly underestimated.… The amounts expended to finance Medicaid in the first two years were surprisingly high. Estimates in 1965 of the annual federal cost of Medicaid ranged from $150 million to $238 million. Yet actual federal expenditures were $621 million in the calendar year 1966. In 1967, Congress estimated that the annual federal share would rise to $1.4 billion in fiscal 1968 and to $3.1 billion by 1972, provided no additional restrictions were placed on the 1965 program.” (p. 63, 65, footnotes omitted) ______, Columbia Journal of Law and Social Problems, “Medicaid: The Patchwork Crazy Quilt,” April 1969.

[8] “During the decade following the 1965 passage of Medicare and Medicaid, there was a dramatic expansion in the supply of nursing home beds and an even more dramatic escalation in costs. New facilities were built, and a more sophisticated set of owners emerged, including the multistate, multifacility systems or chains. These developments were largely a product of four factors: (1) the availability of funding; (2) the method of reimbursing facilities; (3) increasing demand; and (4) federal health and safety regulation.” Catherine Hawes and Charles D. Phillips, The Changing Structure of the Nursing Home Industry and the Impact of Ownership on Quality, Cost, and Access (Washington: National Academies Press, 1986), https://www.ncbi.nlm.nih.gov/books/NBK217907/.

[9] “The principal group that is eligible for federal sharing of medical care costs is the categorically related medically needy, i.e., the aged, disabled, blind, or members of families with dependent children, whose income and resources exceed the maximum levels established by the state in question for eligibility for cash public assistance payments, but are not adequate to pay all their medical care expenses.” Sydney E. Bernard and Eugene Feingold, “The Impact of Medicaid,” Wisconsin Law Review 726 (1970), p. 753 (footnotes omitted, bolding added), https://heinonline.org/HOL/LandingPage?handle=hein.journals/wlr1970&div=43&id=&page=.

[10] “Many [pre-Medicaid state assistance plans] required that the beneficiary must transfer to the pension authority any property they possessed before any payment would be made. Most had property and income caps to limit eligibility, generally a maximum of $3,000 in property and $300-$365 a year in income. Most required that benefits would be denied to anyone who gave away property in order to qualify for public assistance. Most required that a lien be placed on the estate of the beneficiary to be collected upon their death. Most required that recipients be ‘deserving,’ and benefits were denied to anyone who deserted a spouse, failed to support their families, had committed any crime, or had been a tramp or beggar.” Jeff Hoyt, “Senior Living History: 1930-1939,” SeniorLiving.org., July 27, 2023, https://www.seniorliving.org/history/1930-1939/.

[11] “Those states which attempted to bring the poor into the mainstream by providing liberal eligibility standards, broad benefits, and adequate fees found themselves running into opposition at home and in Congress on both financial and ideological grounds.… High costs are the result of precisely those aspects of Medicaid which were welcomed by social reformers-the broadening of eligibility requirements and of services covered, the maintenance of effort and equality of treatment requirements, and the payment of more generous fees.” Bernard and Feingold, “The Impact of Medicaid,” 752-53.

[12] The Omnibus Budget Reconciliation Act of 1980 imposed the program’s first limit on asset transfers to qualify for Medicaid. Previously “applicants were expressly permitted to transfer resources that otherwise would have disqualified them from receiving any benefits.” (p. 372) “The new SSI rule was expressly not applicable to assets which were exempt when transferred, and this included the family home. Because of this exemption, courts were prohibiting states from applying their transfer rules to assets that were exempt when transferred.” (p. 373 [footnotes omitted], Timothy N. Carlucci, “The Asset Transfer Dilemma: Disposal of Resources and Qualification for Medicaid Assistance,” Drake Law Review 36, no. 369 (1986-1987), https://heinonline.org/HOL/LandingPage?handle=hein.journals/drklr36&div=26&id=&page=.

[13] “Careful planning even under adverse state law will still be able to achieve the goal of excluding an applicant’s resources for purposes of determining Medicaid eligibility” (William G. Talis, “Medicaid as an Estate Planning Tool,” Massachusetts Law Review 66 [Spring 1981], p. 94).

[14] The Tax Equity and Fiscal Responsibility Act of 1982 expanded the voluntary two-year transfer of assets restriction to include exempt homes and permitted state Medicaid programs to place liens under certain limited circumstances in order to secure real property until it could be recovered from the estates of deceased Medicaid recipients to offset the cost of their LTC. Nevertheless, this Medicaid planner was undeterred: “With long-range planning, the cooperation of relatives, some good health, and maybe a little luck, couples will be in a position to negotiate between the rock and a hard place that Congress has placed in the Medicaid path” (Gill Deford, “Medicaid Liens, Recoveries, and Transfer of Assets after TEFRA,” Clearinghouse Review, June 1984).

[15] The Medicare Catastrophic Coverage Act of 1988 also required state Medicaid programs to look back 30 months (previously only 24 months and voluntary) for inappropriate asset transfers. It established an ineligibility penalty equal to the amount of assets transferred for less than fair market value for the purpose of qualifying for Medicaid divided by the average cost of a nursing home in the state. So, for example, an applicant who gave away $80,000 to qualify for Medicaid in a state where nursing home care averaged $8,000 per month would be ineligible for 10 months from the date of the transfer. The law also capped the maximum asset transfer penalty at 30 months. Although Medicare provisions contained in this legislation were repealed, these Medicaid provisions remained.

[16] For example: “So is there any practical way to juggle assets to qualify for Medicaid before losing everything? The answer is yes! By following the tips on these pages, an older person or couple can save most or all of their savings, despite our lawmakers’ best efforts…. Here are the best options: Hide money in exempt assets…. Transfer assets directly to children tax-free…. Pay children for their help…. Juggle assets between spouses…. Pass assets to children through a spouse…. Transfer a home while retaining a life estate…. Change wills and title to property…. Write a durable power of attorney… Set up a Medicaid Trust…. Get a divorce” (Armond D. Budish, Avoiding the Medicaid Trap: How to Beat the Catastrophic Costs of Nursing-Home Care [New York: Henry Holt, 1981]).

[17] HHS, Office of Inspector General, Medicaid Estate Recoveries: National Program Inspection, June 1988, http://oig.hhs.gov/oei/reports/oai-09-86-00078.pdf. This author directed the study and wrote its report.

[18] GAO, Medicaid: Recoveries from Nursing Home Residents’ Estates Could Offset Program Costs, March 7, 1989, p. 3, https://www.gao.gov/products/hrd-89-56.

[19] HHS, Office of Inspector General, Medicaid Estate Recoveries, pp. 47-48.

[20] The Omnibus Budget Reconciliation Act of 1993 (OBRA ’93) implemented many of the OIG’s and GAO’s recommendations. It extended the look-back period for asset transfers to a full three years (36 months) for most improper transfers and to five years for transfers into or out of a trust. The law also dropped the 30-month cap on the eligibility penalty, making it potentially unlimited. OBRA ’93 made estate recoveries mandatory for the first time. It prohibited the common practice of “pyramid divestment,” which had allowed asset transfer penalties to run simultaneously, enabling as much as a million dollars to be jettisoned in less than a year to achieve eligibility without additional penalty.

[21] For example: “Now we have more complicated plans, but we have plans. We are going to bill more. OBRA ’93 was bad for our clients, but good for us…. Numerically, most of the techniques we use are still there…. It is worth trying anything once; then network and tell each other what we got away with…. Most of my clients get eligible quickly just from thoughtful spending” (Robert Fleming, speech before the National Academy of Elder Law Attorneys [NAELA] Institute, November 21, 1993).

“WE STILL BELIEVE THAT ALMOST ANYONE CAN BECOME MEDICAID ELIGIBLE FOR LONG-TERM CARE BENEFITS EVEN IN CRISIS…. It is still possible to transfer non-exempt assets (countable) into exempt assets (non-countable) for purposes of obtaining eligibility. The catch will be planning around the estate recovery program…. For instance, the conversion of cash into an interest in a third person’s residence is a way to shelter cash assets as part of the spend-down amount. The interest in the residence would then be transferred into a limited partnership. This limited partnership interest is not real property and is, therefore, not subject to having a lien placed against it” (Baird Brown and Robert Fleming, “Planning Options That OBRA ‘93 Does Not Affect,” NAELA Elder Law Institute proceedings, 1993, Section 12, pp. 11, 14, 16; emphasis in original).

“While many practitioners may believe that the Medicaid qualifications rules limit benefit eligibility to only the very poor, significant planning opportunities exist which can be utilized to qualify an individual for Medicaid benefits who otherwise has the financial resources to pay the cost of long-term care” (Harley Gordon, How to Protect Your Life Savings from Catastrophic Illness and Nursing Homes [Boston: Financial Strategies Press, 1994], p. 66).

[22] The Health Insurance Portability and Accountability Act of 1996 made transferring assets for less than fair market value to qualify for Medicaid a crime punishable by a fine of up to $10,000 and up to a year in jail.

[23] The Balanced Budget Act of 1997 repealed the criminalization of asset transfers and targeted lawyers who recommended asset transfers instead. The law’s criminalization of Medicaid planning advice set the elder law bar back on its heels for a while, but it also had a lasting impact. From then on, caution prevailed more often among elder law attorneys. They retreated from using terms such as juggling assets or Ziegfield Follies spending to qualify for Medicaid. Some reflected in print about the profession’s poor judgment and bad reputation in this regard:

Unfortunately, members of the Medicaid planning bar have sometimes been their own worst enemies. For example, at the May 1996 Symposium of the National Academy of Elder Law Attorneys, two prominent NAELA members (one a former President of the organization) gave a presentation on Medicaid planning. Using the format of a skit in which other NAELA members played the roles of the family, the presenters took the audience through a session in which an elderly couple, whose net worth exceeded $750,000, was counseled on how to arrange their affairs to attain Medicaid eligibility. Among the assets in the couple’s portfolio was a vacation home. The skit became fodder for critics of Medicaid eligibility planning and indeed was widely criticized by other NAELA members (Timothy L. Takacs and David L. McGuffey, “Medicaid Planning: Can It Be Justified? Legal and Ethical Implications of Medicaid Planning,” William Mitchell Law Review, 29, no. 111, p. 135).

[24] “US Attorney General Janet Reno has sent Speaker of the House Newt Gingrich a letter dated March 11, 1998, to the effect that the Department of Justice will take no action against professionals who advise people on transferring their assets to become eligible for Medicaid’s LTC benefits.” George Sherman, “Department of Justice Won’t Enforce Law Prohibiting Professional Assistance for Medicaid Transfers,” LTC News and Comment, May 1998.

[25] “A federal law that made it illegal to advise people how to shed assets to qualify for Medicaid is unconstitutional, a federal judge ruled Tuesday. The 1997 law was intended to prevent financially secure people from giving away or hiding assets in order to qualify for taxpayer-funded Medicaid benefits.” Tampa Bay Times, “‘Granny’s Adviser’ Law Is Struck Down,” September 13, 2005, https://www.tampabay.com/archive/1998/09/23/granny-s-adviser-law-is-struck-down/.

[26] Joint Center for Housing Studies of Harvard University, “Housing America’s Older Adults 2018,” Figure 7, p. 7.

[27] Robert Hest, Giovaan Alarcon, and Lynn A. Blewett, “Modeling Financial Eligibility for Medicaid Long-Term Services and Supports,” Journal of Aging and Social Policy, March 29, 2020, p. 7, https://www.tandfonline.com/doi/abs/10.1080/08959420.2020.1740638.

[28] The White House (G. W. Bush), “President Signs S.1932, Deficit Reduction Act of 2005,” press release, February 8, 2006, https://georgewbush-whitehouse.archives.gov/news/releases/2006/02/20060208-8.html.