 LTC Bullet: How the Wealthy Stole Medicaid Friday, April 18, 2025 Seattle— LTC Comment: Private wealth sits on the sidelines as Medicaid shifts from helping the poor and vulnerable to subsidizing the middle class and affluent. Facts and analysis follow the ***news.***
*** MCKNIGHTS LTC NEWS COLUMNS by Steve Moses. From time to time, we point LTC Bullets readers to columns I’ve published in McKnights LTC News. McKnights is the leading publisher of news about the LTC provider industry with separate publications focused on nursing homes, senior living and home care. I think it is very important for people working in the LTC financing side of the business to understand the challenges people working in the provider side of the business face and vice versa. These columns published in the past year are my way to reach out and encourage mutual understanding between our professional silos. I invite your feedback to smoses@centerltc.com. If you find value in this work, remember it is part of what you support when you join the Center for Long-Term Care Reform. Please do that here. Check out all our membership levels and benefits here. Let’s fix long-term care together.
Are We LTC Suckers,
April 11, 2025 LTC BULLET: HOW THE WEALTHY STOLE MEDICAID Last week, the Paragon Health Institute published “Medi-Cal-amity: California’s Reckless Expansion of Medicaid Long-Term Care to the Affluent.” In that policy brief, I explained how Medi-Cal eliminated its asset eligibility test making even the richest Californians eligible for the Medicaid program’s most expensive long-term care (LTC) benefits. Unfortunately, that egregious misuse of the public welfare program in the Golden State is only the tip of the iceberg nationally. Medicaid has transitioned for decades from a means-tested program intended to help the poor and vulnerable into an entitlement for the middle class and affluent. For example, the aged and disabled were 25 percent of enrollees in 2003, when they consumed 69 percent of total Medicaid expenditures. By 2023, they had declined to 20 percent of enrollees receiving only 51 percent of total spending. The poorest of the poor, “dual eligibles” who qualify for both Medicaid and Medicare, were 14 percent of Medicaid enrollees in 2005 and accounted for 42 percent of total program expenditures. By 2023 they remained 14 percent of enrollees but they garnered only 32 percent of spending. Why are Medicaid’s most vulnerable recipients getting such short shrift lately? The 2010 Affordable Care Act, aka Obama Care, created a new category of Medicaid recipients: working age adults with incomes up to 138 percent of the federal poverty level. State Medicaid programs receive a 90 percent federal funds matching rate for services provided to this new group of enrollees. Compared to the average match rate for other Medicaid eligibility groups of 50 to 77 percent depending on the state, this special, extremely high level makes this “expansion” population very attractive. States need to put up only $10 to receive $90 from the federal government. Responding to this incentive, states have added 21 million recipients to Medicaid enrollment nationally. These new, young, able-bodied recipients now consume 20 percent of total Medicaid expenditures, 18 percent from federal funds and two percent from states. It is easy to see, therefore, why the resources Medicaid formerly reserved for the poor elderly and disabled are going instead to mostly single, often unemployed people incentivized thereby to remain so and to attract others to the same generous benefit. But there is another, possibly even more important way, that Medicaid’s neediest and most vulnerable recipients are being crowded out from access to the best care. Over the years, by a kind of eligibility bracket creep, more and more well-to-do people have gained access to Medicaid LTC benefits without the inconvenience of spending down their savings to pay privately for nursing home or home care first. High income people qualify because Medicaid deducts their private health care expenditures from their income before applying an income test. Most elderly people in need of LTC have high private health costs so they qualify easily based on income. For example, if a private nursing home costs $10,000 per month, a Medicaid applicant with that much income would qualify for Medicaid, transferring the cost of the nursing home and other medical expenses to the program. While the patient’s income would still go to the nursing home to offset Medicaid’s cost for the care, the facility would receive only Medicaid’s below-cost reimbursement rate instead of the much higher private pay rate. The Medicaid rate, at about two-thirds of the private pay rate, severely inhibits the facility’s ability to provide quality care for LTC patients on the program. Likewise, people with high assets routinely qualify for Medicaid LTC benefits, even when countable assets are officially limited to $2,000 as in most states, because nearly all of the elderly’s large assets are exempt from any spend down requirement. Such exempt resources include most home equity, up to $1,097,000 in some states but never less than $730,000 in any state except California, which eliminated the asset test altogether making the home equity limit moot. Also exempt, in unlimited amounts, are one business, tax-favored retirement savings, a vehicle, prepaid burial funds, personal belongings and home furnishings. As few states enforce mandatory estate recovery, most of these exempt resources pass unencumbered to heirs who reap a windfall from funds Medicaid protected from their parents having to pay privately for their own LTC. The two trends in Medicaid policy just described—new able-bodied, working-age adults capturing one-fifth of the program’s spending in the past 15 years while high income and high asset people increasingly qualify easily for LTC without first spending down their wealth—are converting Medicaid from a safety net for the needy into an entitlement for the indolent and affluent. There should be little wonder why few people take the risk and cost of future LTC seriously enough to save, invest or insure in preparation. Nor should we be surprised that so little private spending goes to pay for LTC as this table of National Health Expenditure data shows:
Only 12.9 percent of total LTC spending comes “out of pocket.” But even that low amount is deceiving as it includes income people on Medicaid must contribute to offset the program’s cost for their care. Removing that income, mostly from Social Security benefits, we find that only about 6.5 percent of total LTC spending, $1 out of $15, could come from asset spend down. No wonder people don’t worry about LTC until they need it and gravitate quickly to Medicaid when costs of care escalate. For these reasons, America’s LTC financing system is rapidly spiraling into an inadequately funded, welfare-based, centrally planned, government-run failure that serves no one well, and especially not the neediest aged and disabled recipients it is supposed to have served primarily. How can we reverse this process of collapse? Step one is to remove the ACA expansion group from Medicaid eligibility or, short of that, to radically reduce their federal matching rate so that states have no special incentive to add them compared to supporting traditional coverage groups such as poor women, children, the aged and disabled. Step two is to divert the middle class and affluent toward early planning for LTC and away from eventual dependency on Medicaid. Achieving that objective requires tightening Medicaid LTC financial eligibility rules, enforcing mandatory estate recovery, and prohibiting the use of special trusts and annuities to qualify while sheltering large sums of wealth. For details on how to do that, see the Paragon Health Institute’s “Long-Term Care: The Problem,” “Long-Term Care: The Solution,” and Medicaid's $100+ Billion Leak. If we give Medicaid back to truly needy poor women and children, the aged and disabled, what can we expect to happen? Medicaid census will plummet. Covering many fewer genuinely eligible recipients, the program will be able to pay market rates for services across the LTC spectrum: home care, assisted living and nursing home care. That will end the discrimination against Medicaid recipients that occurs because LTC providers are desperate to attract private payers at 1.5 times the rate Medicaid pays. It will end the “LTC racism” that occurs when the needy are crowded out from the best nursing home and home care services because they lack “key money” to pay privately for a while which opens doors to the best care for the affluent. But where will the money come from to pay private rates to LTC providers across the care spectrum? Money in the U.S. economy for this purpose is not in short supply. It is simply diverted from funding LTC by Medicaid financial eligibility policies that discourage its use. In fact, Americans own $97 trillion in retirement savings ($40T), home equity ($35T), and life insurance ($22T) that could go to pay for their LTC when needed if it were not diverted from that purpose by generous Medicaid income and asset eligibility rules. More importantly, if and when that wealth becomes liable for LTC funding due to changing Medicaid rules as recommended above, the public will act early and responsibly to protect it against LTC risk and cost thereby unleashing a long dormant market for private LTC insurance. All that is needed is to resolve the glaring contradiction in public policies that on the one hand reward accumulation of wealth, such as tax-favored IRAs and 401(k)s that build nest eggs, subsidized mortgages and mortgage-interest tax deductions that grow home equity, and tax-deferred growth and tax-free death benefits that boost life insurance cash value, and on the other hand divert those private assets from LTC spending by making Medicaid financial eligibility so easy to achieve while preserving wealth. The secret to fixing LTC is to keep those public policies that grow wealth, but to repeal the policies that divert that wealth from paying privately for LTC. Doing that will flood the LTC service delivery system with desperately needed market-rate revenue and unleash the suppressed potential of private LTC insurance. Everyone will be better off including the genuinely needy who will receive better care from Medicaid and most Americans who will access better care as private payers. Changes of this nature and magnitude are a big ask, but they are based on evidence and sound reasoning. Nothing ventured, nothing gained. |
