By Stephen A. Moses

Many daunting challenges beset America's assisted living profession. Attracting reasonably priced capital, staff, and liability insurance are difficult problems. But perhaps the toughest hurdle today is to provide affordable assisted living to more seniors while avoiding the trap of "strangulation by regulation."

Many well-intentioned advocates would make assisted living affordable by paying for it with Medicaid money. Others warn "Who pays the piper calls the tune;" meaning that government money invites government control. The obvious alternative is to empower more Americans to afford assisted living by supplementing their income with home equity conversion or private long-term care (LTC) insurance. But those private market alternatives have been slow to gain popularity. So our country has settled into a disappointing status quo with progress on affordable assisted living slow, with Medicaid money scarce, and with private financing alternatives languishing. Why? What can we do about it? And who can get the job done?

Approximately 39 states have implemented Medicaid waivers to pay for assisted living. Yet the number of recipients covered and dollars spent remain small. State and federal Medicaid programs control their total LTC expenditures by offering primarily nursing home care, which most people prefer to avoid. Medicaid officials are afraid that program utilization and costs would skyrocket if Medicaid covered home care and assisted living, services most people prefer.

This "woodwork factor" of adverse selection and induced demand is not the only problem. When people can get assisted living (not just nursing homes) paid for by Medicaid, they are far more likely to hire Medicaid estate planning attorneys to qualify them for benefits without spending down. They will also be much less likely to purchase private LTC insurance, which until now has been the only way to finance assisted living without having to pay out of pocket. Thus, the more Medicaid spends for assisted living, the more it will have to spend in order to keep up with snowballing demand caused by the woodwork factor, increased Medicaid planning, and reduced LTC insurance.

Unfortunately, however, many people do not have sufficient income to pay for assisted living without assistance. Nor do most people become concerned about LTC early enough to buy LTC insurance. They wait until they confront a long-term care crisis. Then it's too late for anything but Medicaid, which has become the primary third-party payor for long-term care not just for the poor, but for the middle class as well. Finally, the public has not been willing to tap the equity in their homes to get assisted living while Medicaid still pays for nursing homes and exempts the home.

What is the answer? What if there were a way to empower consumers with limited incomes to pay for assisted living without becoming dependent on Medicaid? Most people who cannot afford assisted living, but are not destitute, are also not poor. They merely have a cash flow problem. Maybe their income is under $25,000 per year, but they own a home worth $150,000 to $200,000 free and clear and they have $100,000 or so in certificates of deposit. In fact, 80 percent of seniors own their homes and 80 percent of those own them free and clear. Seventy percent of the net worth of the median elderly household is in a home so millions of older Americans have the resources (albeit illiquid) they need to purchase assisted living.

What if we had a program that would supplement the shortfall in their income each month to empower them to pay privately for home care or assisted living? Their estate would be their collateral for a line-of-credit repayable after the death of their last surviving, exempt, dependent relative, such as a spouse or a disabled child. Such loans could be administered by private financial institutions such as banks and credit unions and would be fully collateralized by the seniors' estates, perhaps with government-backed reinsurance just in case.

Self-funded consumer accounts of this kind would give seniors back their dignity. It isn't welfare if you pay it back. They would pump much-needed private financial oxygen into the entire continuum of LTC providers. They would take the pressure off Medicaid so it could afford to pay market rates for home care, assisted living, and nursing home care for the truly poor. They would enhance the market for private LTC insurance which people would buy to avoid having to self-fund their consumer accounts. They would give the public an easy way to tap the equity in their homes to obtain quality LTC at the most appropriate level, and a strong reason to do so. They would deflate the market for Medicaid estate planning, because people would no longer have anything to gain from artificial self-impoverishment when property exemptions and divestment loopholes are gone.

Democrats should like this idea because it saves Medicaid for the genuinely needy (the fairness issue). Republicans should like it because consumer accounts encourage individual responsibility and relieve the burden on taxpayers (the fiscal responsibility issue). Everybody wins, except perhaps baby-boomer heirs who reap a windfall now when Medicaid nursing home benefits protect their inheritances from being spent on their parents' LTC. Yet, even the boomers would benefit in the long run, because they would quickly take the risk of LTC seriously and start to plan, save, invest and insure, thus protecting themselves and their children from the same outcome.

Empowering consumers to purchase the LTC they want at the level of care they prefer is a wonderful idea. This article raised some issues to consider before funding consumer accounts with Medicaid dollars. It also suggested some benefits to consider if consumer accounts could be self-funded by the consumers themselves with lines of credit on their estates. The Center for Long-Term Care Financing will gladly work with any other organization to ensure access to quality long-term care for all Americans.