In six years, baby boomers will start reaching the age of 85, when the need for long-term care (LTC) spikes—and more families will turn to a government health program, primarily Medicaid, to foot the bill.
Government programs fund 72.3 percent of all long-term care in the United States, according to data cited in a report by the Paragon Health Institute. Medicaid is the largest source of taxpayer funding, at 42.1 percent or $200.1 billion, while Medicare funds 18.2 percent of all LTC costs.
Dependence on these programs for LTC spells trouble ahead. Medicaid, which covers individuals of all ages, already covers a disproportionate share of seniors, while Medicare is facing insolvency.
‘Fallacy of Impoverishment’
Medicaid is the government’s health care safety net, but for LTC, it has become a hammock, says Stephen Moses, president of the Center for Long-Term Care Reform and author of the Paragon report, titled “Long-Term Care: The Problem.”
“The common wisdom is you have to become impoverished before the government helps you with long-term care, but the truth is very different,” Moses told The Heartland Daily Podcast on November 1. “I call it ‘the fallacy of impoverishment.’”
The 40-page report shows how liberal enrollment policies disincentivize families from saving for LTC and how dependence on Medicaid and Medicare has compromised care and driven out more innovative, cost-efficient options.
“It behooves analysts and policymakers to consider how public financing created and worsened LTC’s problems before proposing more of the same to fix those problems,” Moses writes.
Many attempts have been made to fix LTC, but proposals often center around a payroll tax-funded social insurance program, like Medicare, said Moses.
“Before adopting a new government program, policymakers should confront several questions [such as]: How did LTC become so dysfunctional in the first place?” said Moses.
Medicaid LTC Workaround
Moses describes how higher-net-worth individuals can qualify for Medicaid to pay for LTC.
“Income is rarely an obstacle to qualifying for Medicaid for long-term care because most states allow you to subtract your private health and long-term care costs from your income,” said Moses on the podcast. “Other states allow you to divert money into something called a Miller ‘income-diversion’ Trust, and then you qualify. Assets, likewise, are rarely a problem because most are exempt from Medicaid eligibility [guidelines].”
In many cases, families gravitate to Medicaid when they discover the cost of private LTC and the limits of Medicare coverage. The bill could easily exceed income and many families don’t think about it until it is too late. Families often turn to “Medicaid Planning” law firms which find ways to legally protect assets and exploit loopholes.
The paper gives real examples of cases documented by state governors. For example, a North Dakota couple sheltered $700,000 in liquid assets by purchasing a more expensive house, car, and annuity. Another couple qualified for Medicaid for the husband after purchasing a $900,000 annuity for the wife to receive $89,000 a month. The wife’s income was exempt from the income calculation.
“The sole purpose of those annuities is to ‘impoverish’ the Medicaid applicant as quickly as possible by transferring the funds to the spouse,” Moses said.
Cost of Care
When a senior requires care, families have several options but all of them come with shocking price tags.
A private room in a nursing home can cost $297 a day, according to the report. There is assisted living at $4,500 a month or home health aides at $27 an hour. Some families provide care on their own, but that can come with an opportunity cost because caregivers may leave the workforce.
“A third of aging people won’t need long-term care at all but 20 percent will need five or more years,” said Moses.
While families can qualify easily for government financing, Medicaid is notorious for low reimbursement rates. The report states only 7.6 percent of nursing home residents are paying privately. Home health care is not much different, with 10. 2 percent of the bill paid by private sources.
To manage low reimbursements, nursing homes became more institutional. Over time, state Medicaid programs encouraged home-based care, which faces several challenges, ranging from worker shortages and poor quality of care to more risk of waste, fraud, and abuse.
Private LTC Insurance
There are LTC policies families can purchase, but they are costly, says Moses.
“Long-term care policies are more expensive than they would have to be if it weren’t for government policies,” said Moses. “At government-imposed interest rates at near zero, the insurers couldn’t get the anticipated and needed return on their reserves, so they had to raise premiums.”
It is critical for Congress to start pushing for private options now, says Brian Blase, president of the Paragon Health Institute.
“The key is for Congress to make it more difficult for people with significant income or assets to qualify for Medicaid to finance their long-term care expenses,” said Blase. “Removing Medicaid as a long-term care safety net for the relatively affluent will incentivize people to properly plan for potential long-term expenses in the future.”
One selling point for lawmakers would be to remind voters there is a trade-off when government foots the bill, says Blase.
“Medicaid has a longstanding bias toward nursing home care that is often of low quality,” said Blase. “Private financing would open up more alternatives for people if they need long-term care, including a greater ability to receive services in their home.”
Moses is working on a second report on solutions.
AnneMarie Schieber (firstname.lastname@example.org) is the managing editor of Health Care News.
Stephen A. Moses, “Long-Term Care: The Problem,” Paragon Health Institute, October 2022: