To resolve persistent problems in the nation’s long-term care (LTC) system, the government must eliminate loopholes that allow people to easily qualify for Medicaid payment, concludes a report titled “Long-Term Care: The Solution,” by Stephen Moses, president of the Center for Long-Term Care Reform (CLTCR), published by the Paragon Health Institute in November.
Moses says generous Medicaid eligibility coupled with estate recovery has failed to promote adequate planning for LTC, whether through savings or insurance, and that has left the LTC safety net in danger of financial collapse.
“Too many people end up on Medicaid, which pays too little to ensure access to quality home care and causes excessive reliance on institutionalization and unpaid help from families and friends,” wrote Brian Blase, president of Paragon, in an announcement of the report’s release.
The report identifies options to empower younger and middle-aged Americans to plan responsibly using wealth held in home equity, individual retirement accounts, life insurance, and estates, and to serve seniors’ desire to see their medical needs met in the home environment rather than in institutions.
Medicaid for the Middle Class
Moses says he identified key issues threatening the viability of government-funded LTC in “Long-Term Care: The Problem,” a study published by CLTCR in 2022.
“Central planning, public funding, heavy regulation, and easy access to welfare benefits have caused most of LTC’s problems, such as nursing home bias, poor access, and quality, inadequate revenue for care providers, caregiver shortages, and the terrible emotional and financial distress for caregiving families,” said Moses.
Today, Medicaid LTC is not just a program for the poor, says Moses.
“Medicaid especially is responsible because, despite the conventional wisdom that it requires impoverishment, the program’s LTC benefits are routinely available not only to the poor but to the middle class and affluent as well,” said Moses.
The CLTCR report included real-life examples of how affluent people have received LTC under Medicaid, such as a couple sheltering $700,000 in liquid assets by purchasing a more expensive house, car, and annuity, all exempt from Medicaid’s eligibility calculation. Another example is an able-bodied wife who received an $89,000-a-month annuity while Medicaid paid for LTC for her husband.
Crisis Needed for Reform
Moses says it won’t be immediate, but politicians soon might embrace the solutions outlined in the report, “…when politicians have to make budget ends meet again,” said Moses.
“Historically we made progress with measures to constrain Medicaid LTC and aim it to the needy during and after recessions forced attention to expenditures,” said Moses. “That stopped since the Great Recession because of wide-open spending, deficits, debt, and artificially low-interest rates. The result is inflation now and (the) inability to service the national debt (in the future).”
“Something will have to be done and we’re ready with the solution,” Moses said.
In the Paragon report, Moses identifies the biggest loopholes that discourage early LTC planning, such as the purchase of exempt assets, the home equity exemption, Medicaid asset protection trusts, Medicaid-compliant annuities, and the “five-year asset transfer lookback,” which is the time-frame Medicaid uses to ensure someone hasn’t given away money or resources to qualify.
Close Asset Loopholes
Medicaid requires LTC recipients to spend down personal assets to $2,000 but doesn’t state how, says Moses, in the Paragon report, but spending down assets should be for documented health or LTC expenditures.
“Such exempt items include an expensive home and—without any dollar limit—the following: one automobile, prepaid burial plans, one business including the capital and cash flow, term life insurance, household goods, personal belongings, and even individual retirement accounts (IRAs) in many cases,” wrote Moses. “Medicaid planners routinely advise clients to maximize this path to eligibility.”
The report also proposes “a phase-in schedule” for the home equity exemption, which can exceed $1,000,000 in some states. The schedule should provide enough warning to incentivize early LTC planning “without unduly affecting people already too old to prepare.”
Other recommendations include eliminating Medicaid Asset Protection Trusts (MAPT), which allow people to shelter assets for five years before applying to Medicaid, and Medicaid-compliant annuities. The “lookback” window for asset transfers should be expanded to 20 years, not five, recommends the report.
Additionally, LTC risk and cost should be widely publicized so that once Medicaid is preserved for the truly needy, people will have far greater incentives to engage in proper planning and will find the LTC challenge less intimidating, says the report.
Eliminate Moral Hazard
“If people could not ignore LTC until they need it and get Medicaid to pay while preserving wealth, they would save, invest, or insure for the risk and be private payers when the time comes with access to the best private LTC in the home instead of a nursing home,” Moses said.
The current system creates a “moral hazard” that discourages consumers from making sound choices, says Blase.
“Most Americans possess enough wealth to fund their average LTC needs, which is about two years of home-based services,” wrote Blase. “If the average 65-year-old had $70,000 set aside for LTC, it would grow to meet that need after age 85, when LTC commonly occurs. Positive incentives to plan early and pay privately avoid the loss of freedom and high economic cost from compulsory, payroll-funded policies.”
Kevin Stone (kevin.s.stone@gmail.com) writes from Arlington, Texas.
Internet info:
Stephen Moses, “Long-Term Care: The Solution,” Paragon Health Institute, November 2023: https://paragoninstitute.org/research-paper-page-moses-ltc-solution-20231002/
Removing Medicaid Loopholes to Improve Long-Term Care – Stephen Moses, The Heartland Daily Podcast, November 7, 2023.
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