States may be creating long-term care problems
The American Legislative Exchange Council (ALEC), a conservative think tank for state legislators, says that by making Medicaid nursing home benefits routinely available to virtually anyone since 1965, the United States has created a "nursing-home based, welfare-financed, long-term care system that fails everyone, especially the poor."
A report issued by ALEC and the Council for Affordable Health Insurance said the problem is not that too little government money is spent on long-term care, but rather that too much is spent in the wrong ways.
"A number of states have recognized the crisis and are moving to address some of the problems," the report said. "Others states are adopting shortsighted policies, or refusing to enforce current laws, and thus are only making the problems worse."
An examination of 10 states
The paper looked at what is happening in 10 states — five that could be considered pro-Medicaid and five pro-private pay states. The pro-Medicaid states (Georgia, Michigan, New York, New Mexico, and Texas) are those that make it especially easy to qualify for Medicaid and seldom enforce estate recovery rules, ALEC said, meaning the states would be expected to score relatively low on long-term care insurance and home equity conversion market penetration and relatively high on Medicaid nursing home census.
Four of the five proved to have relatively generous eligibility systems, and four of the five reported zero estate recoveries in 2002. All five had the lowest possible long-term care insurance market penetration.
Three of the five scored in the bottom half of states for home equity conversion, all five scored in the top half of states for Medicaid nursing home census, and three of the five were in the top half of states for home- and community-based services.
States scored as expected
Of the private-pay states studied (California, Connecticut, Minnesota, Nebraska, and Oregon), four were found to have relatively strict Medicaid eligibility systems and four were among the top half of states in estate recoveries. These states were expected to score relatively high on long-term care insurance and home equity conversion market penetration and relatively low on Medicaid nursing home census.
The report said that all five scored higher on long-term care insurance market penetration than the pro-Medicaid states, four of the five scored in the top half of states for home equity conversion market penetration, and three of the five were in the lower half of states for Medicaid nursing home census.
"The easier Medicaid is to obtain and the more attractive its long-term care benefits are, the less likely people will be to plan early and pay privately for long-term care and the more likely they will be to become dependent on public assistance," the ALEC report said.
"What we need to do to correct the problem is to target scarce public resources to the genuinely needy and create a real long-term care spend-down liability. If we do, most people will voluntarily save, invest, or insure to prepare for the risk and cost of long-term care, thus relieving the financial burden on Medicaid. This is the only way to save Medicaid for the poor and improve long-term care for everyone," it noted.
ALEC said paid long-term care is usually provided in three venues — the home, an assisted-living facility, or a nursing home. It is financed primarily by three sources — private pay, Medicaid, or Medicare.
In 2002, the United States spent $36.1 billion on home care, of which Medicaid and Medicare paid 55.4% and private insurance paid 18.6%. Only 18% of home care health costs were paid privately out of pocket. By contrast, assisted-living facilities, which cost an average of $28,548 per year, are 90% private pay.
For nursing homes, which cost Americans $103.2 billion in 2002, Medicaid accounted for nearly 50% of reimbursements, private pay covered about 25%, Medicare was responsible for about 12%, and private health insurance about 6% (the remainder is mostly made up from other public sources).
Impact underestimated
ALEC said the numbers, while accurate, are misleading because they vastly underestimate the impact of Medicaid and overstate the degree of private financing of long-term care.
"For example," the report said, "although Medicaid only pays for about half of nursing home expenditures, it covers two-thirds of all nursing home residents and affects almost 80% of all patient days. That’s true because people on Medicaid have to contribute their personal income toward their cost of care and because Medicaid residents tend to stay longer in nursing homes than private-pay residents. These facts are critical because Medicaid’s low reimbursement rates severely impair the nursing home profession’s ability to provide quality care for nearly four-fifths of all residents."
ALEC also said beneficiary income rarely is an obstacle to Medicaid long-term care benefits as long as medical expenses are high enough. Only the top 10% to 15% of seniors would have too much income to qualify. In addition, according to the report, most states allow individual Medicaid applicants to retain at least $2,000 in otherwise nonexempt liquid assets. Medicaid also exempts the home and all contiguous property regardless of value.
If beneficiaries express a subjective "intent to return" to the home, it remains exempt, whether or not there is any medical possibility that the patient actually will ever be able to return.
Medicaid also exempts one business, including the capital and cash flow, of unlimited value; a prepaid burial space for the beneficiary, spouse, or any other family member, regardless of value; unlimited term life insurance, home furnishings up to $2,000, although they are rarely counted; and one car of unlimited value assuming it’s used for the beneficiary’s benefit.
Reverse mortgages a solution?
ALEC’s proposed solution keys to the fact that 81% of seniors own their home, and 73% of elderly homeowners own their homes free and clear.
"Nearly $2 trillion worth of home equity is held by seniors that could go to offset the cost of long-term care — enough money to solve the long-term care financing crisis now and in the future," the report said. "The key is expanding home equity conversion."
ALEC pointed out that people 62 and older can obtain a reverse annuity mortgage that gives them either a lump sum or monthly payments indefinitely as long as they remain in their home. The proceeds can be used for any purpose. Recently, the Centers for Medicare & Medicaid Services (CMS) and the National Council on the Aging have encouraged use of home equity to pay for long-term care.
One solution, according to ALEC, would be for federal law to require homeowners to consume their home equity by paying for long-term care through a reverse annuity mortgage before becoming eligible for assistance from Medicaid.
"That approach would prevent Medicaid from being inheritance insurance for baby boomer heirs as it is now, and it would wake up the boomers to the risk and cost of long-term care," the organization said. "With home equity genuinely at risk, most people would plan early to save, invest, or insure for their long-term care needs. They would be less likely to ignore the problem until it’s too late, as they do now, because if they did, they would have to consume their biggest asset before receiving public assistance," it added.
Allow Medicaid to do main job
"With fewer people dependent on Medicaid, that program would be able to do a better job for its proper clientele — the poor. Medicaid could afford to offer home and community-based care, and perhaps it could even pay long-term care providers something closer to market rates.
"When people spend their own money, or their insurer’s money, they are much less likely to go to nursing homes until they need that higher level of care. That fact will breathe financial oxygen into the home- and community-based services infrastructure and, over time, eliminate the system’s institutional bias," the report noted.
Under current federal law, states can’t extend the transfer of assets look-back period to a decade or require home equity spend down with a reverse annuity mortgage. But ALEC said there are several ways to address that problem:
1. Congress could amend the Social Security Act to remove Medicaid’s perverse incentives that discourage responsible long-term care planning.2. States could accept the Bush administration’s capped block grant proposal that would provide extra money up front and give them greater control over Medicaid eligibility.
3. States could ask CMS for a waiver to extend the look-back period and amend other eligibility rules.
The most important thing states can do is control eligibility, ALEC said. "Many states have tried to reduce costs and improve service delivery by de-emphasizing nursing home care and encouraging home- and community-based services. But in so doing, they’ve made their Medicaid programs more attractive and private financing less attractive," it explained. "If they could control eligibility, however, so that people would access Medicaid only after consuming home equity, fewer people would become dependent on Medicaid, and the state could better afford to provide the most attractive home- and community-based services and pay adequately for them," ALEC concluded.
(For more information, go to www.alec.org.)
The American Legislative Exchange Council (ALEC), a conservative think tank for state legislators, says that by making Medicaid nursing home benefits routinely available to virtually anyone since 1965, the United States has created a nursing-home based, welfare-financed, long-term care system that fails everyone, especially the poor.
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