LTC Bullet: Frontload LTC

Friday, July 15, 2022

Seattle—

LTC Comment: If you want consumers to take the risk and cost of long-term care seriously enough to prepare for them, make the responsibility real and move it forward to now. We explain after the ***news.***

*** LTC CLIPPINGS are news items we send to Center Premium Members daily with news, data, studies, and information they need to know to stay at the professional forefront. Steve Moses scans the popular and scholarly media, condenses vital information, and forwards to you a message with the title, author, a link, a representative quote and his “LTC Comment” analyzing the significance. Don’t miss any more LTC Clippings. To subscribe contact Damon at 206-283-7036 or damon@centerltc.com. Here are three examples of need-to-know LTC clippings we sent recently:

7/11/2022, “Medicaid Financial Eligibility in Pathways Based on Old Age or Disability in 2022: Findings from a 50-State Survey,” by MaryBeth Musumeci, Molly O'Malley Watts, and Meghana Ammula, KFF
Quote: “This issue brief presents state-level data on Medicaid financial eligibility criteria and adoption of the major non-MAGI pathways as of January 2022. It includes mandatory and optional pathways to full Medicaid eligibility as well as state options to expand Medicaid financial eligibility for people who need long-term services and supports (LTSS) in nursing homes or other institutions or in the community.”
LTC Comment: I’m often asked about state-level Medicaid financial eligibility rules. Today I have good news and bad news. The good news is that this publication by the Kaiser Family Foundation has tons of that information. The bad news is that Medicaid eligibility is so complicated—a Serbonian bog according to one jurist—that you may not be able to make much sense out of it. Still, this is a very valuable resource for those of us who can’t just shake our heads in dismay and ignore the subject. For the rest of you, here’s a useful, and much simpler, rule of thumb. Anyone with income less than the cost of a nursing home can qualify for Medicaid LTC benefits. Assets don’t matter because the big ones are exempt and the rest can easily be converted to exempt status. Is it any wonder people don’t worry about paying for LTC until they need it?

6/2022, “Long Term Care State Payroll Tax Update,” BuddyIns
Quote: “This update is intended for our community of LTC planning advocates and insurance practitioners to stay up-to-date on the latest legislative news that we are following at BuddyIns. This is not a comprehensive assessment, so please email us with any news from your neck of the woods.”
LTC Comment: Thanks to BuddyIns for this update on a question I’m probably asked more than any other: which states are doing what about LTC financing? What all the state initiatives have in common is to rely on the threat of government force to impose compulsory participation in social insurance plans on the model of existing, failed federal entitlement programs. Watch for this coming Friday’s [now today’s] “LTC Bullet: Frontload LTC” for a better solution grounded in personal responsibility and individual freedom. 

7/4/2022, “The Supreme Court just put regulatory oversight on notice,” by John O’Connor, McKnight’s LTC News
Quote: “By any measure, the Supreme Court just wrapped up one of its more memorable sessions. … But the decision that may most directly affect long-term care providers was actually directed at the Environmental Protection Agency. And its potential impact on skilled care might be hard to overestimate. … The majority opinion, written by Chief Justice John Roberts, claimed the agency’s heightened emissions rules were a ‘fundamental revision’ of existing law. He added that it’s up to Congress, not the EPA, to make ‘a decision of such magnitude.’”
LTC Comment: What’s that got to do with long-term care? O’Connor explains: “Talk about the importance of timing: Just one day earlier, the Centers for Medicare & Medicaid Services proposed regulations that would allow surveyors to use payroll data to investigate staffing rules violations, force facilities to hire infection preventionists, and revamp arbitration requirements, among other provisions. … And it’s not just these latest rules for nursing homes that could come under fire. Any regulation that arguably steps over the line would appear to be fair game. So how big is the Supreme Court’s EPA ruling? Let’s put it this way: Regulatory oversight might never be the same.” Let’s hope the ongoing, long growing tyranny by bureaucrats is finally curtailed. ***
 

LTC BULLET: FRONTLOAD LTC

LTC Comment: The fundamental problem with long-term care is that people don’t worry about it until they’re too old, frail, demented, infirm or broke to plan responsibly for it. That’s why most people who need expensive care for a long time end up relying on public financing, usually from Medicaid. But Medicaid is welfare and “programs for the poor are poor programs.” So too many people needing long-term care are stuck in underfunded nursing homes or waiting in long lines (665,000 deep) for scarce, waivered home care slots. What’s to be done?

Governments, federal and state, think they have a solution. If people won’t take responsibility to plan for long-term care before it’s too late, then force them to do it. Require companies to charge employees payroll deductions to create trust funds that can pay benefits when covered individuals qualify. Whether federal (WISH Act) or state (WA Cares) the principle is the same in such proposals: use the government’s monopoly on the legal use of force to compel people to prefund their long-term care. But we’ve seen that principle at work already in Social Security and Medicare, two entitlements on the brink of insolvency with unfunded liabilities totaling $56 trillion. Do we really want to go there again?

What else might work? We know what didn’t work. The federal government tried telling people that if they don’t prepare for long-term care but need it later they could lose their life’s savings. That might have worked if it had been true. But giant Medicaid asset exemptions and financial eligibility loopholes along with non-enforcement of mandatory estate recoveries defeated that plan. People who ignored the warnings and ended up needing expensive long-term care got Medicaid, often while protecting most of their wealth. So, unsurprisingly, the next generation followed suit, ignoring long-term care until they needed it, then relying on Medicaid. The long-term care system spiraled downward into its current dismal state.

What have we learned? A couple things. Threatening people with impoverishment doesn’t work if you don’t enforce it. Forcing people to pay extra taxes, premiums, or payroll deductions (whatever you want to call them), under threat of fines or imprisonment, for a promise of minimal benefits from another government program likely to become insolvent is repugnant. Voters twice rejected WA Cares and every attempt to impose a federal LTC social insurance program has proved a non-starter.

Still, we have learned something important from the government’s clumsy attempts to force people to comply with a long-term care imperative. I refer to what happened when the WA Cares program offered citizens an option to escape its mandatory payroll deductions by purchasing private long-term care insurance. Nearly half a million Washingtonians clutched that parachute and jumped. New LTC insured lives nearly tripled from 57,200 in 2020 to 153,687 in 2021 … nationwide! Who knew? People won’t buy insurance for an unknowable risk off in the distant future, but they will leap at the chance to avoid a mandatory government program right now!

Well, now we know. So is there a way to have the good result (widespread early LTC planning) without the bad outcome (compulsory government interference)? Of course. Treat the public like grownups. Explain LTC risk including each person’s responsibility to prepare for it. To wit: long-term care can and probably will happen to them some day. They have a personal responsibility to plan for it and prepare. If they do, the government will leave them alone. If they don’t, they may lose government benefits that would otherwise accrue to them or have to answer to a public or private agency entrusted with the task to establish and enforce each individual’s LTC responsibility.

How can you meet your LTC responsibility and avoid loss of your government benefits or garnishment of other income? Many ways. Buy private LTC insurance in an amount satisfactory to meet your actuarially determined risk. Carve out a portion of your home equity and earmark it to meet that responsibility. Tap your life insurance value. Set aside sufficient funds in a new IRA-like fund to be created. Obligate part of your estate, secured and recorded (unlike Medicaid estate recoveries) to fund your long-term care if needed. The possibilities are endless. All that is needed is a private entity to calculate each individual’s LTC responsibility, track it, and ensure it is met. Government could follow up with those who don’t participate voluntarily, hopefully very few, but otherwise stay out of the LTC market.

Why would people cooperate with this plan when they ignore LTC risk and cost now? Two reasons. First, they confront this risk and cost immediately, not as a maybe in the distant future. Second, they are only responsible for the risk they bring into the risk pool. Researchers found that the average individual’s LTC cost risk is $138,000 and that it could be met by setting aside and investing $70,000 now.  Obviously some people will incur more costs and some less, but removing the average risk from the risk pool will leave any remaining public responsibility, such as a vastly reduced Medicaid program, greatly relieved.

The only solution to what ails long-term care in the USA is to engage citizens to plan and prefund their risk and cost as early as possible. To do that without using government force to compel compliance, establish a legal obligation to a minimum level of individual LTC preparation and offer creative ways to meet the responsibility voluntarily. Only enforce the obligation to plan on those who do not act. Frontload long-term care!