"'Mr. and Mrs.
Jones, if you don't buy this long-term care insurance policy from me,
you could lose your whole life savings to the catastrophic costs of a
long-term nursing home stay.' Long-term care
insurance agents repeat that sentence with only minor variations
thousands of times every day throughout the United States. But this
traditional sales pitch has two major flaws: it is untrue and it usually
fails."
LTC Comment: I wrote those words and backed them up with data, analysis
and recommendations for a solution in a 1996
National Underwriter article. Special thanks to Lori Fjelstad of
GoldenCare USA for bringing the fact to my attention that
LifeHealthPRO is circulating the piece anew. Little has changed in
the 16 years since it was published. We've closed a few Medicaid
loopholes but enough remain open that most middle class people qualify
easily for publicly financed LTC benefits and the wealthy can still
wangle the best Medicaid beds with help from their elder lawyers. If you
harbor any doubts, read our most recent report: "The
Maine Thing About Long-Term Care Is That Federal Rules Preclude a
High-Quality, Cost-Effective Safety Net
."
A
few things of note have changed. Assisted living--still mostly private
pay, but going to Medicaid fast all across the country--is a much bigger
part of LTC now than in 1996. Nursing homes provide less long-term
custodial care and have much higher acuity patients. LTCI market
penetration is closer to 10% than 6%, but still too low. In the dozen
states that put any limit on income for Medicaid eligibility, it's now
$2,094 per month instead of $1,410. Spousal impoverishment protections
have increased from $1,919 to $2,841 per month in income and from
$76,740 to $113,640 in assets. Bottom line, Medicaid has crowded out
private LTC insurance protection now for nearly 50 years instead of the
30 years I referenced in the article.
One thing hasn't changed at all: the solution. Target Medicaid to its
originally intended clientele, the poor, and use some of the vast
savings to incentivize everyone who is healthy, young and prosperous
enough to plan early and save, invest and insure for LTC. Therein lies a
solution to Medicaid's financial problems and a way to supercharge LTCI
sales. And therein lies the Center for LTC Reform's ongoing mission.
----------------------------------
As republished by
LifeHealthPRO, November 2012.
Link.
National Underwriter, August 5, 1996, Stephen A.
Moses
"Mr. and Mrs. Jones, if you don't buy this long-term
care insurance policy from me, you could lose your whole life savings to
the catastrophic costs of a long-term nursing home stay."
Long-term care insurance agents repeat that sentence
with only minor variations thousands of times every day throughout the
United States. But this traditional sales pitch has two major flaws: it is
untrue and it usually fails.
Private long-term care insurance will not capture much
more than its current 6 percent of the senior market until insurance
executives, brokers and agents discard the myth of long-term care
financing and confront the reality.
The myth is that millions of middle-class Americans
spend down their life savings on nursing home care until they impoverish
themselves and qualify for Medicaid benefits. If this were true, people
would eagerly purchase private long-term care insurance to avoid such a
catastrophe.
The reality is that most seniors qualify easily for
Medicaid nursing home benefits and almost anyone, regardless of income or
assets, can qualify quickly without spending down. Because this is true,
most people hesitate to pay long-term insurance premiums for protection
that the government is giving away.
Consider these little-known truths:
Medicaid pays for 73.7 percent of all nursing home
patient days in the United States even though only 12 percent of the
elderly are poor.
Direct and indirect government payments by Medicaid,
Social Security, Medicare and the Department of Veterans Affairs account
for almost 80 percent of all nursing home costs nationally.
Dozens of recent academic studies prove that only 10
percent to 25 percent of Medicaid nursing home recipients began as private
payers, instead of 50 percent to 75 percent as previously thought.
Even those few who "spent down" to qualify for Medicaid
may have impoverished themselves artificially instead of paying for
long-term care out of pocket.
Most state Medicaid programs place no limit on how much
income recipients can receive as long as their medical expenses (including
nursing home care) are high enough.
Even states that limit income to $1,410 per month allow
people to siphon any excess income into "Miller" trusts so they can
qualify immediately.
The often-quoted limit on assets of $2,000 is
meaningless because Medicaid recipients can also retain a home, car,
personal property and many other assets of practically unlimited value.
Married recipients can also shift up to $1,919 per month
of income and $76,740 in assets (much more if they know a simple trick) to
a spouse at home and still remain eligible.
Thus, the average person who needs nursing home care has
no trouble qualifying for Medicaid benefits immediately. But, what about
people with hundreds of thousands of dollars?
All the rich folks need to do is retain good legal
advice. Medicaid estate planners specialize in divesting or diverting
income and assets to qualify the well-to-do for Medicaid, often virtually
overnight. Popular Medicaid planning techniques recommended by private
attorneys and mass-marketed how-to books include:
Purchase exempt assets such as an expensive home or car.
Set up a Medicaid trust.
Transfer a home while retaining a life estate.
Pay children for their help.
Get a divorce.
For example, at a recent Medicaid planners' conference
in Cambridge, Massachusetts, three nationally prominent attorneys
portrayed their techniques for divesting an older couple's $652,550 estate
in a humorous skit. To a packed auditorium, these experts explained how to
make non-exempt assets disappear including a vacation home in Florida,
$150,000 worth of stocks, another $150,000 in savings and $20,000 of
cash-value life insurance. They took full advantage of exempt assets such
as a $200,000 house, home furnishings of $40,000 and a $15,000 car. The
couple's $3,158 monthly income barely warranted discussion as it presented
no significant obstacle to Medicaid eligibility. Legal fees for these
services were quoted at $275 per hour.
The government took action recently to stop this misuse
of public benefits. President Clinton's first budget, the Omnibus Budget
Reconciliation Act of 1993, attempted to curtail Medicaid loopholes and to
mandate recovery of Medicaid expenditures from recipients' estates.
Unfortunately, the Medicaid planning bar has circumvented these new rules
and continues to exploit Medicaid with impunity.
Bottom line: In America today, people can (and in fact
do) ignore the risk of long-term care, avoid the premiums for private
insurance, wait to see if they ever need institutional long-term care and
transfer any catastrophic long-term care costs to the taxpayers if and
when the dreaded event occurs.
In a nutshell, we already have de facto National Health
Insurance for nursing home care. This is the real reason why so few
Americans plan ahead and purchase long term care insurance in the private
marketplace.
Advocates of public financing for long term care and
enemies of private financing might reasonably ask: "So what's the problem.
Why not build up Medicaid instead of promoting private insurance?" The
answer to this question is the crux of the long-term care financing
problem and the key to its solution.
Medicaid is a means-tested public assistance program. It
is welfare. The program has a dismal reputation for access, quality,
reimbursement, discrimination and institutional bias. According to the
United Seniors Health Cooperative, Medicaid pays nursing homes less than
the cost of providing the care. Consequently, good nursing homes have to
attract full-pay private residents and Medicaid recipients often face long
waiting lists even for inferior facilities. For the home and
community-based services that seniors prefer, Medicaid financing is
usually unavailable altogether or inadequate.
Despite these deficiencies, Medicaid costs have
increased so sharply in recent years that the program now consumes over 20
percent of state budgets, up from 10 percent only a few years ago. Today,
the program rivals education for consumption of scarce state tax revenues.
Congress is deliberating now on how to eliminate the entitlement status of
Medicaid and reduce its rate of growth by half. The program already fails
to cover two-thirds of the elderly poor and half of all poor children even
for acute or emergency care. Soon, states will have to cut back on program
benefits even more than they have in the past.
As Medicaid careens down a slippery slope of insolvency,
throngs of misguided advisers still counsel healthy, middle-class seniors
to plan for its dubious benefits. Such advisers are not limited to
high-priced attorneys profiteering on the unwary. They also include
insurance agents who sell low-cost, three-year policies on the grounds
that "you can save premium dollars, transfer your assets when you enter a
nursing home, and legally get Medicaid to pay when your insurance runs
out." This is the same reasoning that underlies the popular, but
ill-advised "Connecticut Partnership" program. Obviously, no
clear-thinking person in possession of all the facts would coordinate
benefits with a welfare program that is going bankrupt.
Make no mistake. Seniors are not planning consciously to
rely on Medicaid instead of buying insurance. But the Medicaid safety net
has protected middle-class families for 30 years from the financial
consequences of long-term nursing home stays. This protection has enabled
the denial that is the immediate cause of their failure to plan ahead and
insure.
Every long-term care insurance agent has heard the
refrain: "It won't happen to me. I'll never go to one of those places. I'd
shoot myself first." When the time comes to enter a nursing home, however,
the infirm elder is usually cognitively impaired and unable to make
independent decision. Tragically, this is precisely the time when heirs,
who have a huge conflict of interest, make all of the health care and
financial decisions. "Shall I use Dad's money to buy red-carpet access to
top quality private care for him or shall I retain the services of a
Medicaid estate planner and preserve my inheritance by putting him in a
welfare home?"
The solution to this problem is simple. We have to give
Medicaid back to the poor people it was originally intended to serve. We
also have to give the middle-class a genuine incentive to plan ahead,
purchase insurance and pay privately for long-term care. To cut them out
of Medicaid cold-turkey, however, is neither desirable nor politically
feasible. The answer is to convert Medicaid from a grant to a loan for the
middle class. When they know they will have to pay every penny back to
Medicaid from the estate before it passes to heirs, both seniors and their
heirs will put together, plan ahead, insure privately and stay off
welfare.
The American Legislative Exchange Council recently
endorsed a model state statute entitled "The Senior Financial Security
Program Act" to achieve this goal. The legislation implements
recommendations from a long series of studies conducted nationwide and in
numerous states by the Health Care Financing Administration, by the Office
of Inspector General of the U.S. Department of Health and Human Services
and by LTC, Incorporated.
Stephen A. Moses is director of research for LTC
Incorporated, a Seattle firm specializing in private long-term care
financing and insurance. |
