LTC Bullet: Biased LTC Scholarship Misinforms Policymakers

Friday, September 2, 2022

Seattle—

LTC Comment: Government-funded, ideologically biased research causes bad policy decisions, as we explain after the ***news.*** [omitted]

LTC BULLET: BIASED LTC SCHOLARSHIP MISINFORMS POLICYMAKERS

LTC Comment: It’s no wonder so many policymakers want a new, compulsory, centrally planned, taxpayer-funded, budget-busting, LTC entitlement program when the researchers they pay for advice blank out or misrepresent information critical to good decision making. When policymakers believe falsely that Medicaid requires impoverishment and that wide swaths of the American public are being wiped out financially by private LTC expenditures, of course they’re tempted to impose a government solution from on high.

I explained what I mean by that and gave examples in How to Fix Long-Term Care Financing (pages 13-18). In a nutshell, many “progressive” analysts equivocate on terms like “impoverishment,” “spend down,” “Medicaid planning,” and “out of pocket.” They do not interview the right people to learn how individuals qualify for Medicaid without spending down personal wealth and they rely on widely accepted data sources that are actually highly dubious in this regard (HRS and AHEAD). Such analysts ignore or misrepresent important facts and emphasize only information that confirms their biases.

In “LTC Bullet: LTC Center Standing Guard,” I listed and linked to 100 LTC Bullets in which we analyzed and critiqued biased scholarship tending to promote public LTC funding and to discourage private financing alternatives. Today we add another example to that list. To wit:

Richard W. Johnson and Melissa M. Favreault, “Economic Hardship and Medicaid Enrollment in Later Life: Assessing the Impact of Disability, Health, and Marital Status Shocks,” published by the U.S. Department of Health and Human Services Office of the Assistant Secretary for Planning and Evaluation, January 31, 2021, https://aspe.hhs.gov/reports/economic-hardship-medicaid-enrollment-later-life#results.

What follows are quotes from that study Johnson & Favreault and our LTC Comments in reply:

Johnson & Favreault: “This report assesses the financial security of older adults and examines the role that disability, health, and marital shocks play in economic hardship in later life. … We also focus on enrollment in Medicaid, which is available only to people with very limited financial resources.” (p. 2)

LTC Comment: J&F have a lot of interesting things to say about “economic hardship in later life,” but we’ll focus on their comments regarding Medicaid LTC eligibility, especially the idea that it is “available only to people with very limited financial resources.”

Johnson & Favreault: “Many older adults have amassed significant wealth over their working years that can supplement their income. Wealth holdings at older ages are becoming increasingly common as employers replace traditional defined-benefit pensions, which provide retirees with a steady income stream that lasts until death, with retirement plans that provide workers with retirement savings accounts to which both employees and employers contribute.” (p. 4)

LTC Comment: Good point. There’s a lot of wealth held by aging Americans in IRAs and 401Ks, and far more residing in home equity. But how much of this financial wherewithal finds its way into paying for long-term care?

Johnson & Favreault: “About 70 percent of adults develop serious LTSS needs after age 65 (Johnson 2019). …The onset of nursing home care and cognitive impairment has the largest impacts on household wealth.” (p. 6)

LTC Comment: OK, now we know that aging people possess huge amounts of liquid and illiquid financial resources and they have a high risk of very expensive long-term care. Again, are they actually spending that money on long-term care? Is there any evidence?

Johnson & Favreault: “Relatively few older adults with significant wealth deplete their holdings before they die, and those who spend their savings usually experience significant health shocks (Table 3).” (p. 6)

LTC Comment: Interesting, but more of the same. Most older adults don’t deplete their wealth but those who do experience health shocks. So does that latter group spend their money on health and LTC? Are we supposed to presume so? Apparently, but empirical evidence that such spend down is actually happening would be very helpful. But none is offered.

Johnson & Favreault: “Another indicator of economic hardship is Medicaid enrollment. Because people qualify for Medicaid only if they have virtually no assets, except for a home, and very little income, receipt of Medicaid benefits is a strong indicator of financial vulnerability.” (p. 7)

“Medicaid enrollment is a reliable indicator of economic hardship because people qualify only if they have very low income (after covering health care costs) and few assets.” (p. 10)

LTC Comment: Wait a minute. Eligibility for Medicaid proves economic hardship? That’s a circular argument as I explained in “LTC Bullet: Begging the LTC Question.” Turn it around and you have: there’s no hardship if people can qualify for Medicaid while preserving wealth. Is that what these analysts really believe? Evidently so as it follows logically. Read on.

Johnson & Favreault: “Adults ages 65 and older may qualify for Medicaid if they have virtually no assets, except for a home, and very little income. The program’s asset test limits Medicaid eligibility to people with no more than $2,000 in countable assets if single and no more than $3,000 in countable assets if married. Countable assets exclude the value of the home and such things as automobiles, household goods, the surrender value of life insurance, and burial funds.” (p. 7)

LTC Comment: What’s wrong with this picture of Medicaid LTC eligibility? J&F want us to believe that Medicaid LTC financial eligibility rules force people to spend down their wealth even though they provide no evidence that actually happens and they acknowledge “countable assets exclude” practically all wealth seniors hold. Those excluded assets include up to between $635,000 and $955,000 of home equity depending on the state and, with no dollar limit at all, one business, individual retirement accounts, term life insurance, burial funds for the immediate family, household goods and personal effects including heirlooms. Does Medicaid require people to spend any remaining countable assets for LTC as J&F imply? No. People can spend their countable assets on anything they want, including non-countable assets. So anyone with too much countable wealth can qualify quickly and easily by purchasing exempt assets such a house, car, or diamond ring (represented to be a family heirloom). Converting countable into non-countable assets in this way is the easiest and single most common technique of Medicaid planning.

Johnson & Favreault: “A single SSI beneficiary without earnings who does not receive Social Security or other income, like a state supplement could receive no more than $771 in monthly income in 2019 (equivalent to $9,252 per year), well below the FPL. Many states extend Medicaid eligibility to people with income up to 138 percent of the FPL.” (p. 7)

LTC Comment: Oh, so you must be desperately income-poor to qualify for Medicaid LTC benefits? Not so fast. They admit there’s more to it.

Johnson & Favreault: “Many states account for individuals’ health care spending when determining Medicaid eligibility by subtracting applicants’ out-of-pocket costs for medically necessary services and supplies from their countable income. This adjustment essentially allows people to ‘spenddown’ their income until they qualify for Medicaid. Other states achieve similar outcomes by allowing applicants to assign that portion of their income that exceeds the Medicaid income threshold to a special trust used to help cover service costs. The state receives any funds remaining in these trusts after a Medicaid enrollee’s death, up to the amount the state paid in Medicaid benefits.” (p. 7)

LTC Comment: Oh, Medicaid income eligibility rules are not so draconian after all. In fact, in the real world, unconfused by academic obfuscation, the rule of thumb is that anyone with income below the cost of a nursing home—easily $8,000 per month—qualifies based on income assuming their private health and LTC expenditures are high enough, as they usually are for aged people in need of expensive health and long-term care. Bottom line, neither the possession of substantial assets nor high income interferes with Medicaid LTC eligibility for people who know and take advantage of the rules or seek professional legal assistance to help them qualify.

Johnson & Favreault: “Despite concern that some older adults game the system by transferring wealth to their children to qualify for Medicaid, there is little evidence that this practice is widespread, especially after the 2005 Deficit Reduction Act tightened Medicaid eligibility rules (Baird, Hurd and Rohwedder 2016).” (p. 8)

LTC Comment: Here J&F give lip service to the possibility that people can qualify for Medicaid LTC benefits without spending down. But lip service is all it is. Asset transfers are only a minor form of Medicaid planning, the tip of the iceberg. J&F focus on asset transfers to divert attention from far more common methods. Purchase of exempt assets is by far the most frequently used and costly (to taxpayers) technique. But there are dozens of ways to shelter wealth. See this list for example: https://www.medicaidplanningassistance.org/medicaid-planning-techniques/. What exposes these researchers’ intellectual dishonesty is their total failure to acknowledge the widespread practice and methods of Medicaid planning as well as the vast professional legal literature on how to do it. For a history and bibliography of Medicaid planning over the past four decades see pages 34-65 in How to Fix Long-Term Care Financing.

Johnson & Favreault: “Older adults who develop serious LTSS needs account for 77 percent of Medicaid enrollees in the bottom lifetime earnings quintile, 79 percent in the second quintile, 87 percent in the middle quintile, 91 percent in the fourth quintile, and 90 percent in the top quintile (numbers not shown in the table). Serious LTSS need is a relatively weak predictor of Medicaid enrollment for older adults with limited lifetime earnings because their limited financial resources often qualifies them for benefits even without receiving paid LTSS and spending down some of their wealth.” (p. 18)

LTC Comment: So, poor people qualify for Medicaid? Not exactly news. But people who need LTC account for 91% of Medicaid enrollees in the fourth income quintile and 90% in the top quintile? That’s more believable. But how can it be so if Medicaid financial eligibility restrictions are as severely limiting as these analysts insist? Simple. It isn’t true and the researchers are wrong about Medicaid LTC eligibility.

Johnson & Favreault: “Although many middle-income older adults have savings they can use to supplement their incomes and help make ends meet, they run the risk of depleting their wealth if out-of-pocket health care costs persist, which could force them to turn to Medicaid. We project that 25 percent of older adults in the middle lifetime earnings quintile enroll in Medicaid after age 65. Nearly nine in ten of these older middle-class Medicaid enrollees have serious LTSS needs.” (p. 20)

LTC Comment: Thus, Johnson & Favreault conclude their paper. They say middle class people run the risk of depleting their wealth due to high health and LTC expenses. But they provide no empirical evidence whatsoever that this actually happens. They fail to recognize the simple reality that Medicaid financial eligibility rules are generous and elastic allowing people who choose that course to qualify for Medicaid without spending down assets significantly for care and despite having substantial incomes. There’s little wonder remaining why government, in this case USDHHS-ASPE, finances such research. To gain power and control, to promote more public financing and regulation of the LTC market, it helps to have research reports that say the public is devastated by catastrophic costs and existing programs like Medicaid aren’t doing enough. The opposite is true. Medicaid does too much and does it after care is needed when it is too late for people to save, invest or insure responsibly against the LTC risk. The only true solution to this real problem is to move LTC risk and cost forward in time so responsible people can prepare. See Frontload LTC for details.