 LTC Bullet: Medicaid’s Long Con Friday, June 20, 2025 Seattle— LTC Comment: How did Medicaid swindle LTC providers, insurers, and consumers for six decades? Answers after the ***news.***
*** PARAGON ON THE OBBB: As we enter the dog days of summer, weighty questions are under consideration in Washington, DC and consequential decisions will soon be made. The Trump administration’s One Big Beautiful Bill (OBBB) touches health policy and LTC policy in significant ways. For the health policy issues at stake, follow the Paragon Health Institute’s many reports, articles and weekly newsletter. On the LTC side, stay tuned here. LTC providers worry caps on provider taxes in the OBBB will hurt state Medicaid programs and reduce providers’ already inadequate revenue stream. But I think “The Best Defense is a Good Offense” so I’m hoping McKnights LTC News will publish my draft article of that title. It proposes an amendment to the OBBB that would save the billions of dollars Republicans seek while delivering the better access to higher quality care Democrats demand. ***
LTC BULLET: MEDICAID’S LONG CON LTC Comment: The more I thought about the history of Medicaid’s role in providing and funding long-term care, the more it seemed like a decades-long confidence game. Promising to help the poor with LTC, the program instead captured LTC providers between the rock of inadequate reimbursement and the hard place of mandatory quality. Medicaid tricked insurers into offering a product the program was giving away to the same middle class and affluent people who should have bought it. And consumers, barraged with warnings that LTC could wipe out their life’s savings, were duped into complacency by the reality that when the time came, late in life, that they faced potentially catastrophic LTC costs, Medicaid always paid. The consequences couldn’t be more real if they were intentionally inflicted by a bad actor rather than the haphazard result of centrally planned, government regulated, interference in the LTC marketplace. So, I started writing. The following essay is a work in progress. There is much to change and more to add before it is complete. So take it with a grain of salt for now. And think about what a mess Medicaid has made of LTC service delivery and financing. “Medicaid’s Long Con” A "long con" is a “sophisticated and extended confidence game where a swindler slowly gains the victim's trust over a long period to eventually extract a large sum of money or other valuable assets. It involves multiple stages and careful manipulation of the victim's perception to make them believe they are in control while being subtly guided towards the con artist's desired outcome.” That definition, culled from AI, brings to mind how Medicaid, the dominant payer for long-term care (LTC) in the USA, has duped LTC providers, insurers, and consumers into making poor financial decisions and accepting insufferable economic conditions. From this perspective, let’s review each LTC player’s relationship with Medicaid one at a time. Providers Starting with its passage in 1965, Medicaid sold LTC providers (almost exclusively nursing homes at the time) a bill of goods. Reimbursements were generous at the start. With no asset transfer restrictions or estate recoveries in the beginning, new Medicaid admissions soared. Nursing homes evolved from largely Mom and Pop operations into a vast industry of big corporations maximizing revenue from the public welfare program. As Medicaid paid exclusively for nursing home care, other potential modes of service delivery, such as home care or assisted living, were stymied for decades. This sweet deal for nursing homes didn’t last long. Medicaid LTC expenditures exploded from the start. To control costs, state Medicaid programs reduced reimbursement levels. To compensate, nursing homes charged private payers more. Private payers responded by seeking Medicaid eligibility, often facilitated by Medicaid planning attorneys exploiting financial eligibility “loopholes.” Nursing homes’ private-pay revenue collapsed from half in 1970 to under ten percent in 2023. In the meantime, many state Medicaid programs established certificate of need programs to limit construction of new nursing homes on the principle that “they can’t charge us for a bed that doesn’t exist.” But this practice gave existing nursing homes a de facto monopoly by excluding potential competition, further undercutting the incentive to provide quality care. Over time Medicaid nursing home reimbursements became so inadequate that access and quality deteriorated substantially. Media exposés of awful institutional conditions proliferated. National legislation passed in 1987 requiring better care, but little changed. It became so bad that new venues and modes of care finally became available, because, faced with the choice between nursing home care paid for by Medicaid or the new and rapidly growing option of assisted living, financially able consumers chose to pay privately for the more desirable alternatives. In time, private-pay home care also got traction as consumers’ distaste for Medicaid funded nursing home care grew. How does this history display the trappings of a swindle? Nursing homes were led down a primrose path to rely almost exclusively on Medicaid (and some Medicare) financing. Their private pay revenue stream, half again as much as Medicaid pays, nearly disappeared as savvy consumers took advantage of the easily available public financing. As care quality deteriorated and consumers migrated to other private-pay options, nursing homes were left with too little revenue to hire and retain enough caregivers resulting in further deterioration of care access and quality. Nursing homes and other Medicaid LTC providers don’t even get the benefit of the relatively low out-of-pocket LTC spending that consumers still pay (12.9 percent of total LTC spending). Medicaid converts recipients’ private income and asset spend down into its egregiously low level by requiring recipients to pay most of their income (largely Social Security) to the LTC provider to offset the cost to Medicaid. If a con artist had set out in 1965 to trap LTC providers in a system that disables their ability to provide quality care while holding them accountable to achieve unrealistic standards, he could not have done a more effective job than Medicaid itself has done, however haphazardly. Insurers How did Medicaid ensnare insurers? When Medicaid LTC expenditures exploded in the early 1970s, lawmakers and program officials started clamping down. Transfer of assets restrictions and estate recoveries were first authorized (TEFRA ’82) and later made mandatory (OBRA ’93). In 1988, the DHHS Office of Inspector General published a report (full disclosure, I wrote it) that said in paraphrase: if we’re going to let people get Medicaid LTC benefits while retaining large exempt assets, then they should have to pay it back out of their estates. That was the quid pro quo in OBRA ’93. So the OBRA ’93 message to insurers was: Medicaid will no longer pay all the LTC costs for everyone. People now have to pay their own way until they qualify under Medicaid’s stringent income and asset rules … or … they’ll have to pay back everything Medicaid pays for their care out of their estates. More distressing yet, most analysts and the media went even further. They insisted people could get no help from Medicaid until they spent down all their savings into impoverishment. Some big insurance companies took this draconian LTC situation to the bank, or so they thought. Starting in the 1980s and through the early 2000s, over 100 insurance companies made private LTC coverage available. They priced it low to attract market share and because solid historical actuarial data on the incidence of paid LTC was unavailable to counsel them otherwise. Who wouldn’t buy this coverage, they speculated, given the consequences of going bare: total impoverishment or loss for heirs of the estate to Medicaid recovery? But results did not meet expectations. It turned out that prospects for the coverage didn’t buy the hype about total economic risk; the estate recovery liability was never fully enforced or publicized; and the public remained too complacent about LTC risk and cost to purchase the expensive LTC coverage. Medicaid duped the private insurance industry into thinking LTC was a big financial risk that people would buy coverage for and then pulled the rug out from under the carriers who tried, by making catastrophic coverage available even to the middle class and affluent after the insurable event occurred. The end result is that relatively few people plan and insure for LTC and most end up on Medicaid if they need high cost extended care. Swindled by Medicaid’s bait and switch, the LTC insurance business has evolved creatively and maintained a foothold but it has now, and can only anticipate for the foreseeable future, a relatively minor role in financing LTC. Consumers Perhaps the biggest losers in Medicaid’s long con are consumers, especially the needy whom the program is supposed to serve. The public was trapped in a welfare-financed LTC system for decades that gave them nothing but nursing home care. Only after that system deteriorated to the point of a national disgrace, did enough financially able consumers rebel by spending their own money for newly evolving private home and community-based care options. But LTC is so long in duration and so expensive to pay for privately, families were put in the position of having to care for their own loved ones as long as possible. This caused tremendous financial and emotional stress, leading them to turn to Medicaid when the strain and cost became too much. That’s when Medicaid softens the blow. Despite conventional wisdom, drummed into everyone by the media (remember “Dying Broke”), that Medicaid LTC requires spend down for care into impoverishment, the reality is very different. Middle class and affluent people, once they consider and look into public financing options, find that eligibility for Medicaid is relatively easy. Income is no obstacle for people with high private medical or LTC costs because those costs are deducted before a low income standard is applied. Likewise, high assets don’t matter as they are either already tied up in exempt resources (the home, retirement savings, a vehicle, person belongings, etc.) or they’re easily converted to exempt status by using countable assets to purchase non-countable resources. See “Medicaid’s $100+ Billion Leak.” Here’s the irony and the tragedy. Medicaid financial eligibility rules crush the poor quickly. They lack resources to pay privately even for a while. They end up in the worst nursing homes and LTC providers, the ones that are heavily dependent on Medicaid’s low reimbursements. So the people Medicaid is supposed to serve first, the aged, disabled, and disadvantaged, get the worst care Medicaid provides. But what about those middle class and affluent people Medicaid allows to qualify so easily? They hold back enough “key money” from their artificial self-impoverishment process, so they can pay privately for a few months. That gives them access to the nursing homes and LTC providers, who have relatively few Medicaid recipients, and are less dependent on Medicaid’s poor reimbursements. They crowd out the poor and most needy from the best care. So here’s how Medicaid swindled consumers. By making Medicaid LTC benefits easy to obtain late in life after the insurable LTC event occurs, Medicaid created a moral hazard. The public doesn’t believe the scare tactics insisting that LTC is a catastrophic risk. People don’t know who pays for LTC, but they can see someone must. Alzheimer’s patients aren’t dying in the streets in large numbers. So consumers don’t worry about LTC until they need it at catastrophic levels and then they slip seamlessly onto Medicaid. By making the best care Medicaid offers available to people who can afford to hold back “key money,” the program added insult to injury. It helps most the very people who, if they bore more of the cost of LTC, would protect themselves earlier with savings and insurance in order to avoid the need to co-opt Medicaid’s scant resources. Summary Medicaid’s long con continues to this day. LTC providers, suckered by the promise of practically unlimited customers and revenue, find themselves struggling to supply decent care at less than the cost. LTC insurers struggle to sell a product Medicaid has been giving away for 60 years, with its best care going to the very people who should, could and would have bought LTC insurance in Medicaid’s absence. Consumers, duped by Medicaid to think they don’t need to worry about LTC when they are young, healthy and affluent enough to prepare for the risk, end up dependent on a deficient welfare program that does a better job for the financially able than for the poor and disabled it was supposed to serve first. Do you think the confidence game analogy is inapt? No one set out to mess up America’s LTC financing system so badly? Well, consider this: “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. 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.” (Source) To say the terrible results were unintentional is a distinction without a difference. The same causes always produce the same results. |