 LTC Bullet: The Goldilocks LTC Plan Friday, December 19, 2025 Seattle— LTC Comment: Making Medicaid pay first would blow the lid off government LTC spending, but that’s their plan. We explain after the ***news.*** *** ILTCI NEWS from the 2026 conference organizers: “We're thrilled to announce that Jeff Noel, a 30-year Disney leadership veteran and two-time Disney Lifetime Achievement Award recipient, will take the stage as our keynote speaker, Sponsored by NGL, at the 2026 ILTCI Conference!” For many more details about this keynoter, go here. *** *** MORE about ILTCI: “Our in-person conference March 8-11, 2026 at the Rosen Shingle Creek in Orlando, FL is now accepting attendee registrations! As always, our agenda will include numerous educational sessions over two days across seven tracks with ample time for networking and reconnecting with colleagues. Everyone who's anyone in Long Term Care Planning will be there. What about your company? Early Bird Attendee Pricing available thru Jan 16, 2026!” *** *** CATO PODCAST with Center president Steve Moses published: 12/11/2025, “Better Care for Billions Less: Fixing Medicaid’s Long-Term Care Incentives,” by Michael Cannon and Stephen Moses, Cato Quote: “Cato’s Michael Cannon and the Center for Long-Term Care Reform’s Stephen Moses examine how Medicaid’s long-term-care eligibility rules let middle- and upper-middle-class households shelter assets and shift costs onto taxpayers, driving up spending and lowering quality for the poor. Drawing on Moses’s new Cato paper Better Long-Term Care for Billions Less, they explain how perverse incentives, generous exemptions, and weak estate recovery undermine private planning and inflate a program already consuming one-third of Medicaid’s budget.” LTC Comment: Click through to the link at the top to hear this 45-minute podcast. Then, please read the paper and send any questions or comments to smoses@centerltc.com. To join our mission to fix LTC financing policy and ensure quality long-term care for all Americans, click here. To review all of our individual and corporate “Membership Levels and Benefits,” go here. Thanks for your support. ***
LTC BULLET: THE GOLDILOCKS LTC PLAN LTC Comment: A recent LTC Discussion Group presentation triggered my interest. Karen Kopecky, an Economic and Policy Advisor with the Federal Reserve Bank of Cleveland, proposed a radical reform of Medicaid long-term care financing. Her plan, co-authored with another economist, involves making Medicaid “primary,” that is, first payer for long-term care. It’s an intriguing idea. If Medicaid paid first, consumers would be more likely to buy private LTC insurance to “top off,” ending “crowd out.” So I contacted Dr. Kopecky. We had a cordial exchange of views. Here’s my bottom line takeaway. I thank the Paragon Health Institute’s Niklas Kleinworth for his helpful editing of this piece. “The Goldilocks
LTC Plan” Two economists offer an ingenious proposal to improve long-term care (LTC) financing: make Medicaid the first payer for services. That is, have it pay before private LTC insurance so that more people will top off with private coverage. Their plan rests on a common, but false premise, that LTC causes widespread ruinous asset spend down leading to Medicaid eligibility. The plan would be dangerous and expensive if Medicaid financial eligibility is not tightened substantially first. In “Welfare-enhancing public and private insurance arrangements for long-term care risk,” economists R. Anton Braun and Karen A. Kopecky explain the LTC financing challenge like the story of Goldilocks and the Three Bears. First, they reject two common approaches to reform. Slashing Medicaid would please taxpayers, but hurt the poor. That porridge is too cold, morally. Universal LTC coverage would help the poor, but disadvantage taxpayers. That porridge is too hot, politically. The authors position their third reform as the happy medium. In their own words: Under our reform, benefits continue to be means-tested, but Medicaid is the primary payer. This third scenario works best. The poor continue to receive free public insurance, the middle class top up their Medicaid benefits with private insurance and enjoy higher welfare and private insurance takeup and profits also increase. (p. 3) … Making Medicaid the primary payer for LTC insurance while retaining the means-test increases private LTCI takeup rates, increases the profitability of insurers, and increases the welfare of low-, middle-, and high-income individuals. (p. 33) On its face, this third concoction seems just right. But there’s a fly in this gruel. The salutary outcomes predicted for reform number 3 depend on strictly means testing Medicaid benefits. Otherwise, everyone would use up Medicaid’s primary benefits and never get to the point of wanting or needing private insurance. Medicaid costs would explode and the private LTC insurance market would disappear entirely. Thus, we need to know what these authors believe about means testing Medicaid LTC eligibility and whether their assumptions are correct. They say Medicaid benefits are only available to people with very low income and less than $3,000 in assets. They conclude “most Americans use their savings to pay for formal long-term care services” leaving “middle-class elderly Americans particularly exposed to LTC risk.” Consequently, they claim one in ten Americans incur out-of-pocket (OOP) nursing home expenses of $200,000 or more. That clearly expresses the conventional wisdom about Medicaid spend down. But is it true? Demonstrably not. The following table shows that only 12.9 percent of U.S. LTC expenditures are paid out of pocket. The vast majority (87.1 percent) come from government programs (especially Medicaid and Medicare) and other third parties. Furthermore, half of the out-of-pocket spending comes not from assets, but from the income people already on Medicaid contribute to offset the program’s cost for their care. Consequently, only 6.5 percent — or about $41 billion — of LTC spending could come from asset spend down. That is too small a portion to support claims that one in ten Americans spend down their assets at catastrophically high rates. Table: Out of Pocket Contributions are a Small Share of Overall LTC Spending
Source: Centers for Medicare & Medicaid Services, National Health Expenditures. For definitions of all National Health Expenditure Accounts (NHEA) categories, see http://www.cms.gov/NationalHealthExpendData/downloads/quickref.pdf. Why then do scholars think out-of-pocket asset spend down is so much higher than the facts bear out? Faulty estimates based on statistical micro-simulations are the cause. Ignoring the nonexistence of evidence, they presume falsely that people must spend down assets privately for care before qualifying for Medicaid. They run the numbers through their simulator and voila, catastrophic LTC asset spend down estimates emerge. There is a better explanation of how America spends so much on LTC annually ($629.3 billion), but individual Americans contribute so little ($40.9 billion) out of pocket. If people with high incomes and assets qualify easily for Medicaid LTC benefits without spending down, the paradox of high LTC costs overall combined with low individual asset spend down would be resolved. Medicaid Income and Asset Eligibility High income does not prevent Medicaid LTC eligibility. Most states subtract private medical and LTC expenses from income before they apply a low-income standard. Others cap income but allow special income diversion trusts to achieve the same outcome. Bottom line: high income people with commensurately high health care expenses qualify. Likewise high assets do not interfere with Medicaid LTC eligibility. Most large assets seniors own are exempt, including $1 million of home equity and unlimited tax-deferred retirement savings, a business, a vehicle, and others. Any remaining countable wealth is easily made exempt by using it to purchase exempt assets. The internet and Medicaid planners offer long lists of exempt assets into which Medicaid applicants can convert countable resources in order to become eligible without decreasing their wealth. Mandatory estate recovery goes largely unenforced so resources protected by Medicaid pass to heirs further desensitizing future generations to LTC risk and cost. The Goldilocks LTC Plan So, what can we conclude about the Goldilocks LTC Plan? Make Medicaid primary? That would be a disaster unless or until Medicaid’s lenient LTC financial eligibility rules are reformed. But fix that so that people really do have to spend down their wealth before becoming eligible for Medicaid and the Goldilocks plan would no longer be needed. If Medicaid truly required impoverishment to qualify, people would realize the potential financial devastation that would ensue if they ever needed high-cost long-term care and they would begin to plan early to save, invest or insure privately for LTC. If that porridge is too cold, then try this: keep Medicaid income and asset eligibility limits generous, but strictly enforce estate recoveries so that eventually all wealth sheltered in exempt assets is returned to the program to help those truly in need. That would relieve taxpayers, end Medicaid’s windfall for heirs, and return dignity to recipients—it isn’t welfare if you pay it back. It would create a much stronger incentive for all Americans to take LTC risk and cost seriously in time to prepare. Real progress toward resolving long-term care’s many problems will not be made until scholars, analysts and policymakers set aside the “Fallacy of Impoverishment” and deal with the reality of Medicaid’s true impact. The program desensitizes the public to LTC risk and cost leaving most Americans unprotected and reliant on Medicaid when high LTC costs occur. That’s fixable with public policy reform that saves money, eliminates bad incentives, and rewards thoughtful LTC planning. When worsening budget constraints compel lower LTC spending, drastic change will become inevitable. Far better to do it now before the fiscal vise closes narrowing options ever further. |
