Summary
George Will's first column of the New Year delivers a dire warning about Medicare's unfunded liabilities. He mentions in passing that Medicaid, especially the welfare program's long-term care component, could become a bigger problem than Medicare. But Will vastly underestimates the Medicaid long-term care problem. If you invest in any aspect of the long-term care service delivery and financing system, you'd better understand how and why Medicaid LTC is a looming disaster.
Analysis
Scary diagnoses about America's health-care uninsured are nothing new. Dire warnings about Medicare's gigantic unfunded liabilities are becoming more and more common. But you rarely hear much about Medicaid and long-term care, the "poor relatives" of our social programs and issues.
That's why this comment in George Will's January 1, 2009 column titled "Dr. Leavitt's Scary Diagnosis" caught my eye:
"Rather than ruining the new year by dwelling on Medicare's unfunded liabilities of about $34 trillion (over a 75-year span), ruin it with this fact: In the next 50 years, Medicaid, the program for the poor -- broadly, sometimes very broadly defined -- could become a bigger threat than Medicare to the nation's prosperity."
Never mind that Medicare's 75-year unfunded liability ($34 Trillion) is only a fraction of its more relevant infinite-horizon unfunded liability ($86 Trillion). Consider this: Medicaid doesn't even have a "trust fund" to be unfunded. The welfare program depends entirely on Federal and State "general funds" which are in scarcer and scarcer supply these days .
But here's what I really want to impress upon you. Mr. Will goes on to say how Medicaid's burgeoning growth could trump Medicare's:
"This is partly because of the cost of long-term care for the indigent elderly, some of whom shed assets to meet Medicaid's eligibility standard -- sometimes as high as income under 200 percent of the federal poverty level. And many states, eager to expand the ranks of the dependent with the help of federal Medicaid money, use 'income disregards' to make poverty an elastic concept. For example, they say: A person who gets a raise that eliminates his eligibility can disregard the portion of his income that pays for housing or transportation."
Will has no idea just how generous Medicaid really is. Here's a primer:
Forget 200 percent of poverty, if a Medicaid applicant's income is less than the cost of nursing home care (on average about $6,000 per month), he or she qualifies for Medicaid based on income anywhere in the United States. In stricter states, the applicant may need a "Miller income trust." But in most states, the 35 "medically needy" income eligibility states, the rules are far more generous. Those states deduct many additional health care expenses besides the cost of nursing home care from income before determining eligibility. Medicaid nursing home eligibility does not require low income, much less poverty-level income, by any stretch of the imagination. All that is required is a "cash flow" problem, that is, less income than the cost of nursing home care and other medical expenses seniors have that Medicare does not cover.
Ah, but what about assets? You can't have more than $2,000, right? Sort of. But that's only cash or negotiable securities. You can have total assets in unlimited amounts as long as you hold them in "exempt" form. What's exempt?
A home and all contiguous property, up to $500,000 in most states, but $750,000 in New York, California and Idaho. Medicaid's home equity exemption was unlimited until 2006!
A business, including the capital and cash flow in unlimited amounts, is exempt.
One auto of unlimited value is exempt, so giving it away does not incur a "transfer of assets penalty." Hence the "Two Mercedes Rule": buy one Mercedes, give it away, and buy another until you get down to the $2,000 asset limit.
Unlimited prepaid burial plans for the Medicaid recipient and other members of the Medicaid recipient's family are exempt. I reported on one in New Jersey worth $35,000.
Unlimited term life insurance is exempt. Why would a 90-year-old buy a million dollar term life policy? Instantaneous "self-impoverishment," eligibility for Medicaid nursing home care and other services Medicaid covers that Medicare doesn't, and, because the insurance benefit goes directly to heirs without probate, you evade Medicaid's estate recovery mandate.
These are just the normal exemptions and exclusions about which Medicaid eligibility workers tell everyone who applies for Medicaid. On top of these exemptions, there are thousands of attorneys who specialize in "Medicaid estate planning." They use sophisticated legal techniques to qualify affluent seniors for Medicaid. Such techniques include annuities, trusts, life-care contracts, reverse half-a-loaf strategies and many, many more.
Medicaid planners tell their wealthy clients not to worry about Medicaid's terrible reputation for nursing home access and quality. They'll hold out "key money" to buy them access to the best nursing homes. So what if the poor, who depend on Medicaid, don't have key money and end up in the 100% Medicaid "hell holes?"
Collateral damage to this unconscionable system is that Medicaid financed nursing home care crowds out a market for the home and community based care most people prefer and eliminates up to 90% of the potential market for private long-term care insurance.
It's probably too late to fix these problems in time to avoid a Medicaid long-term care meltdown. That's because Medicaid depends so heavily on Social Security and Medicare to prop up its ability to fund LTC and those programs can't continue helping Medicaid. But that's a story for another post.
For full documentation, see www.centerltc.com or contact the author through GLG for a consultation.
