Long-term Care . . . or Long-term Government Dependency?

Published May 1, 1999

If President Clinton gets his way, long-term health care will become long-term government dependency. He wants to spend $6.2 billion to provide a $1,000 annual tax break for individuals and families who need long-term nursing home care and chronic care.

What at first sounds like a caring and reasonable idea is really a slick way to make seniors even more dependent upon government largesse and, in turn, guaranteeing continued voter support of big government entitlement programs.

Clinton’s approach is consistent with the administration’s desire to take us away from independence by encouraging people to wait until a family member needs long-term care, rather than encouraging people to insure themselves for the event beforehand.

This is the same kind of social policy that placed brass handcuffs on many Americans. By guaranteeing a modest income to citizens, the government stole many a citizen’s desire to plan his or her own financial independence from government. In the long view, long-term nursing home security provided by government would be no different than Social Security.

The real problem

No one knows better than I how long-term care can wipe you o ut both emotionally and financially. My wife’s Grandma Schafer was cared for in a loving home setting until the need for round-the-clock care exceeded the ability to provide it. She remained fiercely independent of government help until a nearly $200,000 estate had been exhausted for nursing home care.

Society has changed significantly on the road to the 21st century. We are a nation of scattered families with many disconnected family ties. Seniors are living longer, making the decision to take in a family elder a much longer commitment than ever before. Since we have the advanced knowledge to help us live longer, an incapacity like Alzheimer’s complicates the problem of family-centered care.

By 2020, the age 65 population will reach 54 million, or 1 in 6 Americans. More significant is the larger proportion over the age of 85, a group represented by Grandma Schafer, who require day-to-day assistance with routine activities.

So, more and more Americans turn to nursing homes and assisted living centers as the solution to providing a safe and caring environment. Medicare covers little or one of this expense for most people. As in Grandma Schafer’s case, only about 24 percent of families will pay for care out of personal funds. Almost 70 percent will use Medicaid.

The reality is problematic for policy makers. The increased demand for these services is making states nervous about how to pay for them. Given current trends, the average cost of long-term care is predicted to increase to around $140,000 a year by 2030. <1>

Gaming the system

Under current Medicaid provisions, many people will give away to relatives a lifetime of accumulated assets in order to become “poor” enough to meet Medicaid eligibility requirements. As a result, Medicaid funds are depleted to help the “nouveau poor” while the truly indigent are denied or rationed legitimate health care services.

Medicaid estate planning has become a profitable industry that, in some ways, promotes “gaming” the system, not to mention promoting greater dependence on government programs.

People who strive to remain independent and pay for care out of pocket or from long-term care insurance have numerous options to choose from:

  • avoiding waiting lists;

  • selecting a higher level of care;

  • securing private accommodations vs. ward-style or shared-room arrangements;

  • the ability to select a country club environment.

Conversely, Medicaid beneficiaries are often placed on year-long waiting lists, as well as being limited in the choice of residence and level of quality care options.

Individual responsibility

While most of us understand the need to help families meet the significant burden of long-term care, there is a better way than asking government to do it. The real long-term solution for long-term health care includes allowing a full tax deduction on the insurance premium and fall tax exemption from the distribution of accumulated long-term care assets.

In some ways, with the 1996 passage of the Health Insurance Portability and Accountability Act, government recognized that citizens should be encouraged to take responsibility for financing their own long-term care. <2> But HIPAA has numerous restrictions on long-term care eligibility that require amending:

  • Annual tax-free benefits are capped at $63,875. In mot cases, actual costs are higher in a nursing home setting. And, too, significant expenses are incurred by the patient and the caregiver who remain in the home setting.

  • Premiums are tax deductible only to the extent that qualified long-term care insurance pays after two of five activities of daily living cannot be performed. Frequently, one activity, such as being able to feed oneself, cannot be accomplished.

A number of innovative long-term arrangements <3>, whose common denominator is the lack of federal government intrusion, should be expanded and included in any tax-free incentive arrangement:

  • The social health maintenance organization is a long-term insurance plan built on the prepaid medical plan or HMO concept.

  • The continuing care retirement community combines guaranteed lifetime residential, medical, and long-term care services in a campus setting, financed by prepayment and premiums.

  • The reverse annuity mortgage provides an alternative way for homeowners to use the equity in their homes to pay for long-term care while remaining at home.

Encouraging the purchase of long-term care insurance

For the middle class, Medicaid nursing home population, private long-term care insurance could prevent both impoverishment and the subsequent drain on scarce Medicaid dollars.

At present, about 5 percent of the elderly have any long-term insurance. The high premium cost explains why the expansion of coverage has limited potential without tax-favored incentives. <4> A good policy can cost $2,500 a year if purchased at age 65 and much more with advanced age. Similarly, buying good coverage at age 50 can cost around $800 a year. Most studies indicate 10 to 20 percent of the elderly cannot afford the premium, further emphasizing the need for real tax incentives.

If the government wants to spend $6.2 billion on long-term care, let it be spent on giving everyone who takes individual responsibility for long-term care expenses a 100 percent tax break on qualified long-term care insurance premiums, as well as tax-favored considerations of the other legitimate alternatives mentioned.

Further, expand the right to purchase medical savings accounts to all citizens. The accumulated assets can be used to defray related long-term health care costs.

In addition to 100 percent tax-free distribution of all long-term care insurance proceeds, lower the medical deduction threshold on a 1040 Schedule A medical deduction to allow for all long-term care expenses that include prescriptions and mechanical aids used by the elderly.

But that’s just my opinion.

Conrad F. Meier is health policy advisor for The Heartland Institute, Chicago; author; retired health insurance consultant; ;and past state chairman of the health insurance committee for the National Association of Life Underwriters. Contact him at [email protected] or www.heartland.org. This essay first appeared in the May 1999 issue of Broker News.

<1> Ann C. Layzell, State Government News, August 1998, page 17. <2> Conrad F. Meier, “How to Implement Kassebaum-Kennedy: A State Legislator’s Guide to the Health Insurance Portability and Accountability Act of 1996,” Heartland Policy Study No. 78, March 25, 1997, page 20. <3> John R. Wolfe, The Coming Health Crisis: Who Will Pay for Care for the Aged in the 21st Century? <4> Joshua M. Wiener and David G. Stevenson, Long-Term Care for the Elderly and State Health Policy, The Urban Institute, A-17, 1998, page 3.