Paying for Baby Boomers’ long-term care (LTC) is becoming a huge burden on public programs.
Medicaid and Medicare pay for most professional LTC today, but those programs will soon be in desperate financial straits as Boomers stop paying in and start pulling out benefits. Few signs indicate private financing sources, such as insurance or reverse mortgages, will come to the rescue.
So when I learned New York’s Senate Bill 116 aims to relieve the public financing burden of LTC, encourage personal responsibility, and attract new private funding, my ears perked up.
Thanks to a grant from philanthropist Thomas Jackson of White Plains, New York and a contract with the Flint Hills Center for Public Policy of Wichita, Kansas, I spent several weeks studying the New York Long-Term Care Compact proposal. What I found is that the program will actually undermine its stated aims.
Plan Participation
The LTC Compact idea is the brainchild of elder law attorneys Vincent Russo and Howard Krooks and an LTC insurance executive, Gail Holubinka, who seek a better way to fund LTC.
“The cornerstone of the Long-Term Care Compact is to create a partnership between seniors and people with disabilities and government wherein seniors and people with disabilities will pay a fair share for Long-Term Care services with the government’s support,” Russo and Krooks said.
How would it work? A chronically ill patient who needs long-term care could become a Compact participant by pledging to spend for qualified LTC services an amount equal to half his non-housing assets (not counting the first $20,000 for someone with less than $40,000 in total) or the cost of three years in a nursing home (about $300,000 depending on region of residence), whichever is less.
Upon spending the pledged amount for approved LTC services, the participant would become a Compact beneficiary, eligible for a Compact subsidy–an amount of payment for future LTC services equal to the Medicaid rate for the same or a similar service.
A Compact beneficiary would be entitled to receive future LTC services funded by the Compact program at the Compact subsidy rate, in accordance with an assessment of need and a plan of care, by paying out of pocket an additional 10 percent of the Compact subsidy rate plus an annual participation fee not to exceed 25 percent of personal income.
Costly Benefits
The benefits of participating in the LTC Compact would be substantial, compared to circumstances imposed by Medicaid eligibility. Compact beneficiaries would preserve remaining resources after the Compact pledge amount is satisfied. They would not endure the additional resource or income limitations and lien or estate recovery requirements imposed on Medicaid recipients. They could purchase qualified services from any willing provider at the Compact rate (i.e. the Compact subsidy plus the beneficiary’s 10 percent co-payment), instead of being locked into Medicaid providers.
Compact participants could satisfy their required pledge amounts and/or their service co-pays and annual participation fees through private insurance policies, if they had the foresight to buy them while still insurable. Such policies would likely cost considerably less than their full lifetime coverage in the absence of the Compact program.
Individuals refused LTC insurance twice could contribute, or have contributed on their behalf, up to $10,000 per year into a “qualified LTC savings account” to fund their pledge amount. Special conditions and protections would apply for married Compact beneficiaries.
Alleged Catastrophe
Why is all this necessary? During State Assembly hearings on the proposal last year, Aging Committee Chairman Steven Englebright (D-Setauket) said, “Our current long-term care financing structure is primarily private pay and of course, Medicaid, with a small percentage covered by long-term care insurance. Someone in need of long-term care can expect to quickly exhaust their entire life savings and resources, a very scary proposition to that individual and their spouse.”
Presumably, New Yorkers are devastated by huge catastrophic LTC costs, so the state needs to come to the rescue with a program that puts only half their assets at risk and protects them against all future costs–no matter how high.
Trojan Horse
As politically seductive as the LTC Compact proposal is, it has myriad worrisome aspects.
First, there is no evidence New Yorkers are spending down catastrophically for LTC costs. Medicaid, Medicare, and Social Security pay for the vast majority of all professional LTC services. So the real problem is exactly the opposite of the imaginary one the LTC Compact wants to solve.
Second, should multimillionaires be able to pay for three years of nursing home care (roughly $300,000 in New York), and then get state and federal taxpayers to cover all additional LTC expenses? Furthermore, how would requiring people of lesser means to “pledge” half their assets encourage them to buy private LTC insurance, when all their assets are supposedly at risk now and they don’t buy the product?
Third, would the LTC Compact really help LTC providers who are currently paid less than the cost of providing the care by Medicaid today? No. The Compact proposes to tie providers to a maximum reimbursement level of the penurious Medicaid rate plus 10 percent.
As Medicare, with its $75 trillion unfunded liability, retrenches, it will no longer help support Medicaid providers. As Social Security, with its $16 trillion unfunded liability, retrenches, it will no longer supplement Medicaid’s cost of LTC. Medicaid providers will be left with too little to fund quality care.
Perverse Incentives
Careful scrutiny of the LTC Compact leads to this conclusion: Legislative smoke and mirrors will not solve the LTC financing problem. The only solution is to return Medicaid to people truly in need and implement real asset spend-down (including home equity) for others.
Eliminate the perverse incentives in public policy that today discourage responsible LTC planning, and people will pay their own way with personal wealth, reverse mortgages, and private insurance.
Stephen Moses ([email protected]) is president of the Center for Long-Term Care Reform in Seattle.
