Plain(s) Talk on Medicaid and Long-Term Care

Published November 1, 2006

How can a state cope with the growing cost of Medicaid long-term care? The Flint Hills Center for Public Policy of Wichita, Kansas tackled that question in a study I conducted for it in July 2006. The lessons we learned–explained in “Plain(s) Talk on Medicaid and Long-Term Care in Kansas”–apply to any state.

Our “Plain(s) Talk” conclusions and some quotes from the report follow this summary.

Struggling to Fund

Like most states, Kansas struggles to fund long-term care (LTC) through its Medicaid program. Like Oregon and Washington, Kansas pushed hard to reduce high-cost nursing home care and replace it with ostensibly cheaper home- and community-based services (HCBS).

But that strategy backfired. It made Medicaid more desirable, unleashed pent-up demand for Medicaid-financed care, increased the problem of Medicaid estate planning (artificial self-impoverishment to qualify for Medicaid), and impeded demand for private financing alternatives such as insurance (LTCi) and home equity conversion (HEC, e.g., reverse mortgages).

Consequently, Kansas’ Medicaid program is sliding toward financial insolvency.

The state should aggressively implement provisions in the Deficit Reduction Act of 2005 (DRA) to discourage excessive dependency on Medicaid and to encourage personal responsibility for and private financing of LTC. That is, Kansas (and every other state) should quickly enforce:

  • the DRA’s five-year transfer-of-assets look-back;
  • the new penalty date to stop the half-a-loaf Medicaid planning strategy;
  • the $500,000 cap on Medicaid’s home equity exemption;
  • the restrictions on the use of annuities to qualify for Medicaid;
  • the other DRA provisions restricting access to Medicaid by the well-to-do; and
  • the expanded LTCi partnership program.

Drawing Conclusions

Conclusion 1 Medicaid’s LTC and other medical services for the elderly place a heavy strain on state finances, divert government resources from other priorities such as children, and pose a fiscal challenge for the future.

“The increases of recent years in Medicaid funding are unsustainable for the state,” Kansas Senate President Steve Morris (R-Hugoton) said. “In the 1960s Medicare was created by the federal government as a safety net for seniors. Now state Medicaid programs … are assuming a large part of the financial burden for vulnerable seniors.”

Conclusion 2 Generous and elastic Medicaid LTC eligibility criteria bode ill for Kansas’ ability to fund home-based and nursing home care in the future.

Kansas Medicaid LTC eligibility policy expert Jeanine Schieferecke told us, “The general public is aware of Medicaid planning [artificial self-impoverishment to qualify for Medicaid LTC benefits]. When my mom came to me and asked about Medicaid planning, I knew it was big.”

Asked to identify the upper and lower ends of his firm’s Medicaid planning clientele, one elder law attorney said, “I have three cases sitting on my desk right now; with $70,000 to $100,000 houses and pensions around $2,000 per month. That’s the lower end of the scale. At the upper end, I have one with $450,000 in countable assets but no home equity.”

Another agreed: “My range is the same on the upper end. … At the lower end of the range would be a married couple in the $30,000 area who are just terrified to deal with the state.”

Conclusion 3 Kansas has cost-effectively evolved its LTC service delivery and financing system toward less nursing home care and more home care (using Medicaid’s HCBS waivers), but future prospects for continued success are questionable.

Said Kansas Medicaid Director Scott Brunner, “One thing the [HCBS] waivers do is create demand. People can live at home with support from their family or go to [the] nursing home as a Medicaid entitlement, but HCBS waivers create the option to get care and financial help from Medicaid at home. So, there is not enough [Medicaid] money if everyone gets HCBS.”

Conclusion 4 Although operating a reasonably successful Medicaid estate recovery program, Kansas is clearly not maximizing potential recoveries. To the extent recoverable wealth remains unrecovered, Kansas Medicaid is operating as “inheritance insurance” for heirs instead of as an LTC safety net for people in need.

Conclusion 5 Home equity conversion is an enormous but largely untapped potential funding source for LTC in Kansas that could substantially relieve fiscal pressure on Medicaid and state taxpayers except that Medicaid exempts the home and all contiguous property up to as much as $750,000.

A reverse mortgage specialist said, “We’re probably one of the last states to get really involved [in reverse mortgages (RMs)]. At this point in my experience, [using RMs to fund LTC] has come up only a couple times. Medicaid is a given, so people don’t worry about LTC.”

Conclusion 6 Although quality affordable LTCi is available in Kansas, too few people buy it–partly because of its cost and complexity, but mostly because consumers do not perceive that LTC is a big financial risk for them. In fact, they are right, because of the generous availability of Medicaid-financed care.

LTCi expert Claude Thau observed that Kansas’ market share of annualized LTCi premiums sold dropped 11 percent this year.

“I think it is reasonable to say Kansas was among the 10 states with the largest drop,” Thau said.

Ominously, we also learned that a carrier dropped the LTCi plan for state employees because of lack of participation.

The LTCi agents we interviewed said, “[Medicaid planners are] very strong here in Kansas. Potent competition. They run lots of commercials on the radio: ‘Do you have an Alzheimer’s diagnosis? Then see an elder law attorney. Come see us quick before you lose everything.’ This absolutely impairs the market for our product.”

Conclusion 7 Kansas should implement, enforce, and publicize new federal rules and guidelines from the DRA to restrict Medicaid LTC eligibility, discourage Medicaid estate planning, and encourage private financing alternatives such as HEC and LTCi.

Calling for Action

The report closes with this “Heartland Manifesto”:

  • Kansas’ public-assistance budget is limited. The state’s first responsibility is to take care of the truly poor and disadvantaged.
  • The middle income and well-to-do should pay privately for LTC to the extent they are able without suffering financial devastation.
  • Homeowners who need LTC should pay for it privately by using their home equity with the help of reverse mortgages.
  • Prosperous people who rely on public assistance for LTC should reimburse the taxpayers before giving away their wealth to heirs.
  • Seniors and their heirs who wish to avoid such recovery from the estate should plan ahead, purchase private LTC insurance, and pay privately for care when the time comes.

Stephen Moses ([email protected]) is president of the Center for Long-Term Care Reform in Seattle.

For more information …

For a detailed explanation of the DRA’s provisions bearing on Medicaid and LTC financing, see “On the Future of Long-Term Care and Medicaid,”