Better long-term care for billions less

By Stephen Moses

This is a lightly edited excerpt of an article from the Cato Institute. 

Those who believe catastrophic asset spend-down is the dominant precursor to Medicaid enrollment will excoriate this approach. They will claim incorrectly that the existing long-term care (LTC) system already impoverishes millions and withdrawing Medicaid subsidies from the affluent will impoverish even more. On the contrary, those most in need and everyone over age 55 would remain eligible. Those who become responsible for their own LTC before qualifying for Medicaid would have time to adjust, prepare and protect their assets. For those in need, as well as the affluent who lose Medicaid eligibility, these changes could mean better LTC.

The biggest challenge to reinventing LTC in this way is how to awaken the public to the new reality without inciting opposition. How to achieve a transition from current LTC complacency and government dependency to serious personal responsibility and planning is the major obstacle. Families struggling to make ends meet and save for their own retirement may not look kindly at the loss of a government subsidy, even one they do not realize has already been distorting their behavior for the worse. How to relieve them of that burden while simultaneously reducing the government subsidies that have failed everyone so miserably?

The solution is to reprioritize LTC among life’s responsibilities. Government encourages the accumulation of assets but discourages the use of private wealth to fund LTC. Preferential tax treatment for IRAs and 401(k)s encourages people to set aside funds for retirement. Subsidies for mortgages (through the Federal Housing Administration, Veterans Administration, and Department of Agriculture) and down payments, as well as preferential tax treatment of mortgage interest, promote homeownership and the accumulation of home equity. Life insurance receives favorable treatment through tax-deferred growth of cash value and tax-free death benefits. Again, these policies have encouraged seniors to accumulate $14 trillion in home equity and US residents broadly to amass $97 trillion in wealth.

Why should amassing wealth that will pass to heirs take precedence over funding quality LTC for the living? Why should Medicaid force taxpayers to pay for LTC for those who would get it anyway, where subsidies serve no other purpose than to protect the inheritances of those individuals’ heirs? What if public policy were instead to encourage preparing privately for future LTC needs? What might such a policy look like?

Step one would be to educate the public about the abuse of Medicaid by those who treat the program as a late-in-life, wealth-preserving safety net for the middle-class and affluent. Step two would be to inform the public that the current system is coming to an end.

The loss of the implicit subsidy that Medicaid currently provides would spur demand for objective analyses of individuals’ LTC risk and an estimate of the likely cost of the care they may need someday. Research shows that accumulating $70,000 by age 65 is sufficient with average appreciation to cover median paid LTC expenses.³³ Individuals may set aside less or more and smooth out remaining risk with varying amounts of LTC insurance, depending on their circumstances. Rather than educate the affluent on how to take advantage of taxpayers, financial advisers and other market actors would help them develop LTC planning goals. Each person could then know what they should set aside to cover their expected LTC needs.

Encouraging every individual to take personal responsibility for LTC risk would not eliminate Medicaid’s back-end exposure to catastrophic risks. There are steps policymakers can take to reduce this risk significantly. In tandem with a 20-year look-back period, Medicaid could make the development and execution of LTC planning strategies no later than age 65 a precondition for any later Medicaid assistance. This strategy would substantially reduce that back-end risk, enabling Medicaid to do a better job for all remaining long-duration recipients.

How can public policy help people achieve their target level of LTC savings without burdening taxpayers? One way could be to change current rules to allow individuals and families to earmark other resources (e.g., retirement savings, home equity, and life insurance) for LTC. Medicaid could make such earmarking a condition of future assistance. In that manner, the things government does to encourage wealth accumulation can fund future LTC needs without impairing families’ current cash flow. Savings that would otherwise pass through inheritance would go to fund higher-quality LTC for the living and create a stronger inducement for younger generations to save, invest, or insure for their own future LTC needs.

Read the full editorial here.

Stephen Moses is the president of the Center for Long-Term Care Reform and a visiting fellow at Paragon Health Institute.

_{*The opinions expressed in this column are those of the author and do not necessarily reflect the views of HealthPlatform.News.}