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Expert Opinion Stephen Moses, President, Center for Long-Term Care Financing Posted Date: 06/6/2003 -- With dozens of states in deep fiscal crisis and already under-funded Medicaid programs targeted for further cuts, Stephen Moses, president of the Center for Long-Term Care Financing, talks with SNALFnews about the roots of the problem and possible solutions. "Medicaid eligibility is set up to be a giant black hole sucking middle and upper-middle class people into nursing homes on welfare," he says. "It's just an insane system, and once you understand how it really works, instead of the myth that you have to be poor to get it, everything becomes crystal clear." Moses is president of the Center for Long-Term Care Financing, a non-profit organization promoting universal access to top-quality long-term care by encouraging private financing and discouraging welfare financing for most Americans. Moses is a noted speaker and author, and previously served as director of research for LTC, Inc., and as a Medicaid state representative for the Health Care Financing Administration. He was also a senior analyst for the Inspector General of the U.S. Department of Health and Human Services. For more information about the Center or to subscribe to LTC Bullets, its free online newsletter, visit www.centerltc.org. To arrange a speaking engagement, send e-mail to smoses@centerltc.org. In a SNALF.com interview a year ago, you described a long-term care financing system you felt was in the final stages of collapse, primarily because no one was addressing the fundamental problem: excessive reliance on government funding. What has happened since we talked last? Well, just as I predicted the system has collapsed, for all intents and purposes. The fiscal crisis in the states and in the federal government has worsened, and there's been little relief to nursing homes and home health agencies in terms of reimbursement; they continue to rely almost entirely on government financing, which is very inadequate. The BDO Seidman study showed that nursing homes were reimbursed $3.5 billion a year short of breaking even on Medicaid, and the problem is only becoming more severe. Joe Lubarsky of BDO Seidman [click here to read the SNALFnews interview] told us recently that the shortfall was still increasing by about a dollar per patient day per year. Right, and from my analytical framework of this problem, it all fits in perfectly. In 1965 the government started paying for nursing home care, so we ended up with a welfare-financed nursing home-based long-term care system in this country. There was no financial oxygen to nurture a home- and community-based services infrastructure, and a long-term care insurance vehicle to finance long-term care didn't evolve because long-term care was mostly nursing home-based and mostly government financed. About 12 years ago, that system began to collapse, and since then nursing homes have come to have such a bad reputation with the public -- a third of seniors would rather die than go into one -- that people are gradually becoming willing to spend their own money to get the care they want. As a result, we've started to see the growth of an assisted living industry, which is basically privately-financed intermediate care, and a long-term care insurance product to pay for it. What's driving this is that the front cusp of the baby-boom generation is moving through American history like the proverbial pig through the python, and we boomers are dealing with this issue with our parents. So you're beginning to see demands from the baby-boom generation for private long-term care insurance, and more and more boomers are wangling ways in the system to either get long-term care paid for by Medicaid, or to use Medicare and other community services to manage their parents' long-term care at home for as long as possible. The boomers have become particularly adept at the "wangling" part, haven't they? Well, we certainly have evidence of that. The Wall Street Journal recently ran an article titled, "Getting poor on purpose -- states crack down on families that shed assets to get nursing home care." Then they had a little sidebar on "How to impoverish yourself -- a look at various approaches used to transfer assets." As usual, it's a decent article, but only begins to scratch the surface of the issue. What is beneath the surface? When people talk about transfer of assets and Medicaid planning, they usually have a misconception that that is the main problem -- it isn't. Millionaires getting rid of hundreds of thousands of dollars to qualify for welfare is only the tip of the iceberg. It happens, but it's not the main problem. The main problem is that Medicaid eligibility is far more generous than most people realize, so that the median elderly person walks right onto it. Medicaid pays something toward the care of 70 percent of all residents, and because Medicaid residents are the long stayers, the low reimbursement rate touches 80 percent of all patient days in nursing homes. Providers made up for that in the past by a handful of private payers and a very good reimbursement from Medicare. But Medicare has whacked its reimbursement now, and most of the profitable private payers have migrated to assisted living. That's what has devastated the nursing home industry. Going back for a moment to that Wall Street Journal article, it talks about some of the Medicaid eligibility loopholes that have been so popular with heirs and so profitable for attorneys. How serious are the states about closing those loopholes? Well, they aren't serious at all when economic times are good, because it's a politically sensitive issue. When the tax rolls are up and the welfare rolls are down, the politicians and bureaucrats are fat, dumb and happy, and they evade this and paper over it with taxpayer dollars. But that isn't the situation now. We are in dire fiscal crisis, the worst since World War II. Medicaid is driving that crisis because it's over 20 percent of the average state's budget, and long-term care is driving the Medicaid problem because it is such an enormous part of Medicaid. Consequently, we finally have the attention of state officials on this issue, because they have to do something. Basically, their choices are to cut benefits, which is politically undesirable, to whack whole eligibility groups, which is also undesirable, or to cut provider reimbursements further. Well, they've cut all the fat, all the meat and much of the bone out of the providers; there's no place to go there. And it's politically unpopular to cut services or service groups, so they are really looking creatively for ways to reduce perceived abuses. Unfortunately, with the exception of one state, there is very little going on. A few states have fingers in the dike, like the little Dutch boy, but there aren't enough fingers to plug all the holes. Connecticut, for example, is trying to do something about the transfer of assets penalty, and Minnesota has a waiver in to do something similar. In other states, they try to close this loophole and that loophole, but they don't look at it strategically and systematically -- with the exception of Washington. What's happening in Washington? In Washington state, legislation has been proposed that in essence eliminates all the loopholes and exemptions to quality for Medicaid, and basically says that if you own anything, you have to spend it down before you get any help. The principle is this: the state doesn't require you to sell everything and impoverish yourself. You just use it as collateral for a line of credit, so you're only spending down on paper. Now, the reason that works is that the primary asset of seniors is the home. Over half of the net worth of the median elderly household is in the home. Eighty percent of seniors own their homes, and 80 percent of those own them free and clear. That's a trillion and a half dollars out there that goes completely untouched for purposes of long-term care, for the simple reason that Medicaid exempts the home and all contiguous property, regardless of value. So until you put the house at risk, seniors have no reason, at least in terms of asset protection, to purchase long-term care insurance, or to tap the equity in the home. What Washington is proposing to do is to request a waiver from the federal government that would permit them to place the house at risk, and to provide tools that would empower seniors to go to private financial institutions and take out reverse annuity mortgages. The mortgages are not only on the home but on the entire estate, so seniors would be allowed to keep the estate, including the home, until the death of the surviving spouse. But in the meantime, they will get a supplemental income that's fully collateralized by the asset, that would then empower them to go into the private marketplace and pay privately for care. So instead of going to a nursing home on welfare, they may well purchase home care, assisted living, day care, respite care -- they will tend to do things to stay out of a nursing home and off Medicaid. What happens when they're totally impoverished on paper? Once that home's value is exhausted, if that happens, they would be eligible for Medicaid. But if we're successful in Washington state, then a much smaller portion of people will ever end up on it, and Medicaid will have the wherewithal to provide quality care across the full range of services - home care, adult day care, assisted living, red carpet access to the best nursing home care - because Medicaid will no longer be a deficient payor. It will pay the full private market pay rate, which will breathe financial oxygen into the entire service delivery spectrum. How is that idea going over in Olympia? Well, it wouldn't have had a prayer a year or two ago, but because of the fiscal crisis in Washington state -- it's $2.4 billion short for the current biennium -- and because they're constitutionally prohibited from running a deficit, they're looking much more creatively for solutions. Now, I'm not saying it's a slam dunk that it will pass -- it isn't by any means. But it's getting traction. At a hearing I testified at recently, we heard testimony from some elder-law attorneys who make their living artificially impoverishing well-to-do seniors to get them on Medicaid. And it just tickled me when the chair of the National Academy of Elder Law Attorneys' state affiliate here in Washington state announced to the chairman of the committee that these assets transfers are protected under law. And the chairman looked at her and said in essence, "We're here to change those laws." So it's a whole new ball game and anything can happen now. If most people typically have enough money to pay their housing costs before they enter a nursing home, why shouldn't they be required to pay a comparable housing component after they enter one? Wouldn't that solve part of the problem? Yes, and here's the way I explain it. The seniors we're losing unnecessarily to Medicaid now are the ones who own a home worth $150-$250,000 free and clear, and have $25-30,000 a year in income. It doesn't make them ineligible, because they don't have enough for nursing home care, but they aren't poor. They just have a cash flow problem. And those people are going right onto Medicaid now because the home is exempt, and though they have to contribute their income towards their cost of care, the damage is done once they're on Medicaid at the low reimbursement rate. But if we combined the fact that they've got near enough income to pay for assisted living already, with taking $500 a month out of the value of the home through the reverse annuity mortgage, we'd have that person in an assisted living facility instead of a nursing home, where they would rather be, and we wouldn't have them on Medicaid. But instead, we have a system that says, "Don't throw your money away on long-term care. You qualify for nursing home care. As long as you're willing to go to a nursing home, Medicaid will pay for it at a considerable discount. You can protect all your assets, as long as you hold them as a home, business, car or any of the other assets that are exempt, or if you do one of the fancy trusts or annuities." Medicaid eligibility is set up to be a giant black hole sucking middle and upper-middle class people into a nursing home on welfare. It's just an insane system, and once you understand how it really works, instead of the myth that you have to be poor to get it, everything becomes crystal clear. So if economic forces and the other factors we've just talked about are finally precipitating change, what happens if the federal government jumps in and bails the states out of their Medicaid problems? Well, I don't consider that a realistic possibility. President Bush just told the governors this weekend not to come looking to him for help. "We don't have any money," he said to the states, "and even if we had any, we wouldn't give it to you. You people are in trouble because you got carried away spending over the last decade, and the best thing you can do is take the measures that need to be taken to get the hemorrhage under control." Of course all the liberal groups are characterizing the Bush proposal for Medicaid reform as being "block grants," and are begging for more government money. In other words they want to put this fire out by dousing it with gasoline, by giving states a temporary boost in the federal match. Well, again, that's like giving dope to a junkie. What do you think about the Bush administration proposal? What [HHS Secretary] Tommy Thompson has proposed for Medicaid reform goes like this: Medicaid has two kinds of services, mandatory coverage groups and services and optional coverage groups and services. The mandatory groups tend to be made up of the very poor -- poor women and children -- and the eligibility rules for those people are already draconian. Believe me, you have to be poor to get those services. They represent about two thirds of the recipients on Medicaid, but only one third of the dollars. We don't spend much for poor women and children, frankly, as compared to nursing home care for the elderly, which falls under the optional category. When things get bad enough, states can just say they're not going to pay for nursing home care Medicaid programs, and they have that authority. What Thompson and the President are trying to do is to avoid things getting so bad that the states will cut off whole eligibility groups. Because the optional coverage groups and services, such as seniors and nursing home care, represent only one third of the recipients but two thirds of the dollars. What the administration is suggesting is to keep all the protections and requirements and mandates that tie states in knots in place for the mandatory services and coverage groups, so that those poor women and children are protected no matter what. But they're saying let's open up those optional categories so that states can decide who and what they want to cover. They can change the eligibility criteria; they can close the loopholes so that well-to-do seniors can't get free nursing home care; they can do the line of credit on the estate that we've proposed. They can eliminate the loophole Connecticut is trying to close, which allows people to reduce the transfer of assets penalty by half. They can prohibit the practice Indiana has been allowing of people getting rid of two or three hundred thousand extra bucks by purchasing a rental house and calling it a business, which is exempt for purposes of determining Medicaid eligibility. Indiana has the elder law bar and the real estate industry in cahoots helping affluent seniors buy rental houses so they can qualify for Medicaid. All that sort of thing, under the President's proposal, could be stopped by individual states. Now, they are prohibited from closing those loopholes because of the federal law. So this blows the thing wide open. I think the Bush proposal makes great sense, for a number of reasons. States could do the kinds of things we've been proposing all along, saving Medicaid for the poor and creating stronger incentives for everyone else to pay privately, thereby assuring better access to higher quality care across a wider spectrum of services for rich and poor alike. It will also breath financial oxygen into the provider industry and blow the lid off the long-term care insurance industry. The plan wouldn't hurt anybody except the Medicaid planning attorneys and some heirs who need to be awakened to this risk anyway, or we're going to be in a real mess in 20 years when the baby boomers start needing long-term care. On the consumer level, is the concept of long-term care insurance picking up momentum at all? Long-term care insurance sales are flat, or rising somewhat. It was recently reported that long-term care insurance paid $1 billion in claims last year, which is spectacular, but it's way below one percent of the entire cost of nursing home and home health care nationally, which is $133 billion. So long-term care insurance isn't even a fly speck on the windshield of the long-term care industry, and that's why they don't get any respect from the providers or the financiers. The public hasn't awakened to the risk yet, but as I said earlier, they're beginning to. The front cusp of the baby boom generation is going through this with their parents and are getting ground up in the long-term care machine. A lot of them are then going out and buying long-term care insurance for themselves, and that process will continue as the boomers get older. We've got 18 years of the baby boom generation, but if we wait around for all of them to get caught in the grinder with their own parents, wake up and buy insurance, it's going to be too late to get this generation protected before it all hits the fan in 2030. Are the providers, insurers and financiers learning to work together yet? No, they're not communicating any more than they ever have. I'm very frustrated with all of them. The nursing home industry is basically just begging for a reimbursement handout from the government. There's some lip service to dealing with the hemorrhage of Medicaid eligibility, and I'll give credit where credit is due to Chip Roadman [AHCA president] and the American Health Care Association for what they've proposed. I recently wrote an article called "Denial is not a river in Egypt," and I made the case that it's not consumers who are in denial. Consumers can ignore the risk, avoid the premiums, wait until they get sick and the government will pay their long-term care. They're not half as stupid as the insurance industry thinks they are. It's the long-term care [insurance] industry that's in denial. They somehow don't observe the reality of why people don't buy their products, and so they keep getting what they always got. It's the definition of insanity -- you keep doing what you've always done and expect different results. They do not grasp that people don't buy LTC insurance because they don't think they need it, and they don't think they need it because the government has been paying for almost all of it for the last 40 years. My reaction is, what is so complicated? Open your eyes, look at the reality and do something about it. But all the long-term care insurance industry does is go to the government begging for tax deductibility of premiums, which since it would cost the government money, and since the government has no money, isn't going to happen in the foreseeable future. Don't get me wrong. I'm in favor of tax credits and genuine tax deductibility for long-term care insurance. I just don't think those proposals have much hope for success in the near term. Even if they pass, they will only help on the margin. And the best hope the industry has is to propose policies that save the government money AND enhance the marketability of private LTC insurance. Of course, the financiers of long-term care couldn't care less. They have no interest in long-term care insurance because they don't see it bringing in any money in the foreseeable future, so it doesn't help them penciling out projects they want to do now. Most of the debt and equity capital has departed, because who wants to invest in this industry when there's no money in it? They go somewhere else where they can find a decent return. The long-term care insurance industry should be going to the government and saying, "Look, we can save you a whole bunch of money in the future by getting people insured who don't belong on Medicaid. But in the meantime, just taking away these loopholes and exemptions would be a big savings to you right now." That is a slam dunk argument. The people at the Centers for Medicare and Medicaid Services are ready to listen to it -- they're already talking about encouraging reverse annuity mortgages. So the stage is set, and if we could just wake up the decision makers in the provider, financier and insurance industries to recognize what needs to be done and work together, the beautiful thing is that the government is now ready to listen. The problem with public officials is they're so busy putting out grass fires they don't even notice when a fire engine drives up right beside them. They'll be swatting with blankets because they just aren't looking at the solution, and you can understand why. They are in desperate circumstances because they didn't take heed when times were better. And you would say the Medicaid problem is going to be best solved at the state level, not with federal government intervention? Well, if the federal government lets the states become more like laboratories, where they can try and fail and succeed and share best practices, then we can solve this thing, and solve it fairly quickly. Like I've said, make me king and I'll fix this overnight. It's not difficult, it's not complicated. You just have to get rid of the perverse incentives so that people will do the right thing. But the next best thing is to just let states flounder around trying different things and see what works, because they'll end up right where we've been telling them they need to go. They'll have to bite the bullet and do the politically tough things that need to be done. But the beauty of it is, once they do those things, everybody is going to be better off. The seniors are going to get better care because they're paying privately. There will be more private money in the system so providers will be better off. And when people have to spend their own money, they'll sure as the devil start buying long-term care insurance. So it's just better for all concerned -- except for the Medicaid planners, who will be out of business. |
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