to have a welfare-financed, nursing-home-based long-term care system that
serves so few people well?
In 1965, as more people were living
longer and dying slower and fewer women were available to provide free care in
the home, Medicaid ensured that nursing
home care was available at little or no cost.
Easy access to government-financed nursing homes stunted the development of
privately financed home and community-based services, crowded out a market for
home-equity conversion or private insurance to fund long-term care, and caused
Medicaid expenditures to explode rapidly.
Therein lay the origins of the long-term care service delivery and financing
problems we still face today, including
institutional bias, budgetary strains,
low provider reimbursements, caregiver shortages, excessive Medicaid
dependency, and disappearing private-pay residents and funding sources. Our
current dysfunctional long-term care
system is the logical and inevitable consequence of the well-intentioned but
counterproductive policy to fund nursing homes through a welfare program.
Instead of addressing the cause (easy
access to government-subsidized nursing
home care), most academics and the state
Medicaid programs that they influence
have tried to fix the symptoms (
institutional bias and high costs). The Holy Grail
of recent long-term care financing policy
has been the idea that by “rebalancing”
funding from nursing home care to home
and community-based services, Medicaid
can give more people the long-term care
services they prefer at a lower cost.
But are home and community-based
services really less expensive in the
long run and across the whole of society? Most research suggests they are
not. In general, home and community-based care delays but does not replace
nursing home institutionalization.
Home care is labor intensive and lacks a
nursing facility’s economy of scale. The
combination of home and institutional
care ends up costing more, not less. (For
a summary of the evidence, see my 2011
study, Medi-Cal Long-Term Care: Safety
Net or Hammock?)
When Medicaid pays for more home
care (which people prefer) and for less
nursing home care (which most people
would rather avoid), the program may attract yet more participants. People who
already are financially eligible are more
likely to rely on Medicaid, and others,
when they perceive that Medicaid provides more desirable services, are more
apt to impoverish themselves intentionally to qualify.
But why does Medicaid—a means-tested, public assistance program—pay
for the majority of long-term care in the
first place? Isn’t it supposed to be a safety net for a relatively small number of
truly needy people? Don’t people have to
spend down into impoverishment before
they get help from Medicaid?
That perception is what I called the
“fallacy of impoverishment” in an article that ran in the February 1990 issue
of The Gerontologist. Most Americans,
in fact, qualify quite easily for Medicaid-financed long-term care. The financial
eligibility rules are much more generous and elastic than commonly realized.
As a result of the Omnibus Budget Reconciliation Act of 1993, applicants whose
income exceeds the income cap of 300
percent of the monthly Supplemental
Security Income allowance may divert
their excess income into Miller income
diversion trusts and qualify for Medicaid
long-term care benefits based on their
remaining lower income. Because the
money in the trust is used each month to
offset Medicaid’s cost of care for the individual, this policy occasionally results in
stands in the way of
Medicaid paying nothing for the individual’s care. But the nursing home receives
only the Medicaid reimbursement rate,
which on average is 70 percent of the private pay rate and frequently less than the
cost of providing the care.
In 35 states there is no set cap on
the income of those seeking to qualify
for Medicaid long-term care benefits.
These states deduct the cost of private
nursing home care and other medi-cal expenses not covered by Medicare
Part B—such as eye care, dental care,
and foot care, as well as residual pharmaceutical expenses not covered by
Medicare Part D—from an applicant’s
income before determining Medicaid
eligibility. The net effect is that income
rarely stands in the way of Medicaid
long-term care eligibility.
In addition, Medicaid applicants may
retain virtually unlimited resources. Exempt assets for those seeking Medicaid
eligibility include a home and all contiguous property up to an equity value of at
least $500,000 (and as much as $750,000
in some states), plus one business, one car,
prepaid burials, household goods, and term
life insurance of unlimited value. Lawyers, operating as “Medicaid planners,”
help wealthier clients self-impoverish artificially by means of special trusts, asset
transfers, “Medicaid-friendly” annuities,
and the purchase of exempt assets.
A faulty solution
It is unlikely that the CLASS Act will fix
the problems that Medicaid has caused.
The reasons are many. Most people don’t
worry about long-term care until they or
their loved ones need it—at which point
the path of least resistance is to qualify
for Medicaid. The CLASS Act does nothing to change that.
The CLASS Act’s five-year wait for
benefits equals the current five-year look-back period for Medicaid eligibility, so it
does not discourage asset transfers to qualify for Medicaid. (Under the law, assets
that were transferred for less than fair-market value so as to qualify for Medicaid
trigger an eligibility penalty that is equal in
months to the amount of uncompensated
assets transferred divided by the average