Personal Finance

Medicaid Long-Term Care’s Real Problem Is Insufficient Resources, Not Abuse By Wealthy Seniors

Critics of Medicaid’s long-term services and supports (LTSS) program often complain that it is so poorly designed that lavishes benefits on wealthy retirees and wastes billions of dollars in taxpayer money.

Some people do abuse the system. And they should be stopped. But the real problem with Medicaid LTSS is that in many states its benefits are so paltry that frail older adults receive poor care.

The complaints about excessive benefits come in two forms: Some say the program inappropriately allows the rich to exclude much of their wealth from its eligibility limits. Others say wealthy seniors often transfer assets to relatives so they can become eligible for program benefits.

The first objection is over policy: For instance, should Medicaid beneficiaries be allowed to keep their homes? Since the alternative would be to sell their house and move into a nursing home, it is hard to see why not. But that issue is at least debatable.

Little evidence of abuse

By contrast, there is little or no evidence to support allegations widespread fraud and abuse.

Indeed, a substantial body of research, including new studies by my Urban Institute colleague Rich Johnson and by Marc Cohen and Jane Tavares of the Gerontology Department at the University of Massachusetts, Boston find high-income/ high net worth people rarely receive Medicaid LTSS. And those who do, tend to enroll at a very old age or after long spells of health and long-term care needs. In other words, they likely burned through their resources to pay for a long period of care.

A quick rundown of the rules: In most states, you are eligible for Medicaid LTSS if you have limited income and less than $2,000 in financial assets ($3,000 for couples). Assets such as a primary residence and one vehicle generally are excluded from the calculation. To prevent people from dropping below the caps by giving away assets to family members, Medicaid bars transfers within five years of enrollment in its LTSS program.

Some lawyers still make a business of helping wealthy clients manipulate Medicaid so they can preserve assets for their heirs. But doing so comes with a high cost. For example, it may mean sharing a nursing home room with a stranger, a common care setting for Medicaid recipients. How many people with means want to do that?

Lifetime poor

Multiple studies over the years found the vast majority of Medicaid LTSS beneficiaries were poor over their lifetimes (here and here). They had few resources during their working lives and even fewer in old age. In addition, low-income older adults are far more likely than those with higher incomes to require paid long-term care, and to need it for a longer period of time.

For example, Johnson, in an August paper co-authored by Judith Dey of the Department of Health & Human Services, estimates that the lowest-income seniors need care for an average of one full year longer than those with the highest incomes, even though their life expectancy after age 65 is five years shorter.

Johnson estimates that fewer than 6 percent of those with the highest incomes at age 65 ever enroll in Medicaid LTSS. And they typically are in their mid- to late-90s, suggesting they have been frail for some time.

In contrast, more than one-third of those with the lowest incomes at age 65 use Medicaid LTSS, as do nearly one-quarter of those in the next lowest income group.

Two percent game the system

Cohen and Tavares, in their new article published in the Journal of Aging and Social Policy (paywall) find that roughly 7 percent of the highest-income older adults benefit from the program, results similar to Johnson’s.

But then they dig more deeply. They found an even smaller group—only about 2 percent of high-net worth Medicaid beneficiaries— significantly reduced their assets in the seven years before they enrolled in Medicaid LTSS even though they had no long-term care needs or significant health care costs. That’s the group Cohen and Taveres estimate may have divested assets to become Medicaid eligible.

They figure Medicaid would save about .7 billion by weeding out those who may be abusing the system. Not nothing, but its only about 2 percent of total program spending.

Missing the real issue

What about the argument that the rules themselves are too generous? In a recent column in The Hill, American Enterprise Institute senior fellow Mark Warshawsky objected to Medicaid rules that exclude some of the value of owner-occupied homes and retirement savings when calculating eligibility. And, he says, Medicaid should more aggressively recover any remaining assets from estates after beneficiaries and their spouses die. All this, he says, could save Medicare about $6 billion annually.

He is right that states should be more consistent about recovering assets after a beneficiary’s death. But retirement savings are counted as assets in all but about a dozen states. They are exempt in some large states such as California, but usually only when retirees are taking mandatory distributions.

But all these complaints about “waste, fraud, and abuse” deflect from the most important issue: Too often, Medicaid LTSS provides an insufficient level of care for those frail older adults who desperately need help. This failure worsens the quality of life of recipients and their families. And the lack of good long-term care likely results in more acute medical episodes and adds billions of dollars to Medicare costs.

Focusing on wealthy older adults who abuse Medicaid is a bit like worrying about someone who left their tap running when they fled during Hurricane Ian. It surely is true that some people may have added to the flooding by doing so, but is that really what we should be worrying about?

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