A recent opinion piece in The Wall Street Journal entitled "Millionaires on Medicaid" charges that many Medicaid-covered (MassHealth in Massachusetts) residents of nursing homes are millionaires. Mark J. Warshawsky, an American Enterprise Institute scholar who was vice chairman of the federal Commission on Long-Term Care, gets to this figure by combining the upper limit on home equity of $814,000 (in 2014) with the limit on countable assets for the spouse of the nursing home resident of $117,240 (in 2014). Never mind that these don't quite add up $1 million, since clients working with elder law attorneys can usually save something more than this.
Mr. Warshawsky has a point. But he overstates the problem and offers no realistic solution.
Trying to defend our current system for paying for long-term care is akin to responding the proverbial question, "When did you stop beating your wife?" No one would come up with our current patchwork system of paying for long-term care if they were to start from scratch.
But the spouse of a Medicaid-covered nursing home resident who at the most will have a house worth $814,000 ($543,000 in many states) and another $100,000-plus in savings and investments may have to live on this for decades to come, including paying for her own long-term care. A single resident of a nursing home is permitted only $2,000 in most states and if he owns a house, it will be subject to claim for reimbursement by the state for the Medicaid paid out for his care.
Mr. Warshawsky himself shows that few higher-income seniors are receiving Medicaid benefits, with only one in 20 of those in the highest quintile of income, 8% of those in the next highest and 15% of those in the middle quintile. Those seniors receiving Medicaid-covered nursing home care must contribute their income to the cost of their care, helping to defray the government's costs. And there's a problem comparing income to assets, since some seniors with substantial assets may have little income, and others with higher income may have few assets.
Mr. Warshawsky suggests a number of reforms that seem either unworkable or unlikely to have much effect. Some reflect a distrubing misunderstanding of how the Medicaid and related systems work.
First, he recommends that seniors be required to draw down on the equity of their homes through reverse mortgages before qualifying for Medicaid benefits. It's not clear whether he would recommend this whether or not a healthy spouse was living in the house. Either way, it would require a major change in the current reverse mortgage rules which require repayment of the loan, in other words the sale of the house, within a year of the borrower moving out.
Second, he asks that wealthier households pay long-term care expenses through converting their retirement plans to life annuities. But what retirement plans? By the time a senior qualifies for Medicaid she will have had to spend down all of her savings, including her retirement plans.
Third, seniors could pay for long-term care insurance through tax free withdrawals from retirement plans. This not only favors those in higher tax brackets, but it means reduced revenue for the federal government. It adds to the complication of a tax system that is already crying out for simplification.
Fourth is some sort of combination of long-term care insurance and life annuities. It's not clear what this is, but to the extent a number of these recommendations rely on long-term care insurance, it cannot be a solution for the vast majority of Americans because they simply can't afford the premiums.
Mr. Warshawsky's fifth proposal is to expand partnership programs that a number of states offer which relax the Medicaid eligibility rules for owners of certain long-term care insurance policies. While this may help a bit on the margins, again it's going to be irrelevant to the vast majority of seniors.
Finally, the American Enterprise scholar suggests (apparently with a straight face) that the government simply give all seniors a lump-sum that they can use to purchase long-term care insurance in lieu of ever receiving Medicaid benefits. Need we comment on the likelihood of this program coming to pass?
The combination of these proposals makes one wonder whether Mr. Warshawsky's salary is paid by the insurance industry. While I have nothing against insurance, carrying many forms of insurance, including long-term care insurance, myself, it is not a solution to our looming long-term care funding crisis. Currently under 12% of long-term care spending is covered by long-term care insurance. Even if this percentage were tripled, it would leave two thirds of seniors uncovered. (Click here to read an AARP Factsheet on long-term care insurance.)
While I agree with Mr. Warshawsky that the "current Medicaid long-term care program is neither equitable nor fiscally sustainable," his solution will only help on the margins if it helps at all.