Congress Strengthens Long-Term Care

Armen Hareyan's picture
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Long Term Care Insurance

The Deficit Reduction Act (DRA) of 2006, signed into law by President George W. Bush on February 8, curbs Medicaid planning abuse (the sheltering of assets to make a non-eligible person eligible for Medicaid long-term care coverage) and releases the Long-Term Care (LTC) Partnership program for nationwide expansion. The latter consists of private/public partnerships that encourage people to purchase long-term care insurance by allowing them to keep their assets if they ever exhaust their insurance and have to turn to Medicaid.

The DRA warns the public that long-term care is a personal responsibility, that its risk and cost should not be ignored, that Medicaid remains a safety net but only for those truly in need, and that everyone who is financially and medically qualified should begin now to save, invest, and insure for long-term care.

Properly delivered, that message can prevent a great tragedy that threatens this country: It can save Medicaid for the poor while preparing most Americans to pay privately for top-quality long-term care across the full spectrum of LTC services--from home care to skilled nursing facility care.

Transformation Necessary

The DRA reauthorizes "LTC Insurance Partnerships"; strengthens "undue hardship" protections for Medicaid recipients; extends Medicaid's transfer of assets look-back period from three to five years; starts any applicable eligibility penalty later to prevent "half-a-loaf" giveaways; drops the home equity exemption to $500,000 from unlimited; and closes Medicaid eligibility "loopholes" such as "transfer assets before income," "Medicaid-friendly annuities," "life estates," "partial-month transfers," and "self-canceling installment notes."

These minor modifications to Medicaid's hemorrhaging eligibility system are long overdue and critically needed to begin a long process of restoring and preserving the welfare program as the long-term care safety net for the poor and to give prosperous citizens incentives to save, invest, and insure for long-term care so they will be able to pay privately for quality care when they need it.

Medicaid on Slippery Slope

The American Association of Retired Persons (AARP), big charities, and Medicaid planning attorneys opposed the DRA because it reduces the ability of their affluent members and clients to shelter and divest assets in order to shift the high cost of long-term care from their personal responsibility to taxpayers (who finance Medicaid), long-term care providers (who are paid too little by Medicaid to supply quality care), and the poor (who are unable to obtain the same quantity, quality, and range of services from Medicaid available to the well-to-do because they lack the "key money" to buy their way into the better Medicaid facilities).

A statement by AARP CEO Bill Novelli on the House budget reconciliation vote was titled, "Transfer of Assets Provision to Punish the Innocent," and claimed, "The U.S. House of Representatives has ... approved a provision in its budget that will deny long-term care coverage to those who give money to charities, churches, and family members in need. Working with our members, AARP will continue the fight to have this ill-conceived policy reversed."

Without the improvements spelled out in the DRA, however, Medicaid will remain on its slippery fiscal slide toward collapse; LTC insurance, home equity conversion, and other private LTC financing alternatives will continue to languish; the bias in most state Medicaid programs to provide LTC in an institutional setting (i.e., nursing home) will continue, while home and community-based care will suffer; the public will remain anesthetized to the risk of not preparing for long-term care; and ultimately the baby boom generation will have to use its home equity to fund long-term care while the poor will have nowhere to turn when Medicaid disintegrates entirely.

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States Responsible

The changes to LTC and Medicaid in the DRA will mean nothing, however, unless the states implement them, the federal government enforces them, the private sector promulgates them, and the public understands them.

The states are flush with cash again. A January report on Stateline.org began, "From Massachusetts to Hawaii, signs abound that the immense pressure placed on state budgets by the fiscal crisis early this decade has eased and put tax cuts and new spending in the realm of possibility for the first time in several years."

With the fiscal pressure off, states may shy away from enforcing the new Medicaid eligibility rules in DRA '06 just as they dropped the ball on the Omnibus Reconciliation Act of 1993 (OBRA '93), which contained many changes that were never enacted.

Reform Opponents Mobilizing

Advocacy groups are already mobilizing to fight LTC reform again. What they couldn't stop in the above-board legislative process, they'll try to kill behind the scenes in state legislatures and Medicaid agencies.

Elderlaw planners are already offering a fire sale on asset transfers, and they'll soon be mobilizing to impede and repeal the DRA reforms. "Although Congress passed a new law February 1 further restricting the ability of the elderly to transfer assets before qualifying for Medicaid coverage of nursing home care, many people in most states will still have time to plan under the old rules," read an email release from Elderlawanswers.com the day after the House vote. "[T]he old rules will likely apply to transfers if the Medicaid application is filed before the state passes the complying legislation. So it may not be too late to plan, and in many cases not too late to transfer assets," the release said.

Medicaid Reform Key

People won't buy LTC insurance to avoid a Medicaid spend-down liability that does not exist. If the new Medicaid rules are implemented and enforced, the LTC Partnerships established by the DRA will be enormously successful. If not, they won't.

The private long-term care insurance industry should actively support efforts to help states implement the new Medicaid rules and LTC Partnerships.

Home equity conversion lenders should actively support efforts to educate the American public about the new and likely future Medicaid limits on exempt home equity. LTC providers should actively support efforts to implement the DRA in such a way as to prevent asset transfers that leave people ineligible for Medicaid but unable to pay their own way.

Steve Moses -

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