This column, written by RI resident and healthcare expert Gary Alexander, originally appeared in the Washington Times on January 15, 2024
Medicaid, a vital program for indigent and disabled Americans who need long-term care, is facing a crisis of sustainability. The program, initially designed to assist those with insufficient means, is commonly exploited by loopholes in the system that allow basically anyone to gain eligibility for LTC services through financial planning. This trend not only stretches Medicaid’s resources thin but also raises questions about the program’s long-term viability and its impact on state and federal budgets.
In my time managing Medicaid in a number of states, I observed how the system is abused, often by adult children who care more about preserving their inheritance than caring for their aging parents. Consider a typical Medicaid LTC recipient like Linda Johns, a 75-year-old widow with a current net worth of $750,000. As Linda got older and approached the need for long-term care, her children and a savvy Medicaid attorney worked with her to legally restructure her finances so she could qualify for Medicaid.
Like many parents, she put her children’s needs before her own by giving them $500,000 — a substantial portion of her assets — more than five years before applying. This avoided the Medicaid five-year look-back penalty, a rule that allows assets to be transferred five years or more before applying for Medicaid.
Linda was then instructed to purchase a Medicaid-compliant annuity and use spend-down tactics to fall below the Medicaid asset threshold. For example, Linda used some of her savings to “spend down” her own funds to pay for her care initially, renovate her home to be more accessible, buy a new car, and pay her funeral expenses in advance, all of which are allowed under Medicaid rules (and some of which her children would inherit).
Sadly, Linda was in for a rude awakening: While she could have afforded top-notch care, the quality of long-term care that Medicaid provides is much lower than what is available on the private market. While their actions are legal, Linda’s heirs exemplify how the system can be manipulated to preserve funds for adult children, all while siphoning off Medicaid funds from those without the means to pay for private services.
The ease with which adult children and savvy lawyers can “help” older adults like Linda qualify for Medicaid LTC is indicative of a larger systemic issue that has profound implications for the program’s cost. Medicaid’s LTC expenditure is significant and growing. Medicaid long-term care accounted for $207 billion in 2021.
Moreover, the strategic use of Medicaid by middle- to upper-income individuals undermines other government spending priorities, contributes to growing federal deficits, and erodes public confidence in the system.
As Stephen Moses highlighted in a recent Paragon Health Institute paper, one of the unintended consequences of Medicaid’s model is the disincentive for personal savings or insurance for LTC.
When Medicaid will “come to the rescue,” people are less likely to set aside funds for future care needs. Mr. Moses further points out that Medicaid’s paltry LTC reimbursement, frequently less than the cost of providing the care, leads to meager worker salaries, thus causing low-quality care and worker shortages.
Mr. Moses adds that the affluent that take advantage of Medicaid can avoid quality pitfalls by paying privately for a period of time, allowing them access to the best care and facilities while harming the poor.
As baby boomers age over the next decade, LTC demands will surge, with 70% of individuals turning 65 today likely needing significant LTC, with the demand intensifying after age 85.
This looming crisis leads us to confront uncomfortable questions about the government’s role in caring for older Americans. In a new Paragon Solutions paper, Mr. Moses calls for a multifaceted reform approach, including eliminating loopholes that allow the affluent to spend down to gain access, expanding the look-back on asset transfers from the current five-year rule to 20 years, and ending the disincentive to use personal savings for LTC.
These solutions would prepare Americans from a young age to save for future care and take greater responsibility for their finances. The reforms would also refocus public resources on the indigent. Mr. Moses’ solutions require courage and innovation from policymakers, advocacy from communities, and a public discourse that recognizes the urgency of the issue.
The misalignment between Medicaid’s intent and its use by individuals with substantial assets has far-reaching implications for the program’s sustainability. The program needs urgent reforms like those advocated by Mr. Moses if it is to survive for future generations.
As Congress debates Medicaid’s future, it’s crucial to recalibrate its eligibility criteria and rules to more closely reflect the program’s original intent to preserve public funds for the indigent and disabled.
• Gary D. Alexander is director of the Medicaid and Health Safety Net Reform Initiative at Paragon Health Institute. He previously served as secretary of health and human services in Rhode Island and Pennsylvania.