Doing Long Term Care RIght: Part One

Executive Summary:

  • Caring for the frail and infirm elderly is difficult and expensive. Today, America’s long-term care delivery and financing system is a mess.
  • Rhode Island has been a case in point.
  • Most people receive long-term care in nursing homes funded inadequately by a public welfare program called Medicaid.
  • Ideally, most people would receive long-term care in their homes and communities, but arcane federal Medicaid rules have precluded that result.
  • Rhode Island Medicaid sought and received a “global Medicaid waiver” enabling it to manage long-term care more effectively in exchange for a cap on federal funding.
  • The state is implementing a new system of clinical eligibility that makes more home care and less institutional care available to Medicaid recipients.
  • But, demographic pressures (the Age Wave) and financial pressures (the recession and government deficits) presage huge future problems for long-term care.

  • This report examines whether Rhode Island’s ingenious global waiver strategy can achieve its goal of rebalancing long-term care without breaking the bank.
  • The report explains how long-term care in the USA and Rhode Island came to be dominated by publicly financed institutional care.
  • It describes how Medicaid became the dominant payer for long-term care not only for the poor, but for most of the middle class, and many of the affluent.
  • The report argues that financing quality long-term care for all Rhode Islanders will require more private financing to supplement dwindling public funds.
  • It explains why potential private long-term care financing alternatives, such as home equity conversion and private insurance, have languished to date.
  • Finally, this report recommends a course of action whereby Rhode Island Medicaid can ensure clinical success and financial viability under the global waiver.
  • “Doing LTC RIght” offers a model for long-term care reform that could reduce institutional bias, increase access and quality of long-term care, and save money.
  • If Rhode Island does LTC right, the rest of the country may follow its example.

Introduction

This report is the product of a collaboration between the Ocean State Policy Research Institute of Providence, Rhode Island (OSPRI, www.oceanstatepolicy.org) and the Center for Long-Term Care Reform of Seattle, Washington (CLTCR, www.centerltc.com).

Earlier work products from this project include a report titled “The Age Wave, the Ocean State and Long-Term Care,” versions of which are available on OSPRI’s and CLTCR’s websites. We also published an op-ed in the Providence Journal titled “R.I. Medicaid Has Sprung a Leak” on September 17, 2009.

Information on how this project was funded is in the “Appendix: Recognition of Donors.” All financial support for the project was private. No public funds were used.

The subject of long-term care delivery and financing, especially as it involves Medicaid eligibility, is complicated and often esoteric. We have attempted to keep this report as simple and straightforward as possible. But much of what you read herein will contradict widely held beliefs about the subject.

Therefore, we recommend that you review the report in a special way. First, suspend your disbelief temporarily. Read only the text. It’s intended to make the argument as concisely and compellingly as possible. Disregard the footnotes at first reading. [Footnotes removed for serialized version. For full report with footnotes, see http://www.centerltc.com/pubs/Doing_LTC_RIght.pdf.] Ask yourself, if this is true, do the conclusions and recommendations make sense?

Next, re-read the report critically. When you see something in the text that contradicts conventional wisdom, read the footnote and decide which to believe–conventional wisdom or the facts as stated and verified.

I want to make one thing crystal clear. All of the problems discussed in this report spring from federal law and regulations. Rhode Island Medicaid staff have no choice but to implement and enforce those rules as written and interpreted. They have done a superb job in that regard.

What is new and exciting is that Rhode Island’s global Medicaid waiver opens opportunities to manage scarce Medicaid resources in ways that make more sense and provide better results for the state’s neediest citizens. We hope this report provides insights and suggestions that will facilitate the achievement of that objective.

Overview

Long-term care (LTC) delivery and financing in the USA is seriously dysfunctional. We have a welfare-financed, nursing-home-based LTC system in the wealthiest country in the world where no one wants to go to a nursing home.

Yet most of the American public is asleep about the enormous risk and cost of long-term care. Few plan to save, invest or insure so they can pay privately for care if and when it’s needed.

Most who need expensive long-term care slip sooner or later onto Medicaid, a means-tested public assistance program.

Long-term care in Rhode Island is no exception and key demographic and other data on RI do not bode well for the future.

For example, compared to other states, Rhode Island ranks

  • 43rd in total population but 5th in percent of population over 85 years of age;
  • 3rd in elderly with Alzheimer’s Disease;
  • 6th in nursing home recipients age 65 plus;
  • 2nd in nursing home expenditures per Medicaid recipient;
  • 39th in home and community-based services as a percent of long-term care spending;
  • 44th in the ratio of family caregiving value to Medicaid cost; and
  • 42nd in median household income for people age 65 plus.

Medicaid is the dominant LTC payer in the Ocean State. The cost is enormous and growing. Long-term care for the elderly accounts for a disproportionate share of Rhode Island’s Medicaid expenditures.

Like the U.S. as a whole, only more so, Rhode Island’s Medicaid-financed LTC is dominated by nursing facilities, which most people would rather avoid.

Likewise, access to Medicaid-financed home and community-based care, which most people prefer, is very limited–again more limited than in most of the rest of the country.

Furthermore, like most Americans, few Rhode Islanders prepare in advance to pay privately for LTC through savings, investments or insurance.

Public officials in RI recognized these problems and took creative, arguably radical, measures to address them.

The state now has a unique “global Medicaid waiver” under which Rhode Island agreed to a five-year cap on otherwise unlimited federal Medicaid matching funds in exchange for extra flexibility under federal laws and regulations to operate the program more effectively.

Rhode Island’s global waiver is a big gamble, but likely a good one if implemented in full recognition of the issues discussed in the remainder of this report.

So far, state officials have used their new flexibility and authority under the global waiver, as it bears on long-term care for the elderly, primarily to change clinical eligibility rules as a means to reduce nursing-home use and increase access to home and community-based alternatives by Medicaid recipients.

Based on our interviews with the state Medicaid Director, the Director of Policy, Executive Office of Health and Human Services, and the Administrator, Office of Institutional and

Community-Based Services and Supports, as well as other state officials responsible for implementation of the global waiver, we believe Rhode Island is on course to achieve its goal to rebalance the Medicaid LTC program toward less institutional care and more home care.

Such success is bound to please current and future Medicaid recipients.

  • But will it save money?
  • How will nursing homes adapt to losing their lower acuity (i.e. more profitable) residents?
  • Can the alternative care venues encouraged by the waiver, such as adult day care, home care and assisted living, satisfy the extra demand for their services at rates Medicaid can afford to pay?
  • Will Medicaid’s funding more of the services people prefer (home care) and less of the services they’d rather avoid (nursing home care) further discourage private LTC planning and financing and thereby leave more and more of the cost of long-term care with public programs?
  • What can policy makers do to ensure that the answers to these questions will be beneficial for all concerned–care givers, care receivers, and care funders–as the massive baby-boomer Age Wave crests and crashes?

These are the key issues we will address in this report.

But first, before we can answer these specific questions, we must confront, explain and resolve a puzzle that affects long-term care delivery and financing both in Rhode Island and the USA.

Why Does Medicaid Pay for Most Long-Term Care?

If long-term care is such a high risk of catastrophic financial loss as often asserted, why is it that most people who need LTC end up on Medicaid, a means-tested public welfare program, but statistics show little evidence the public has to spend down savings before qualifying for government assistance?

Americans face a 69 percent probability of needing some long-term care and a 20 percent probability of needing five years or more.

LTC in Rhode Island is very expensive whether provided in the home (home health aide, $25 per hour; homemaker, $21 per hour) or in adult day care ($63 per day), assisted living ($3,157 per month) or a nursing home ($233 semi-private room per day, $254 private room per day).

Yet the vast majority of expensive long-term care throughout the USA–including Rhode Island–is funded by third parties such as Medicaid, Medicare, and private insurance or by spend-through of Social Security income or other private income by people already on Medicaid.

One can account for 85 percent to 90 percent of the entire cost of expensive long-term care in the United States and in Rhode Island without touching any of anyone’s personal savings.

The conventional wisdom that people all across the country are being forced into impoverishment by the high cost of long-term care is demonstrably false and has been so for decades.

But, what if it’s true that most people can ignore the risk of long-term care, avoid the responsibility to save, invest or insure for that risk, wait to see if they ever need expensive LTC and, if they do, get someone else to pay?

If that is true, wouldn’t it make sense that most Americans and most Rhode Islanders don’t worry about long-term care until it’s too late to prepare responsibly and therefore end up on the public program that pays for most long-term care?

If it is true that most people can safely ignore LTC risk and cost, wouldn’t making even more desirable services available through the publicly financed plan invite financial peril for the state and federal government, compounding costs at a time when new revenues are curtailed?

But how can it be true that people qualify for public funding of their expensive long-term care without first spending themselves into financial ruin?

That is in fact how Medicaid long-term care financial eligibility actually works despite the common view that getting government to pay for LTC requires “spend down” into “impoverishment.”

How Medicaid LTC Eligibility Actually Works

Most of what one reads in the media, trade journals, or even in peer-reviewed research articles, says that Medicaid long-term care eligibility requires poverty-level income and asset spend down into penury.

The whole truth is more complicated. On the income side, Rhode Island has a medically-needy income eligibility system. That means the state deducts the cost of private nursing home care and other insurance and medical expenses from a Medicaid applicant’s income before asking if any remaining income meets the poverty-level standard.

Consequently, successful applicants for Medicaid long-term care do not have to be low income. They only need to have a cash flow problem after they have paid all their LTC and medical expenses.

Rhode Island’s Medicaid eligibility policy chief told us he has only seen eligibility denied to two applicants based on excess income during his decades of experience with the program. And those were “oddball cases.”

But what about assets? Don’t Medicaid applicants have to spend down their personal savings privately for their own care until they get down to a draconian limit of $4,000?

No again.

Federal Medicaid rules, with which Rhode Island is required to abide, do not require that assets be spent down specifically for long-term care.

“Take a world cruise” or “throw a big party” some experts advise. As long as you don’t give assets away for less than fair market value to qualify for Medicaid, no “transfer of assets” eligibility penalty applies. Applicants and recipients may purchase any amount of exempt assets in order to reduce their resources to the Medicaid eligibility limits.

Furthermore, allowable exempt assets are virtually unlimited. In addition to the $4,000 in cash that recipients are allowed to retain, they may also keep the following without affecting their Medicaid eligibility:

  • A home and all contiguous property up to $500,000 in equity.
  • One business including the capital and cash flow of unlimited value.
  • Retirement funds such as Individual Retirement Accounts (IRAs).
  • One automobile of unlimited value if used for the benefit of the Medicaid recipient, which is assumed.
  • Unlimited prepaid burial plans for the Medicaid recipient and immediate family members.
  • Unlimited term life insurance.

Medicaid exempts many other assets but those are the major ones, except for household goods discussed below. Again, these exemptions are mandatory under federal law and regulations.

Do these federal rules cause Rhode Island Medicaid to expend more state resources for long-term care than would otherwise be true? Undoubtedly. Consider, for example, the home equity, prepaid burials, and household goods exemptions.

END OF PART ONE. STAY TUNED…

IN PART TWO TOMORROW:

  • Home Equity
  • Prepaid Burials
  • Personal Property
  • Medicaid Planning
  • Medicaid Estate Recovery
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