Long-Term Care Insurance Forum

Contact: Stephen Moses, Research Director,
206-515-7145, steve_moses@compuserve.com;
David Rosenfeld, Counsel for Public Policy,
206-515-7156, DMRatLTC@aol.com

Seattle--
Financial planning experts often give bad advice on private long-term care insurance. Vulnerable seniors who heed their recommendations run the risk of unnecessary welfare dependency and inferior long-term care. Editors, journalists and other knowledgeable authorities should sound a warning. Here's the story:

Over 30 million people read AARP's bimonthly magazine Modern Maturity. In its July/August 1997 issue, Priscilla Itscoitz of the United Seniors Health Cooperative, a Washington, D.C.consumer group, gives this advice: "Don't consider a LTC insurance policy unless you have an annual gross income of at least $30,000, can pay the premiums out of that income, and also have at least $75,000 in assets, excluding your car and home.

If your gross income is below $15,000 and your nonhome, noncar assets are less than $76,000, Medicaid will probably foot the bill."

A July 13, 1997 Washington Post article echoed Itscoitz's advice saying "individuals should buy a long-term care policy only if their annual retirement incomes are over $30,000 and if they have assets of $100,000 to $500,000 --not including their home." Deena Katz, a nationally recognized financial planner, bumped the ante even higher in the Investor's Business Daily (January 24, 1996): "Below $250,000," she said, "you're probably a candidate for Medicaid."

What these experts are recommending, without saying so explicitly, is Medicaid planning. According to Hal and Debora C. Fliegelman, writing in the Summer 1997 issue of the Wake Forest Law Review, Medicaid planning is "the process of lawfully re-arranging an individual's assets so that the individual qualifies for Medicaid under the law while the assets are sheltered for use by a spouse, children or others....

These techniques... include: divesting assets generally, transferring assets between spouses, transferring assets to trusts, converting assets, and divorcing a spouse." Although Congress and President Clinton imposed a criminal penalty on certain asset transfers in the Health Insurance Portability and Accountability Act of 1996 and targeted the penalty toward attorneys in the recent budget bill, the Fliegelmans report: "Medicaid planning is still practiced by competent people of all socio-economic classes in all fifty states."

What is wrong with this advice? Medicaid is a means- tested public assistance program. It is welfare. The program has a well-substantiated reputation for deficiencies of access, quality, reimbursement, discrimination, and institutional bias. Furthermore, these problems are getting worse! Medicaid is no longer required to provide "reasonable and adequate" reimbursement rates since the repeal this month of the Boren Amendment that required them. For documentation, consult the quotations listed below. Reach your own conclusions about the wisdom of intentionally relying on Medicaid for long-term care expenses.

So, what is the correct advice to give seniors and their heirs regarding the purchase of private long-term care insurance? When someone cannot otherwise afford private coverage, consider these options:

1. invite the adult children who will inherit the parents' wealth to contribute toward the premiums (why should Grandpa have to insure Junior's inheritance anyway?);
   
2. use home equity conversion to generate extra income (80% of seniors own their homes and 80% of these own them free and clear), or
   
3. reduce excessive Medicare supplemental insurance or life insurance premiums to free up dollars for long-term care protection.

"Because Medicaid pays nursing homes less than the cost to provide the service, many nursing homes are reluctant to accept Medicaid patients." (United Seniors Health Cooperative, Long-Term Care: A Dollar and Sense Guide, Washington, D.C., 1988, p. 32)

"There is strong evidence that Medicaid eligibles face substantially lower access to nursing home services than private payers." (James D. Reschovsky, "Demand for and Access to Institutional Long Term Care: The Role of Medicaid in Nursing Home Markets," Inquiry, Vol. 33, Spring 1996, p. 16)

"Medicaid recipients have more problems getting into nursing homes than higher paying private payers.... An ample bed supply may go unfilled if Medicaid payment rates are too low to make it profitable to admit most Medicaid recipients." (General Accounting Office, "Nursing Homes: Admission Problems for Medicaid Recipients and Attempts to Solve Them," GAO/HRD 90 135, September 1990, pps. 2, 15)

"In the real world, you have to buy your way into a nursing home. Average cost of the ticket: six to nine months private pay.... Keep in mind that the nursing home would rather take a private-pay patient. A commitment for a certain number of months of private pay will usually secure a bed." (Harley Gordon, How to Protect Your Life Savings from Catastrophic Illness and Nursing Homes, Financial Strategies Press, Boston, 1994, pps. 200-201)

"Medicaid recipients are excluded entirely from nursing homes that choose not to be Medicaid certified." (David Landes, "What Legislators Need to Know About Long-Term Care Insurance," pamphlet of the National Conference of State Legislatures, May 1987, p. 5)

"Private-pay patients can usually find a nursing home bed quickly. Waiting lists for Medicaid patients (especially heavy-care patients), can stretch for several months, even a year or more. The only opening for a Medicaid patient may be in a facility that is not convenient to visitors, or that does not provide quality care." (Dana Shilling, Financial Planning for the Older Client, National Underwriter, Cincinnati, Ohio, 1992, p. 73)

"More than a third of doctors surveyed by Medical Economics exclude Medicaid patients from their practice.... Reasons given: 'Too much trouble for too little pay,' 'It doesn't cover my overhead,' 'Low pay for high risk,' and frustration 'dealing with bureaucrats'." (Medicine and Health, 10/11/93, p. 1)

"...the proportion of Medicaid recipients is indeed associated with lower levels of RN staffing and a higher proportion of residents not toileted...higher proportions of Medicaid were found to be associated with lower nursing home quality, suggesting that the Medicaid program in fact exercises its power to bargain for price rather than quality.... A higher proportion of residents whose care is reimbursed by Medicaid is associated with lower quality as measured by these indicators.... Residents in homes with few private-pay patients (implying more public-pay patients) were found to be 30 percent more likely to experience functional decline.... Simply raising Medicaid rates or mandating parity across payers may not provide sufficient incentives for increasing quality. Under conditions of excess Medicaid demand, there may be little incentive to provide quality at any price...." (Jacqueline S. Zinn, "Market Competition and the Quality of Nursing Home Care," Journal of Health Politics, Policy and Law, Vol. 19, No. 3, Fall 1994, pps. 570, 573, 574-575)

"About 88% of U.S. nursing homes certified for Medicare and Medicaid are 'drastically short' of nurse aides and licensed nurses, according to a study...by the National Committee to Preserve Social Security and Medicare. Estimates of how much it could cost to correct the problem vary between $200 million and $2.6 billion...." (Older Americans Report, 9/21/90, p. 366)

"States' efforts to limit the number of beds to control Medicaid costs provide a protective environment for most nursing homes. Operators can have little or no fear that their occupancy will fall or that a new home will try to enter their market even if the quality of care provided is somewhat deficient." (William J. Scanlon, "A Perspective on Long-Term Care for the Elderly," Health Care Financing Review: 1988 Annual Supplement on Post- Acute and Long-Term Care, Health Care Financing Administration, Baltimore, Maryland, December, 1988, p. 12)

"Facilities can attract as many Medicaid patients as needed without addressing quality, because Medicaid patients are most concerned with simply finding a bed. Accordingly, higher-quality homes attract private pay patients, and these facilities act on their preferences for such patients by admitting them first and filling the few remaining beds with Medicaid patients." (Mark A Davis, "On Nursing Home Quality: A Review and Analysis," Medical Care Review, Vol. 48, No. 2, Summer 1991, p. 149)

"Planning only for Medicaid eligibility severely restricts options,and would not be in the best interest of many clients. For example, considerations should be given to the following possible consequences of transferring resources in an effort to meet resource eligibility requirements:

1. Possible loss of autonomy, pride, and dignity; increase in dependence on others;
   
2. Inability to purchase services not available under Medicare or Medicaid;
   
3. Reluctance of nursing homes to admit Medicaid as opposed to 'private pay' patients;
   
4. Donees of transferred assets may be or become unwilling to provide financial assistance to the donor when needed; and
   
5. Resource depletion eliminates the option of obtaining entry to facilities that do not accept Medicaid patients.

"Medicaid coverage for poor Americans seeking health care resembles the last lifeboat for passengers on the Titanic: it is not nearly large enough to accommodate even half of those in need." (Gordon Bonnyman, "Deciding Who Swims with the Sharks: Boren Amendment Litigation," Clearinghouse Review, Vol. 26, No.3, July 1992, p. 302)

"The evolution of Medicaid, especially in the past five years, has made the program so complex that it is incomprehensible to recipients and providers and unmanageable for governors and states." (National Governors' Association, quoted in New York Times, 8/4/92)

"Some facilities have Medicaid wings and require residents to move to them when they convert from private- pay to Medicaid status.... If the Medicaid wing is full, the facility may try to evict the resident.... Services for Medicaid recipients may not be as good as those for private-pay residents." (Patricia Nemore, "Drawbacks of Medicaid for Nursing Home Residents," Bifocal, Vol. 11, No. 1, Spring 1990, p. 1)

"'It's incumbent on us to realize that the states can't continue to pay for Medicaid, which is a complicated, second-class healthcare system for less than half of the poor people in the country,' said Representative Henry A. Waxman, a California Democrat who is chairman of the House Subcommittee on Health and the Environment and the author of a number of Medicaid mandates."(New York Times, 3/24/92, p. A10)

The National Association of Insurance Commissioners advises: "Medicaid will generally pay for long-term care if you have very little income and few assets," but warns "Your choice of long-term care services may be limited if you are receiving Medicaid." (NAIC suitability standards, updated through 12/31/96, Appendix C: "Things You Should Know Before You Buy Long-Term Care Insurance)