Facts matter. To solve the nation’s looming long-term care financing crisis, policymakers must deal with one key fact. Most people do not consume their life savings paying for this care.
People believe this fallacy of impoverishment because so many older adults end up on the Medicaid welfare program, often in nursing homes. But the truth is that most people can easily access Medicaid when they need long-term care, or LTC. There are income and asset tests to gain eligibility for Medicaid, but for most people, the income test is irrelevant, and the asset test is easily satisfied.
On the income test, in most states, Medicaid subtracts applicants’ monthly health and LTC expenses from income before applying the “low income” standard, so only older Americans with a very high income fail this test. In other states, higher-income people can use sophisticated income diversion trusts to qualify.
On the asset test, most old people’s wealth is exempt. This includes most home equity, individual retirement accounts, a business, one vehicle, prepaid burial expenses, home furnishings and other belongings. Medicaid applicants can reduce nonexempt wealth by purchasing a new car or having their home remodeled.
