Today, Paragon is releasing an important new report, Long-Term Care: The Solution, authored by Stephen Moses. Steve is the nation’s top expert on long-term care financing and his new report contains a solution to a very difficult policy problem.
Given the structure of our major entitlement programs—Social Security, Medicare, and Medicaid—the aging of the baby boomers presents a variety of public policy challenges. One is long-term care (LTC), which consists of medical and supportive services that people require at home or in institutions when they are unable to care for themselves.
As Steve wrote in a 2022 Paragon report, Long-Term Care: The Problem, well-intended government policy caused many of LTC’s problems. Government programs have largely paid our nation’s LTC expenses since 1965. Unfortunately, easy access to Medicaid while retaining wealth creates a moral hazard that discourages responsible LTC planning during early and middle adulthood and crowds out private sector alternatives. Too many people end up on Medicaid, which pays too little to ensure access to quality home care and causes excessive reliance on institutionalization and unpaid help from families and friends.
In Long-Term Care: The Solution, Steve constructs a reform that would reduce dependence on Medicaid and free up private financing to fix the LTC challenges. The following are from the paper’s executive summary, and the entire paper is worth a read to understand both why past efforts to reform Medicaid LTC have failed and why this new approach is our best hope to improve government LTC policy.
What Steve Found
When people encounter high LTC costs later in life, they typically qualify more easily for Medicaid than commonly thought. This moral hazard discourages early LTC planning. The past policy approach of generous Medicaid LTC eligibility with estate recovery after death did not adequately promote proper planning, either through savings or insurance. Most Americans possess enough wealth to fund their average LTC needs, which is about two years of home-based services. If the average 65-year-old had $70,000 set aside for LTC, it would grow to meet that need after age 85, when LTC commonly occurs. Positive incentives to plan early and pay privately avoid the loss of freedom and high economic cost from compulsory, payroll-funded policies.
Why It Matters
With the aging of the baby boomers and an increasing percentage of the population living past 85, creating a sustainable LTC policy is crucial. If Medicaid did not pay for expensive LTC after care is needed, more consumers would prepare privately and avoid Medicaid dependency. Unless policy is changed and the incentive to avoid proper LTC planning is removed, the LTC system will fail, harming those who most need public support.
Medicaid LTC should be restored as a safety net for indigent elderly people. Lawmakers should eliminate the ability to access publicly funded LTC while preserving wealth. This paper details seven options to empower younger and middle-age Americans to meet a new, publicized individual LTC planning responsibility. This would unleash wealth currently unused for LTC that remains locked in home equity, individual retirement accounts, life insurance, and estates and reorient the LTC system to cater to seniors’ desires to age in their homes rather than in institutions.
All the best,
Paragon Health Institute