Vice President Kamala Harris wants Medicare to pay for the elderly’s long-term home care. Details of her plan, such as who would qualify financially, which benefits would be covered, and how the services might be limited are sparse. But one thing’s for sure: It would be expensive.
One approach, proposed by the Brookings Institution, comes in at $40 billion per year. The New York Times estimated “hundreds of billions of dollars or more.” Leaving aside that Medicare is already drowning in unfunded liabilities — and with record deficits, the federal government would get these funds through borrowing or printing, causing more inflation — what else is at stake here?
Long-term care (LTC) for the elderly is a huge problem. Medicare does not cover it beyond short nursing home stays. Paid caregivers are in short supply. Families, especially wives and daughters, end up providing unpaid care at terrible financial and emotional distress in order to keep their elders out of nursing homes. Especially hard hit are the low-to-middle-income “sandwich generation” families struggling to care for children and elders simultaneously.
So, LTC is an enormous problem, but the analysis and policy making around it are way off base. According to sources endorsing the Harris plan, government needs to do more. But in truth, the dismal condition of LTC service delivery and financing in the US is a direct result of government’s dominant role in funding and regulating the sector. Further, introducing new benefits without addressing the existing financial shortfalls in Medicare could lead to further financial deterioration of the program.
The argument to support the Harris plan is bogus, but it goes like this: that allegedly millions of aging Americans are bankrupted by LTC’s cost. They are forced into impoverishment paying for expensive nursing homes, assisted living or home care. Their burden is relieved only by the Medicaid welfare program after their income and assets are wiped out. So, the government must do more.
Here’s the truth:
Income rarely obstructs Medicaid LTC eligibility. Most states subtract private medical and LTC expenses from income before applying a low income standard. Other states allow special income diversion trusts that achieve the same purpose. Middle and high income applicants routinely qualify for Medicaid LTC benefits if their private health and LTC expenses are high enough, as they usually are for elders in need of LTC.
Nor do assets usually obstruct Medicaid LTC eligibility. Most large resources seniors own, such as a minimum of $713,000 in home equity (up to $1,071,000 in some states), one business, and individual retirement accounts, are exempt. So are many smaller assets such as a vehicle, personal belongings, household furnishings, and prepaid burial arrangements for Medicaid recipients and their immediate families. Any remaining countable assets are easily eliminated by using them to purchase exempt assets.
If Medicaid isn’t the last resort for families already devastated by private LTC expenditures, what is its role in LTC? Since its inception in 1965, Medicaid has paid for most high-cost LTC. Today it covers 61 percent of all LTC expenditures. Private out-of-pocket expenditures amount to only 12 percent and half of that is income (not savings), mostly Social Security benefits, which people on Medicaid must contribute to offset the cost of their care.
So, Medicaid is a huge factor in the LTC economy but its main impact is not that of being a safety net for newly poor people crushed by LTC costs. Rather, by allowing middle class and affluent people to qualify while preserving their wealth, Medicaid desensitized the public to LTC risk, leaving them unprepared, uninsured, and without the resources to pay for professional LTC when they need it. That’s how the federal government became overwhelmed by LTC costs and unpaid family members ended up carrying so much of the care burden.
Medicaid also caused generations of aging Americans to languish in welfare-financed nursing homes because for decades it paid only for institutional care. Low Medicaid reimbursements created the caregiver shortage and hampered care access and quality. Decades of rebalancing Medicaid to home and community-based care, starting in 1982, got some people out of nursing homes but didn’t save money and left upwards of 700,000 people on waiting lists for Medicaid home care.
The actual LTC marketplace, dominated by easy access to Medicaid-funded care late in life while preserving wealth, explains why LTC is such a mess and why more government spending and regulation won’t help. The more government does to relieve the burden of LTC financing, the less incentive consumers have to plan and prepare for LTC risk and cost while they are still young and healthy enough to do something about it.
What should government do instead? Stop subsidizing the failure to plan, save, invest or insure for LTC. Eliminate the huge asset exemptions that prevent enormous wealth in the American economy from contributing to private LTC financing. In Long-Term Care: The Solution, I identified several large sources that could become available if people were incentivized to prepare for LTC instead of ignoring it. For example, $35.4 trillion in retirement savings; $12.4 trillion in home equity; and $21.2 trillion in life insurance currently lie fallow.
If Medicaid did not result in the sheltering and diversion of this wealth from private LTC financing, two things would happen. First, families would take the risk of LTC more seriously earlier. They would save, invest and insure much more widely and very few would still end up needing Medicaid. Second, huge private financing resources would flow into the LTC service delivery system, empowering LTC providers to pay market rates for caregivers, thereby relieving the caregiver shortage and vastly improving the quality of care.
Promising Americans relief from the dysfunctional LTC system that government has created may attract votes. But more government money and regulation will only exacerbate the problems those measures have already caused. The system and the people it tries to help will slip deeper into dependency and insolvency. In the end, the best policy solution is to protect public LTC programs for the truly needy while those with means are responsible for their own LTC risk and are not able to be artificially impoverished by their heirs for inheritance preservation. Government can help by encouraging early LTC planning and by enabling consumers to access their retirement savings, home equity, and life insurance early to cover their predictable LTC risk. Unfortunately, the Harris plan would do the opposite.
