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No More Medicaid as Middle-Class Entitlement

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When legislators debate expansion of Virginia’s Medicaid program in the 2014 session, they would do well to consider the long-term outlook for Medicaid spending. The program already consumes 17% of the state’s general fund budget, and that percentage will grow relentlessly as the population ages.

“Virginia faces an onslaught of frail and infirm elders as the demographic wave of aging baby boomers advances,” warns a new study, “The Index of Long-Term Care Vulnerability: A Case Study in Virginia,” written by the Center for Long-Term Care Reform and presented by the Thomas Jefferson Institute for Public Policy. “Virginia’s risk is greater than most. The commonwealth’s 142,000 citizens over age 85 will more than quadruple by 2050 at a rate (307%), seventh highest in the nation.”

One in five seniors will require long-term care of five years or more. The cost is phenomenally expensive, ranging from $41,000 yearly to live in an assisted living facility to $83,000 a year for a semi-private room in a nursing home (and even more for a private room).
Making the problem worse, Medicaid is evolving from a safety net for the destitute into a middle-class entitlement, as lawyers counsel seniors on how to avoid paying down their estates in order to qualify for Medicaid-funded long-term care. While Virginia eligibility rules are relatively strict, it has loopholes big enough to push a gurney through.  States the report:

Virginia Medicaid has to cope with sophisticated legal techniques used by elder laws specialists to artificially impoverish their relatively prosperous clients in order to qualify for Medicaid. These include the use of promissory notes, Medicaid-compliant annuities, life estates and savings bonds used to shelter or divest often hundreds of thousands of dollars.

The authors quote a Fairfax County Medicaid worker: “Medicaid is a program that pays for pretty much anyone who needs care and knows how to get it, not just for the poor.” Virginia is already a leader in shifting long-term care from institutions to home and community-based services and in using managed care to control costs — two reasons why, in addition to relatively strict eligibility standards, the Commonwealth has one of the most frugal Medicaid programs in the country.

Nevertheless, Virginia still faces horrendous budget increases. The report suggests that legislators reverse the trend of relying ever more heavily upon Medicaid to fund the population’s long-term care needs. The state should restrict Medicaid assistance to the truly indigent by tightening eligibility standards and requiring middle-class and affluent Virginians to fund their own care.

  • Asset spend down. Medicaid requirements should make Virginians spend down their assets before going on public assistance. The state could look at Virginia’s home equity exemption of $536,000, which is higher than most other states.
  • Home equity conversion. More than two-thirds of Virginians own their own homes, which have a median value of $254,600. Reverse mortgages allow people to extract equity from their homes while continuing to live in them. That money could be used to fund home- and community-based services privately.
  • Estate recovery. Where Medicaid does allow people to retain substantial wealth, at the very least their estates should reimburse the program for the cost of their care upon death. The feds haven’t published recovery data since 2005 (based on 2004 data) but Virginia recovered only $777,000 that year, or about 0.1% of expenditures. If it boosted recovery to the 5.8% benchmark in Oregon, it could collect more than $50 million a year.
  • Long-term care insurance. The state does offer a 15% state income tax credit for the purchase of long-term care insurance but it discourages the purchase of insurance by making Medicaid so easy to obtain. Tighter eligibility standards would encourage more people to take out insurance.

While the federal government will pay 90% of the cost of expanding Virginia’s Medicaid program to provide health care to the working-age near-poor, the Commonwealth is in no position to accommodate an expansion of the program without reining in future long-term care liabilities. Taxpayers cannot afford to allow the program to morph into an entitlement for the middle class.

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