My friend and colleague, Steve Moses, of the Center for Long-Term Care Reform beautifully describes why sales of long-term care insurance (LTCi) continue to languish. It’s impossible to explain it better than Steve can, so I’ve re-published his blog, with permission, below. I want to encourage readers to visit The Center for Long-Term Care Reform site.
LTC BULLET: LTC MIXED MESSAGES
LTC Comment: Happy first day of summer!
Today we’ll examine four seemingly unrelated issues and show how they fit together like pieces in a puzzle.
Issue #1: Medicaid planning lives. Despite the welfare program’s diminishing financial prospects and dismal reputation for poor access and quality, Medicaid planners continue to hawk Medicaid Asset Protection Trusts (MAPT). Example:
6/19/11, “Protecting Your Future: Address all the issues in estate planning,” by Bonnie Kraham Times Herald-Record: “[Clients] might . . . wish to change from a revocable trust to a Medicaid Asset Protection Trust (MAPT) because they were unable or unwilling to obtain long-term care insurance and the time has come to protect their assets from nursing home costs.”
Issue #2: Maintenance of effort (MOE) prevails. Federal law does not allow state Medicaid programs to constrict loose LTC eligibility rules without penalty. Background:
6/17/11, “Medicaid Mandate Targeted in Debt Talks, but Savings Are Questionable,” by John Reichard, CQ Today: “As talks intensify over reducing the nation’s debt, there is a real chance that negotiators could end up eliminating a 2009 rule requiring states to maintain current levels of Medicaid eligibility.”
Issue #3: Reverse mortgages retrench. The two biggest banks issuing reverse mortgages have left the business. News:
6/17/11, “2 Big Banks Exit Reverse Mortgage Business,” by Tara Siegel Bernard, New York Times: “Wells Fargo, the largest provider, said on Thursday that it was leaving the business, following the departure in February of Bank of America, the second-largest lender. With the two biggest players gone – together, they accounted for 43 percent of the business, according to Reverse Market Insight – prospective borrowers may find it more difficult to access the mortgages. . . . ‘We are not allowed, as an originator, to decline anyone,’ added Mr. Codel of Wells Fargo. We ‘worked closely with HUD to find an alternative solution and we were unable to find one with them, which led to this outcome.’ . . . MetLife, the third-largest provider of reverse mortgages, declined to comment on its business.” (Emphasis added)
Issue #4: LTC insurance lags. Despite the obvious risk and cost of long-term care, most people don’t plan for it or purchase private LTC insurance. I don’t think any readers of these LTC Bullets would need further evidence of that point.
So, what’s the connection between MAPT, MOE, RMs, and LTCI?
The problem of LTC financing isn’t complicated. Medicaid and Medicare co-opted LTC financing in 1965 by making nursing home care basically free and easy to obtain. That crowded out both a private home care industry and LTC insurance to pay for it resulting in the system’s “institutional bias” and Medicaid dependency. Desensitized to the financial risk, consumers didn’t worry about LTC, ended up in welfare nursing homes by default, and in time, bankrupted the provider system and its primary payers, Medicaid and Medicare.
The government tried to help us and this is what we got. Easy access to Medicaid for LTC after the insurable event occurs (Medicaid planning). Crazy federal rules that prevent states from closing Medicaid loopholes and stopping the abuse (maintenance of effort). Up to $750,000 of home equity exempted from Medicaid spend down and regulations that undercut home equity conversion in other ways (reverse mortgage industry setbacks). A public in denial about LTC risk right when the cost is about to explode off the charts (LTCI doldrums).
So, what’s to be done? Two possibilities.
The preferred approach: Fix the problem through responsible public policy by removing the causes. Get rid of the maintenance of effort restriction so states can target scarce Medicaid funds to those who need them most. Eliminate or radically reduce Medicaid’s home equity exemption so people will see the real risk and cost of LTC. Do these things and both the reverse mortgage and LTC insurance industries will take off, creating jobs and generating tax revenues, even as Medicaid LTC costs plummet and more people have better access to a wider continuum of higher quality, privately financed long-term care.
What’s the other possibility? Continue to ignore these realities, let the current system fall apart, watch a lot of people (especially the poor) get hurt, and end up in the same place anyway: with a radically reduced LTC safety net, with savings and home equity used to fund most routine long-term care, and with the public finally worried about LTC risk and buying private LTC insurance in droves.