The first group selected to enter the arena in the Healthcare Hunger Games are seniors.
The American Health Care Act (AHCA) and the 2018 Federal Budget released by the Trump Administration proposes cuts and unprecedented new eligibility requirements for Medicaid. Based on the earlier analysis by the Congressional Budget Office, the budget cuts of $800 billion would mean more than 11 million people would lose Medicaid coverage over the next ten years. In the AHCA proposal, work requirements and mandatory premium payments would be added to current eligibility criteria.
Medicaid serves as the payor of last resort for the poor, disabled and children. However, since its inception in 1965, it has evolved for many as the first resort when it comes to long-term care costs. Today, Medicaid covers 40% of all long-term care costs, a percentage that is on the rise. In fact, Medicaid covers 65 percent of the costs for 1.4 million people in nursing homes in the United States. With an aging population, and more middle-class seniors who are failing to plan for the costs of care looking to jump onto Medicaid, the need to control these costs is now a major priority. The Executive Director of the National Association of Medicaid Directors recently called the growth in long-term care spending “absolutely not sustainable.” The key question that must be answered in the midst of this long-term care funding crisis is—how do you rein in these costs?
Central to the theme of the Healthcare Hunger Games debate are two ways to achieve the goal of curbing Medicaid costs: carrots v. sticks. The AHCA proposes provisions where financial incentives for people to take responsibility for their care costs. But, it also proposes other areas where more punitive approaches that include adding premiums and work requirements to current Medicaid criteria. For seniors this can be a very harsh “incentive” to qualify and then maintain their eligibility. Two states, Maine and Wisconsin, have jumped out front with this concept and are proposing Medicaid waivers for their states to enact these requirements, making them early laboratories for this punitive approach.
A different approach to curb Medicaid spending on long-term care are incentives that encourage people to plan and take more financial responsibility for the eventuality of these staggering costs. This approach uses tax incentives to reward people who plan, or use assets and income to remain private pay instead of going onto Medicaid. If people are private pay they will remain in control of their care decisions and avoid becoming, in effect, an impoverished ward of the state. Fortunately, there are still options that can be used to cover the cost of care for those who failed to plan.
For example, there is an untapped resource for many seniors: life insurance policies they bought years before that they are being forced to abandon in order to qualify for Medicaid. There are states now that will allow seniors to exchange their policies for long-term care benefits. These states want policy owners to obtain the full value of a life insurance policy through the Secondary Exchange Market instead of lapsing or surrendering them back to the insurance company that often offers them little or nothing in return. With these exchange funds, the person in need of care can open a private long-term care benefit account that would protect the money and use it exclusively for senior care expenses. Similar to how a Health Savings Account (HSA) works, this Senior Health Planning Account (SHPA) would provide for a tax-free rollover of the life policy’s full market value obtained from the secondary market exchange.
When you consider that seniors are abandoning a staggering $200 billion of life insurance face value annually, it quickly becomes obvious that this kind of private market innovation can be a very powerful financial solution.
Seniors don’t want to be a financial burden on their family or spend down to below the poverty level to jump onto Medicaid. They want access to information and options that will allow them to remain financially independent and able to afford to pay for their own care.
Tax incentives will propel the exchange of life insurance policies into living benefits that will keep seniors private pay. Combining this kind of market-based innovation with smart tax policy is a path towards curbing the growth in Medicaid and achieving real reforms in the Healthcare Hunger Games.
Chris Orestis, Executive Vice President of GWG Life, is an over 20 year veteran of the insurance and long-term care industries and is nationally recognized as a healthcare expert and senior care advocate.
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