Minn Post December 14, 2010
"We recommend that Minnesota use the intervening time to create, analyze and agree on a co-insurance plan that can begin implementation in 2014,"
What do you think would happen if someone proposed a major new government medical give away? Would taxpayers swarm the state Capitol with pitchforks and clubs? After all, we've learned from Medicare that these programs grow into budget busters.
Nope. In refusing to take responsibility for their own long-term care, Minnesotans are creating a massive government program. They have made the state the insurer by default for the costly care they're likely to need when they are old.
Now comes a sobering report from the Citizens League -- essentially saying, "Wake up, Minnesota. You can't sustain the cost of a program that is projected to grow from $1.1 billion this year to $5 billion in 2035 as baby boomers retire."
"We have this big costly program on the books, and unless we change it, it's going to drag us all under," said Stacy Becker, the League's Project Director. "What we need to do is to make this program work better for people and to save money while we are doing it."
If you've groused about run-away government spending at the same time you've hidden family assets so that the state will pick up the tab for your grandma's care, you definitely need to read this report, "Moving Beyond Medicaid: Long-term Care for the Elderly as a Life Quality and Fiscal Imperative."
And anyone who is not among the 10 percent or so of adults who pay for long-term care insurance should read it too.
For that matter, read it even if you do buy the insurance. You're paying twice: as a responsible individual and also as a taxpayer footing the bill for the majority of Minnesotans who are gambling they won't need the care.
The report, based on more than a year of research, offers innovative suggestions for rescuing the system we have now and revamping it to save the state money and spare families the considerable risk of losing income and assets.
The $75,000 project was sponsored by groups with an interest in the issue, ranging from the Alzheimer's Association to long-term care providers to the Minnesota Chamber of Commerce. The project builds on more than 30 years of Citizens League work on the financial aspects of aging.
Parameters of the problem
Before we get into the details of those recommendations, let's look at the parameters of the problem outlined in the report.
Taxpayers fund long-term care in a joint federal-state program known as Medicaid -- or, in Minnesota, Medical Assistance. The program was created to provide publicly funded health care for the minority of the population living in dire poverty. That care included the cost of nursing homes and other long-term expenses for people with almost no assets, about $3,000 in today's values.
But tens of thousands of people in middle-income/-wealth brackets have taken advantage of the program, sometimes hiding assets or signing them over to relatives. Indeed, some financial advisors tell clients they don't need to worry about long-term care insurance unless they have considerable assets to protect, say savings and investments of $600,000 or more.
The upshot is that long-term care is a major component of the fiscal problems confronting the incoming Legislature. It accounts for nearly one in every five dollars the state spends.
And it's on the verge of explosive growth. From 2005 to 2035, the population of Minnesotans aged 65 and older will double, from 623,000 to 1.4 million. Older Minnesotans also will increase as a share of the overall population, from 12 percent to 22 percent over the same time period.
Here's the sum of those trends: there will be fewer workers per elderly person to support the tax burden of caring for the elderly.
"Unless we all agree to massive tax increases to pay for one another's long-term care, Medicaid as the fallback is unsustainable," says the report.
At age 65, a person has about a 70 percent chance of needing some type of long-term care in the future. Families and friends sometimes provide the care, but 60 percent will incur costs, spending an average of $48,000. There is a 6 percent chance of costs exceeding $100,000.
Minnesota baby boomers, to a surprising degree, are basing their bets of beating those odds on a false assumption. In 2007, 29 percent of Minnesotans aged 42 to 60 said in a survey that they are relying on Medicare to cover their long-term care.
Wrong! Medicare covers only limited expenses for short periods of time.
Take my late mother's experience. After her stroke, Medicare paid some expenses related to her stay in a nursing home where she got therapy aimed at restoring her ability to eat, speak and move around. When the therapy ended, so did the Medicare payments. After that, we needed to drain her savings to pay for assistance at home.
Some of the gamblers are cheating to improve their odds, scheming to hide their assets as they approach retirement. While that may work for some, it doesn't for everyone. And the sad reality confronting many Minnesotans at an already stressful time is that they must forfeit a loved one's life savings -- drain the bank accounts and sell the vehicles.
Thus, Medicaid has been dubbed a public insurance with an extremely high deductible -- virtually all of one's assets.
Weak points in the system
The Legislature and various private organizations have taken steps over the years to nudge more people toward buying long-term care insurance.
One step was to give tax credits for those who bought the insurance. That apparently hasn't appealed to the bulk of middle-income Minnesotans. About 75 percent of the tax credit has been taken by households in the upper 30 percent of Minnesota incomes, says the report, citing Minnesota House research.
A key reason, no doubt, is that the insurance is expensive. Middle-income families might be more willing and able to buy it if the system encouraged them to get partial coverage, akin to the insurance seniors buy to supplement their Medicare benefits.
But Medicaid, as currently structured, doesn't welcome supplemental payments. Effectively, it operates on an "on-off" basis. A person is "on" if destitute, "off" if not.
So the incentives to do what you can just aren't there.
Say you are a retiree with a home and $60,000 in savings. Nursing home care could cost as much as $80,000 a year. So if you are unlucky enough to need the care you are going to have to turn to the state, and it is going to take most of your savings. In other words, you'll be destitute anyway. Might as well spend the $60,000 on other things you'll enjoy before the day comes when you have to move.
To be sure, many elderly Minnesotans try to stay in their homes. And their families typically pitch in to make that happen, providing the care themselves.
Still, that family support has broken down to the point where Medical Assistance picks up about 40 percent of the cost of long-term care for the elderly in the state.
What to do?
The report targets the 1.4 million Minnesotans who are between the ages of 45 and 65, saying half of them should have some financial planning in place for their long-term care by 2015; 85 percent, by 2020.
Here are some of the suggestions for getting to that goal:
* Revamp Medicaid into a type of co-insurance. To qualify for the plan, an individual above a certain income would have to purchase some level of long-term care insurance and/or set aside savings to pay for some of the care. Medicaid would supplement the individual effort based on criteria that do not require the insured to be penniless in order to qualify.
* Encourage insurers to create a broader mix of affordable plans.
* Promote financial products that would appeal to middle-income households. The federal health insurance overhaul took a step in this direction with the CLASS Act, under which workers can use payroll deductions to set aside money for their own home-based care. Other ideas include a reverse mortgage tailored for funding long-term care and savings incentives such as making the saver eligible to enter a drawing for prizes.
"The whole idea -- for a certain set of people who can afford to contribute something toward their own care, but aren't -- is to get them to do what they can," said Becker, the project director. "Unless you move to something like this, people are not going to buy long-term care insurance. They just aren't doing it."
Not only would the state save money if the recommendations succeeded, but the individuals would get a better deal too.
"The win for the individuals is that they don't have to become destitute to get help," she said. "That is just devastating for them and their families.... The goal also is to give the individuals more certainty, more flexibility in terms of their care."
The Citizens League's pitch to those individuals across the state and to the Legislature too begins today with the presentation of the report at a long-term care forum at the University of Minnesota's Humphrey Institute.
While the problem is urgent, the state has some time to consider the options in the report. Under the recently passed federal health insurance law, Medicaid rules can't be made more restrictive until 2014.
"We recommend that Minnesota use the intervening time to create, analyze and agree on a co-insurance plan that can begin implementation in 2014," the report says.