Forward on reverse: A conversation with Stephen A. Moses of the Center for Long-Term Care Reform Inc.: Part II Atare E. Agbamu, CRMSMedicaid, reverse mortgage, Long-Term Care Reform
Atare E. Agbamu: You believe that everyone should plan
for long-term care, based on the signal that has been given by
Deficit Reduction Act of 2005 (DRA 2005), right?
Stephen A. Moses: Well, I believe everyone should have
been planning for long-term care all along. Going bare and ending
up on Medicaid has been a dismal outcome for many, many years, but
it is much more obvious now because of the changes in DRA 2005.
AA: And you think that the limit will keep dropping from
$500,000 over the next several years, right?
SM: They have to. Medicaid is bankrupting the states. They
can't go on providing expensive nursing home care for affluent
seniors. All you have to do is look at the handwriting on the
AA: Was there anything in the legislative history of DRA
2005 that suggests a lower limit in 2007 and in coming years?
SM: The National Governors Association recommended most of
the changes that ended up in DRA 2005, and their recommendation was
to take the Medicaid home-equity exemption to $50,000. The
governors were recommending it for this time around. The
legislators ... you know, it's a very politically sensitive thing.
There was a lot of opposition, and they got as low as they could
get it on this round. But believe methey are going to be fighting
to get it lower in the future. Either that or Medicaid would
AA: You said the states recommended $50,000. So that is
an indication of what is coming, right?
SM: Yeah, that's what I think! I think people are pretty
naïve if they expect Medicaid to go on paying for two-thirds
of residents and 80 percent of all patient days in nursing homes.
It's just too expensive. It can't continue. Trends that can't
continue won't, as one wag once said.
AA: You talked about Long-Term Care (LTC) Partnerships
in your LTC Bullet. What do you mean by LTC Partnerships?
SM: LTC Partnerships was a program promoted by the Robert
Wood Johnson Foundation going back to the late 1980s. It's an
incentive to buy more long-term care insurance, thereby forgiving
Medicaids spend-down liability. The way it usually works is this
(it's a little different in New York): If you bought $100,000 worth
of insurance and used it up, then instead of having to spend down
to $2,000 of assets to qualify for Medicaid, you could retain
$102,000. Now, in 1993 when Congress mandated estate recoveries
(that's if you were on Medicaid), the state was required to go into
your estate and recover the costs of care provided to you.
Congressman Henry Waxman, who at that time chaired the House Energy
and Commerce Committee, refused to exempt the partnerships that
have already been set up from the estate recovery requirements. So
while they could continue to exempt the money up front for purposes
of eligibility, they could not exempt it from the estate recovery
requirements. Because of that change, no more partnerships took
effectin essence, eliminating the incentive that was there to
preserve assets by buying insurance.
Now that restriction has been lifted. States can exempt not only
the money on the front end but also on the back end from estate
recovery. It means that the four Long-Term Care Partnerships that
exist now can be expanded in any state in the country that wants to
set one of these programs, as long as they meet the requirements in
the lawthey have to be in concord with rules of the National
Academy of Insurance Commissioners, they have to be IRS-qualified
long-term care insurance policies and so on. The insurance industry
fought hard for the expansion of the partnerships. I think it is
not nearly as important as the Medicaid eligibility changes for a
simple reason: Why would anybody buy insurance to avoid a Medicaid
spend-down liability that doesn't exist in the first place?
AA: There is a lot of long-term care terminology that
most of my readers may not be familiar with. What do you mean by
SM: Technically, the way Medicaid is always presented is
that you can only retain $2,000 in assets. Other than that, you've
got to spend down your own money for your long-term care until you
become impoverished. The reality is that there is no limit on how
much income or assets you can have and still qualify for Medicaid
long-term care. You determine income eligibility by first deducting
from a person's income the cost of private nursing home care,
coinsurance and deductible for Medicare, coinsurance and deductible
for Medicare supplemental policy and all of the medical expenses
seniors pay for that Medicare doesn't cover, like foot care, eye
care, dental care and pharmaceuticals. And if they still don't have
enough income to pay for everything, they are eligible for
Then, the assets: While technically you can only retain $2,000,
you can have a home and all contiguous property regardless of
value. That was true until DRA 2005. Now, it's limited to half a
million dollars. But you can still retain a business, including the
capital and cash flow of unlimited value, an automobile of
unlimited value, pre-paid burial funds of unlimited value for every
member of the family (not just the Medicaid recipient and spouse)
[and] unlimited home furnishings. In essence, as long as you hold
the assets in exempt form, there is no limit on how much you can
have in assets and qualify for Medicaid. While DRA 2005 has created
some additional restrictions on the diversion and divestment of
assets, it doesn't really get to all of the methods people can use
to retain assets and qualify [for] Medicaid.
AA: What is the way forward then, in terms of creating
incentives for people to use reverse mortgages?
SM: Well, [there is] any number of things they can do to
incentivize people to use home equity for long-term care insurance
and home equity for long-term care. A lot of these ideas are being
talked about similar to the partnerships for long-term care
insurance, where you give people an extra benefit if they use home
equity to purchase long-term care; but they do cost money. The
reason they tend not to pass is that the Congressional Budget
Office (CBO) scores them as being very expensive. The CBO doesn't
take into consideration the ultimate savings down the line.
If they did, they might be more likely to pass those incentives.
But here is the critical thing: No amount of incentives is going to
encourage people to buy long-term care insurance or take out
reverse mortgages as long as they can ignore the risk, avoid the
premiums and wait until they get sick, shelter the home and get
Medicaid to pay for their long-term care. It is the Medicaid
eligibility stuff that is critical.
And as I said before, we've made some progress on that, but we
still have a long, long way to go to make sure Medicaid is a safety
net for the poor and not a hammock for the upper middle class. And
if we do that, whether or not we get tax incentives and other
publicly financed incentives for these products (reverse mortgages
and long-term care insurance), people will buy them.
AA: So the key, to repeat what you've just said, is to
make Medicaid eligibility more restrictive, right?
SM: Well, to target Medicaid to the genuinely needy. If
you do that, you will save more than enough money to pay for the
incentives to get other people to plan for long-term care. We just
have way too many people dependent on welfare for long-term care
and way too few people planning responsibly to pay their own way,
and those are directly related. It's a fact that for 40 years we've
been able to just ignore care and get the government to pay. That
has caused low market penetration of reverse mortgages and
long-term care insurance. If you get Medicaid out of the business
of giving away for free what we'd like people to do for themselves,
you'll see people taking out reverse mortgages and buying long-term
Atare E. Agbamu, CRMS is president of ThinkReverse LLC, a
reverse mortgage training and consulting firm based in the Twin
Cities and is a consultant with Credo Mortgage. Atare is regarded
as an emerging authority on reverse mortgages and is frequently
consulted by financial professionals and families across America.
His reverse mortgage interviews have been Web cast on MortgageMag
Live! He can be reached by phone at (651) 389-1105 or e-mail [email protected]
For more information about Stephen A. Moses and his mission at the
Center for Long-Term Care Reform, visit www.centerltc.com.