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National Mortgage Professional
Aug 20, 2008

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 wall. 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 collapse entirely. 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 "spend-down liability"? 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 Medicaid. 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 care insurance. 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.
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