There is a widespread belief that seniors, in cahoots with shady lawyers and greedy children, hide their assets so they can receive Medicaid long-term care benefits. It turns out that this image—sort of the greedy geezer equivalent of Cadillac-driving welfare queens—is largely an urban myth.
While some seniors undoubtedly find ways to transfer assets (everyone, it seems, knows someone who has—or at least thinks they do), new research paints a very different picture: Most frail seniors and younger people with disabilities who receive Medicaid benefits were poor long before they ended up on program. They did not hide their assets because, in large part, they didn’t have any to start with.
The study, by Josh Wiener and colleagues at the research firm RTI International, was based on a national survey that allowed them to follow thousands of people aged 50 and over for 10-12 years.
Although the study did not explicitly look at the issue of asset transfers, it paints a fascinating picture of people who turn to Medicaid as they age. Josh’s paper, funded by the SCAN Foundation, follows them as they age, develop health problems, and eventually become impoverished.
Josh and his colleagues were studying a phenomenon known as Medicaid spend-down, the process where someone runs through their money until they become eligible for the means-tested program.
Medicaid provides long-term supports and services for seniors and people with disabilities, but only if they meet strict income and asset tests. Though the limits vary by state, single individuals generally must have no more than about $2,000 in financial assets (they can also keep their home and some personal property).
Over the period 1996-2008, about 10 percent of people who had not previously been on Medicaid became impoverished and ended up on the program. Among those who were 65 or older at the beginning of the study, about 13 percent spent down. Younger people were half as likely to do so.
Keep in mind that the study may understate the percentage of those who ultimately go on to Medicaid since it followed them for only 10-12 years. By the end of the survey period, the youngest people were still only in their sixties and had not yet begun to incur heavy medical and long-term care costs. Often, that doesn’t happen until people reach their early or mid-80s.
Only about half of those who became Medicaid eligible had used any long-term supports and services. That suggests many Medicaid recipients became impoverished due to high medical costs or other factors.
But the key story is that those who did spend down started with far fewer assets and income than those who did not. They were disproportionately minorities, unmarried, and poorly educated. Among those who became Medicaid eligible by 2008, the median value of their total assets a decade earlier (including housing but excluding IRAs) was only $33,000—just one-fourth of the total wealth of those who did not spend down.
Of those who spent-down to Medicaid, 85 percent had less than $112,000 in total assets (including home equity) a decade earlier. The median net value of their primary residence was just $17,000, and 60 percent had household income of less than $16,000.
In other words, most of those who spend-down to Medicaid due to disability or old age were barely hanging on long before becoming eligible for the program. This population didn’t give much away because they never had much to give.
Finding an alternative to Medicaid is a huge challenge for policymakers looking for solutions to the long-term care financing problem. This population has very few financial resources to pay for their own long-term care. Tapping into housing assets won’t help because they have little home equity. Most would never be able to afford long-term care insurance.
Of course, there are millions of others who are more solidly middle-class, and it may be possible to build new financial solutions for their long-term care. But Josh’s research shows that those who end up on Medicaid in frail old age or because they are disabled may have few other options.