Could Congress Boost Medicaid Long-Term Care Benefits For Some By Curbing Spousal Annuities?

Is Medicaid’s long-term care benefit a zero-sum game where limited resources are shifted from one beneficiary to another? For instance, could the government significantly increase long-term care benefits for some by barring people from using spousal annuities to qualify for Medicaid?

Or should resources be expanded to provide all eligible seniors and younger people with disabilities the care they need?

Those contrasting views, divided along partisan political lines, were on full display today at the House Energy and Commerce Committee. Curiously, the Republican-controlled panel kicked off what is likely to be a highly contentious, months-long debate over future of Medicaid by focusing on three narrow bills aimed at closing what sponsors called loopholes in the system. One would limit the use of spousal annuities as a tool to shed assets and accelerate eligibility for Medicaid long-term care. The idea: Reduce or eliminate assistance for those who sponsors believe are undeserving and use the money to increase benefits for those they believe should receive more.

Block Grants

The subtext to this is the GOP plan to cap the federal contribution to Medicaid, which is currently jointly funded by the feds and the states.  The committee wasn’t considering such a proposal today, though plenty of the panel’s Democrats were talking about it—and not in a good way. But the principle behind such a cap, often called a block-grant, was similar: Redistribute pieces of a pie rather than baking a bigger one.

The bills attacked three issues. The first would count lottery winnings and other “irregular” income for the purposes of determining Medicaid eligibility. The second would require applicants to prove US citizenship or residency before they begin receiving benefits.

Spousal Annuities 

The third would count half the income from a spouse’s annuity when figuring whether someone is financially eligible for Medicaid. The program limits both the income and assets of beneficiaries. However, when an enrollee is living in a nursing home, his spouse (called a community spouse) is allowed to retain separate assets to support her own living costs. Some people purchase an annuity to maximize a spouse’s income while reducing their own assets to permitted levels, thus accelerating their eligibility for Medicaid long-term care.

Nobody knows how common this practice is, though extensive research suggests that the vast majority of those enrolled in Medicaid’s long-term care program were poor during their working lives. Some middle- and upper-income people become eligible for Medicaid only after long periods of medical and long-term care need.

Some have found ways to game the system. However, my Urban Institute colleague Melissa Favreault estimates that only about 5 percent of high-income people ever receive Medicaid long-term care benefits, their average lifetime benefits are relatively small (about $13,000), and they tend to live well into their 90s which suggests they may have been paying for care out-of-pocket for years before turning to Medicaid .

The other two issues also turn out to be more complex than they first appear. Counting lottery winnings seems to make sense, but should a one-time legal settlement from, say, a debilitating auto accident also count?  And while only US citizens and legal residents are eligible for Medicaid, should people be barred from receiving benefits if the paperwork proving their status is hung up in the government’s own bureaucracy?

Home Care Waiting Lists

Backers of these bills say that some of the money saved from closing these “loopholes” could reduce waiting lists for Medicaid’s home and community based (HCBS) long-term care program.

Those waiting lists are a scandal. More than 640,000 people were stuck on them in 2015. Most had intellectual and developmental disabilities, but about 145,000, or one-quarter, were frail older adults. Many die before ever getting to the top of the list and receiving benefits.

This backlog is a way for states to claim they have creative HCBS programs, while saving money by underfunding them. It is a problem that needs to be fixed. But none of these bills are likely do that.

Their sponsors have no estimate of how much money they could save. But I suspect it would not be much in the context of the $140 billion Medicaid spends each year on long-term care. Thus, they’d likely do little to shrink those waiting lists.

These bills are largely symbolic. Yes, they might end some abuses and generate a few extra dollars for others. And to the degree they do, that would be a good thing. But, for now, they are merely a proxy for a much bigger issue: What should Medicaid look like in the coming years?

 

 

 

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