FACING FACTS The Truth about Entitlements and the Budget A Fax Alert from The Concord Coalition Volume II, Number 2, February 19, 1996 IT'S TIME TO SAY NO TO MEDICAID FOR THE MIDDLE CLASS On February 6, the National Governors' Association announced a Medicaid reform package that opinion makers promptly hailed as a budget icebreaker. It would keep Medicaid an individual entitlement as the White House insists. But it would give the states broad budgetary discretion in controlling costs as the GOP insists. Perfect compromise, right? Perfect cover-up is more like it. If Medicaid were just a poverty program, its "entitlement" status might have little fiscal consequence. But it's not. The biggest problem looming over Medicaid is the exploding cost of nursing home care and this goes increasingly to middle- and upper-income seniors. The White House insists on a Medicaid entitlement precisely because it wants to recast Medicaid as a middle-class property right perhaps as a prelude to another universal health-care plan, at least as a popular vote-getter. As for Congress, it's foolish to think that its ability to say no to welfare mothers means that it can say no to the middle class. Fiscal hawks face a choice. They can wink as Medicaid is transformed into a vast middle-class estate preservation program. Or they can tell America the truth. They can tell most Americans not to expect government to pay for their long-term care and tell most families they will have to plan, save, insure, and pool resources on their own. For family-value Republicans, it's an opportunity to show how these values start at home. A Middle-Class Entitlement Let's start with some facts about Medicaid, the means-tested health-benefit program that is jointly financed by the states and the federal government. Media accounts of Medicaid mills conjure up the underclass. But this is an incomplete image. Although the majority of Medicaid beneficiaries (roughly 70 percent) are poor children or AFDC moms, most of the benefit dollars (roughly 70 percent) go to the elderly and the permanently disabled, primarily for nursing home care. Seniors must meet a means test before collecting Medicaid. The basic rule is that personal "resources" cannot exceed a stringent state-determined threshold, usually $2,000. But this too is misleading. The test is riddled with loopholes allowing seniors to qualify, for example, while exempting any "spousal assets" up to around $70,000, any personal assets that have been annuitized, and any primary residence (plus land, furnishings, and automobile) no matter how valuable. If there are still problems qualifying, seniors can transfer assets to their children and rest assured (no matter what the regulations say) that states won't go after them. Lawyers specializing in "elderlaw" the fastest-growing legal service of the 1990s stand ready to explain the trusts and asset-shuffling that make it all work. Says long-term care expert (and former HHS Inspector General) Stephen Moses, "Virtually anyone, regardless of income or assets, can qualify for nursing home care paid for by the government within 30 days." There is no way to tell what share of nursing home residents receive Medicaid through subterfuge. But the numbers tell a startling story. Among Americans age 65 and over, only 12 percent are below the official poverty lineand even fewer, less than 7 percent, receive means-tested cash assistance under the SSI program. Of households headed by persons over age 75, three-fifths own their own home and car and half have a net worth of over $75,000. Yet Medicaid is the principal payer for 63 percent of all nursing-home patient days. On entering nursing homes, over half of all seniors get a Medicaid subsidy from day one. It is often said that the only reason so many nursing home residents end up on Medicaid is that they have first been forced to "spend down" their assets as private-pay patients. While this may once have been common, seniors who destitute themselves paying nursing home bills are now the exception. According to the CBO, as few as 10 percent of Medicaid nursing home patients become eligible in this way. And even these cases are mostly due to inadvertence or uninformed financial planning. The coming age wave makes the gentrification of Medicaid unsustainable. From now to 2030, the number of elderly age 85 and over is projected to triple or quadruple. The nursing home population can be expected to rise at least as fast as the "old old" population and may rise much faster. For one thing, there is evidence that the incidence of disability among the old old is rising. For another, the sociodemographic factors that put seniors at risk for institutionalization all point in an ominous direction: the rising likelihood of being divorced or widowed, of living alone or far from one's children, of not having any children at all, or of having children who are themselves elderly and disabled. Which Values? The administration's response to this gathering crisis is to protest that a change in Medicaid's entitlement status would "violate our values." Which values? Not the conviction that the social safety net should be inviolate: Last fall, the President was willing to cancel the entitlement to AFDC. And not the principle that "earned" benefits are sacrosanct. While FICA contributions furnish a fig-leaf defense for Social Security and Medicare, there's no earned right to Medicaid. Apparently, the administration believes the middle class is entitled to whatever it has come to expect from government. As President Clinton put it before the White House Conference on Aging last May: "I hope that if nothing else comes out of this conference, the American people will come to understand that Medicaid is not simply a program for poor people." To fan voter passions against the GOP plan to block grant Medicaid, he shrewdly borrows GOP thunder and warns of "Medicaid police" with vast powers to raid your home and seize your property. The White House is beating the Republican leadership at its own game: It has discovered that the more voters hate government, the more they insist on taking from government. On paper, the GOP plan would hold federal Medicaid expenditures to 1.3 percent of GDP in 2002, 1.1 percent of GDP in 2010, and 0.8 percent of GDP in 2030 cuts 28, 58, and 78 percent beneath current projections. The pretense is that the caps can be met by herding the welfare poor into managed care. The reality as President Clinton correctly implies is that even coming close to these targets would require wholesale changes in Medicaid's nursing home coverage. Cuts of this magnitude prove that the GOP does not share the White House vision of a New Deal for Suburbia. The GOP, however, does not drop the other shoe and tell the middle class what it will have to give up. Until political leaders do so, cost control in Medicaid will be a sham. In time, the public will grow sick of this "poverty program" hypocrisy and demand that Medicaid be turned into an explicit entitlement for everyone. A Framework for Reform Reform must begin with the recognition that an entitlement guarantee to Medicaid is a bad idea not because the poor shouldn't have a safety net, but because it's not the poor who are being entitled. In fact, without the guarantee, we will be able to deliver better care to those among the elderly who must rely on public budgets. How? By tailoring care to the needs of individual families. That may mean institutional care for one, "assisted living" for another, and "home care" for yet another. Such flexibility is unaffordable within an entitlement framework that gives a blank check to everyone. All experts agree that such home-care flexibility, by making Medicaid more attractive, would induce vast new demand. Consider: Only 20 percent of all elderly with disabilities currently reside in nursing homes. Determining eligibility and type of care should be left up to the states. When it comes to long-term care, both medical and financial need demand administrative discretion. Keep in mind that the social norms defining government's role in caring for the frail elderly differ widely by region. Such differences, not relative affluence, explain the gross inequality in Medicaid spending from state to state. New York now spends nearly $2,000 on long-term care for seniors per resident age 65 and over, while Minnesota spends $1,000, California and Texas spend under $500, and Utah spends around $300. States should also be given wide latitude to determine to what extent adult children can be held financially responsible for the care of their parents. To categorically exempt children is to disarm the regulations against asset transfers and therefore to render an effective means-test impossible. Everyone agrees it's bad policy to make dependent children wards of the state without first trying to get parents to live up to their responsibilities. But what about the dependent parents of grown children? Why not talk about "deadbeat kids"? Some say an entitlement to long-term care is essential because families aren't preparing for the eventuality themselves. This is backwards: Families aren't preparing because they know that government will be there. Experts agree this is why few seniors purchase private long-term care insurance. Lawyers and tax consultants point out that it's usually grown children who get seniors to divest and qualify for Medicaid; they want their inheritance intact. If Medicaid were no longer an option, families would work out other arrangements. Long before the age wave hits, Medicaid will have to be restructured. White House pronouncements irresponsibly deny the obvious and delay middle-class families from doing what they must to prepare. The reluctance of fiscal hawks in both parties to talk honestly about the issue only makes matters worse.
FACING FACTS AUTHORS: Neil Howe and Richard Jackson CONCORD COALITION EXECUTIVE DIRECTOR: Martha Phillips