The Future of Medicare and Medicaid for Seniors
Mark R. Ensign, JD, CPA
Medicare and Medicaid: History and Purposes
To improve access to medical care for needy persons who were receiving other public assistance, in 1950 Congress added Federal financing of State payments made directly to the providers of medical care. A decade later, perceiving that the “aged” also required improved access to medical care, Congress enacted “Medical Assistance to the Aged” in 1960 to provide medical assistance for “aged” persons who were less poor, yet still needed public assistance with their medical expenses.
With the advent of the Great Society and after lengthy national debate, in 1965 Congress established the Medicare and Medicaid programs as parts of the Social Security Act. Medicare was initially intended to provide for the specific medical care needs of the elderly, primarily for acute care. In 1973, Medicare coverage was expanded to certain disabled persons and some persons with kidney disease. Medicaid was initially intended to address the inadequacy of medical care for all those receiving public assistance but especially the elderly poor.
Four decades later, Medicare is now the primary provider of medical care for those aged 65 and older. In part, Medicare is an entitlement program without any consideration of the patient’s financial need or the patient’s resources and, in part, it is insurance for which the elderly pay premiums by deductions from their Social Security income along with co-payments for the services they actually receive. Medicare covers basic health care while focusing on acute care. It does not provide much long-term care, other than for limited periods of patient rehabilitation following hospitalization.
Medicaid for the elderly is a needs-based program. Patients must demonstrate both a medical necessity for the services they are to receive and inability to pay. To be financially eligible for Medicaid, the elderly must have both low income and few assets called resources. Medicaid focuses on the chronic and long-term care of the elderly poor and provides the basic health care for those who qualify.
Over the four decades, from the beginning of the Great Society to now, Congress transformed Medicaid from a narrowly defined program available to needy persons, primarily the elderly, into a huge program covering much of the population of needy persons of all ages with complex eligibility rules. During the late 1980’s and early 1990’s, Congress expanded Medicaid to include people with disabilities, children and pregnant women.
As noted, Medicaid pays for long-term care services. But just how much of the Medicaid system consists of elderly patients? In Texas, only 11% of the Medicaid beneficiaries are elders aged 65 and older. And nationwide the percentage is about the same – only about 1 in 9 Medicaid recipients is aged 65 or older. Texas Medicaid caseloads have grown historically as a result of the expansion of eligibility groups, most notably in children’s groups. No longer is Medicaid primarily about the elderly poor.
Medicare beneficiaries who have low incomes and limited resources may also receive some help from Medicaid. For those eligible for full Medicaid coverage, the Medicare health care coverage is supplemented by services that are available under their State’s Medicaid program, according to eligibility category. These additional services may include, for example, nursing facility care beyond the 100-day limit covered by Medicare, prescription drugs, eyeglasses, and hearing aids. For persons enrolled in both programs, any services that are covered by Medicare are paid for by the Medicare program before any payments are made by the Medicaid program, since Medicaid is always the “payer of last resort.”
Factors affecting the Future of Medicare and Medicaid:
The Aging Population Continues to Grow
Nationally, the population of those 65 and over will increase from 35 million in 2000 to 40 million in 2010, a 14% increase. They will continue to increase so that in 2020 there will be 55 million, a 37% increase in that second decade of the 21st century.
Long-term care is largely a woman’s issue. 75% of nursing home residents are women and 67% of all care consumers are women. Women have lower incomes than men and are more often the care providers for older spouses or for their parents than are men. The typical long-term care provider is the youngest daughter who stayed around her home town. To her the mantle of care provider seems to regularly fall. Eventually she will age and need her own care. But the supply of family care providers for her will probably be smaller than for her older siblings.
The Supply of Caregivers Can’t Meet the Demand
Over just the next 15 years, the number of people who need long-term care is expected to increase by 30 percent. Government estimates suggest that the number of people using paid long-term care services - in a nursing facility, alternative residential care (such as assisted living) facility, or at home - could nearly double over 50 years, increasing from 15 million in 2000 to 27 million in 2050. The segment of the population that is age 85 or older, which is the population at greatest risk of needing care assistance, is expected to grow by more than 400% during this time period. Can your mind embrace the idea of the doubling of this population segment twice in 50 years?
After 2015, the number of people needing long-term care is likely to increase even more substantially. The rate of growth is expected to be even faster than the number of people available either as family or as paid caregivers. Furthermore, as reproduction rates decline and the population ages, the overall labor force relative to the size of the population is likely to be smaller than it is today. This will increase the pressure on families seeking help with long-term care, as well as on paid long-term care providers and on the federal-state Medicaid programs.
Families will increasingly bear the brunt of hard choices as they struggle to personally provide assistance and to hire and organize paid providers to help them care for their loved ones. An adult child is likely to be pressed into service. And that child is likely to have fewer siblings to turn to for respite from the care burden than today as the pool of family caregivers continues to shrink. In 1990, there were 11 potential caregivers for each elder needing care. By 2050, that ratio will have dropped to only four (4) caregivers for each elder needing care. Currently 59% of the adult population either is or expects to be a family caregiver and the average length of caregiving is 4.3 years.
To maintain the current ratio of long-term care workers to just the population age 85 or older (not taking into account the care needs of those younger elderly, aged from 65 to 85), the number of paid long-term care workers would need to more than double; increasing from an estimated 1.9 million workers in 2000 to at least 4.0 million in 2050. The paid long-term care workforce would need to grow, at a minimum, by more than two percent per year between 2000 and 2050. While this rate of growth is conceivable, during this time period the total working-age population is expected to increase only 0.3 percent per year. More and more people will have to enter the paid caregiving workforce. And the higher labor costs required to maintain this workforce will increase financial pressures on families and on the Medicaid program.
The Government as Caregiver
Many Texans will recall the launching with substantial fanfare of the Great Society by our fellow Texan, President Lyndon Johnson. The American people were promised that this welfare state would cure our ills and that there would always be health care and long-term care assistance for all who might need it. The government was expected to be the eternal caregiver, first, last and always – not merely the last resort for only the truly impoverished.
Well, friends, the Great Society train that picked up steam and moved on down the tracks a few decades ago is now slowly pulling back into the station as the steam is dying down. The seemingly bottomless source of tax dollars to fuel this engine is now shrinking while the number and weight of the cars it must pull is ever increasing.
Federal Reserve Chairman Ben Bernanke warned in a 2006 speech to the Economic Club of Washington, D.C. that delay in making sure that Social Security and Medicare are fiscally sound will increase the burden on future generations to pay for such programs. He focused on the demographic shift of the U.S. population as the baby boom generation retires and the strain on public benefit entitlements grows.
Not once in that speech did Chairman Bernanke mention Medicaid. Not once! Does that tell you something? Do you think perhaps Medicare and Social Security will be favored at the expense of Medicaid?
The Budget Crunch - less money and more needs
President Bush asked Congress in February 2007 to squeeze more than $70 billion of savings from Medicare and Medicaid over the next five years. The American Health Care Association warned that further cuts to Medicare will threaten the financial stability of, and quality of care provided by, the nation’s long-term care facilities.
State requirements to balance their budgets each year without debt financing - like the Federal government can do – plus rising health care costs, increasing numbers of Americans without health insurance and the aging population all combine to impose increasing demands on Medicaid. States face additional strains as the Federal matching rates are reduced and as the Center for Medicare and Medicaid Services (CMS) even more closely scrutinizes state expenditures and disallows more of them for federal matching dollars.
In Texas, several key state lawmakers said they had plans this legislative session to work on revamping Medicaid. The future of the program is likely to trigger an ongoing fight between those devoted to ensuring the well-being of the most vulnerable Texans and those who fear that the swelling Medicaid program could soon overwhelm the state budget. The Texas Health and Human Services Commission has requested $43.3 billion in Medicaid funding for the next two-year budget cycle, an increase in $7.1 billion from the previous cycle. But remember that only 1 in 9 Medicaid beneficiaries in Texas are the elderly.
Some legislators worry that if Medicaid costs aren’t reined in, the program could swallow the state budget. “If we don’t get (Medicaid) under control, there’s not going to be any money for any of those other things like schools or roads or prisons,” said state Rep. John Davis, R-Houston, chairman of a House subcommittee in charge of developing the health and human services portion of the state budget. Surely his concerns are echoed by many of his colleagues in Texas as well as in legislatures across the nation.
Some Texas legislative leaders say that the time might be now for Medicaid reform legislation because of new laws passed by the Federal government. The Deficit Reduction Act of 2005 President Bush signed in February of 2006 included a number of new requirements for state Medicaid programs. It gives states new flexibility to offer alternative Medicaid benefit packages and to impose cost sharing. States are now beginning to explore those alternatives to trim their budgets.
Competing Forces for the Shrinking Elder Care Budget
Permit me in very few words to remind you of the forces constantly competing for the limited and ever-shrinking financial resources in the Federal and State budgets for the care needs of the elderly.
· Not so old (younger Social Security recipients, aged 65 to 85) versus the really old – those over age 85
· Pensioners and retirees versus impoverished elderly
· Acute care versus chronic care
· Doctors, pharmaceutical companies and hospitals versus long-term care providers, assisted living and skilled nursing facilities
· Cherished youth (children’s health programs) versus the expendable elderly
Who has the better lobbyists? Who has the political power? Guess who wins?
I expect Medicare to grow along with Medicaid for the young while it shrinks for the elderly. That scenario is being played out in the budget President Bush has proposed for FY 2008. Follow the money as it goes with the power and the votes.
Proposed Measures to Meet the Growing Needs for Elder Care
Community “transition” or “diversion” programs
Increasingly, states are focusing on enhancing home and community-based programs. Some are using “Money Follows the Person” programs to increase the use of community services versus institutional services. Others are using the “cash and counseling option” that allows for self-direction of personal assistance services. But will the states in their cost-cutting efforts decrease the standards of care in the community below those in the regulated facilities to the detriment of the elderly in order to save tax dollars?
Cutting Payments to Care Providers
One way to reduce Medicare and Medicaid budgets is to cut the amounts paid to the providers of elder care. Indeed, most of the savings in Medicare and Medicaid that are proposed by President Bush’s budget come from reducing the growth in such provider payments. The “lion’s share” of the Medicare savings over the next five years would result from limits on annual inflation adjustments for reimbursements to hospitals, nursing homes and other health care providers. For Medicaid, the budget proposal would reduce reimbursements for administrative costs and pharmacies.
The Deficit Reduction Act of 2005 permits states to increase cost sharing for Medicaid beneficiaries, making the recipients pay more for the cost of their care. Obviously the individuals who would be forced to pay these added costs are already at or below the income and asset eligibility thresholds for Medicaid. So they may be forced to choose between food, winter heat and medical care. Although not part of DRA 2005, perhaps such sad circumstances could eventually lead to “family responsibility” as discussed below in some detail.
Expanded Personal Responsibility – the Compact Concept
Under this concept, being discussed in some states but not yet adopted anywhere, an elderly individual or couple would form a “compact” (agreement) with the state for the financing of their future long-term care needs. The patients would commit to spend a certain amount of their assets to pay for long-term care. Once that amount was spent by the patients, the state would assist in paying for their long term care. For example, their commitment could be 50% of countable resources, up to a maximum figure.
Once the state began to pay for assistance, the individual would still have to contribute to the cost of his care by making payments of two components. Whatever the Medicaid rate of reimbursement might be for the service being provided, the individual would have to pay the care provider an additional 10%. Additionally, the individual would have to pay 25% of his income toward his care.
This proposal would not be limited to nursing home care. The trigger would be when the individual is certified to need assistance with two of the six activities of daily living (ADLs). Thereafter, the individual would be responsible for 100% of his care until he had met his entire agreed obligation. If he was still in assisted living when his funds ran out, the state would pay for assisted living. This prevents someone from having to go to a nursing home to get his care paid for when assisted living is actually more appropriate.
Sounds like a pretty neat idea. But, honestly, do you think the states will ever allow the recipient to keep say 50% of his resources and pass them to the family when the state could require him to use all of his resources for his long-term care before the state pays anything? Somehow I have a hard time imagining budget battling legislators passing up a nest egg of available resources still in the elder’s hands to pay for that elder’s care.
Long-term care insurance - Partnership for Long-term Care Program
This program may be described in a nutshell as “Buy my long-term care insurance and the state will let you keep some of your assets for your family.”
In the Texas Senate a bill was introduced (SB 738 by Senator Williams) that would have allowed for dollar-for-dollar countable resources disregard in order to qualify for Medicaid if the individual is or was covered by a long-term care insurance benefit plan meeting the minimum standards under the Federal Partnership for Long-term Care Program. In other words, if a person purchased long-term care insurance in the amount of $100,000, an equal amount of otherwise countable resources (such as CD’s or investments) would not be considered as an asset that would otherwise disqualify the Medicaid applicant. (As of mid-May, this bill appears dead. Nevertheless, the fact this was proposed is significant and it will likely be pushed, particularly by the insurance industry, in future sessions.)
But some folk have genuine concerns about such long-term care insurance. Who will really pay for that insurance? Who among the elderly poor can actually afford to pay the premiums? Will that insurance company who took these premiums still be around when it is time to pay for that long-term care? And again, when the real budget crunch comes, will the states really allow a Medicaid recipient to keep some of his resources when the state could demand they all be spent on his care?
Expanded Estate Recovery
Generally states can make claims on the assets a Medicaid recipient or his spouse has at the time of their deaths to pay back the state for the costs of care paid by Medicaid. This nutcracker is now being squeezed even tighter in some states. The states will eventually demand all resources be paid for the care of the elder, either before or after their death. What other alternative do the states really have in the future?
As an example, Oregon has some of the toughest estate recovery rules. If a Medicaid recipient dies, the state will not make a claim if there is a surviving spouse – until that surviving spouse dies. Then the state has a priority claim against the estate of the surviving spouse for all Medicaid benefits paid to the deceased spouse to the extent that the surviving spouse received any property or other assets from the deceased Medicaid recipient at the time of death, whether through probate or through operation of law. This allows the State of Oregon to recover assets conveyed through joint tenancy, tenancy in common, survivorship, life estate, living trusts, annuities or other similar arrangement – basically any way the deceased spouse could pass property to the surviving spouse. Oregon even has subpoena authority in order to directly access financial records of the Medicaid recipient after death! They really mean business about extracting every penny ever paid by Medicaid for elder care from the recipient’s estate or his spouse’s estate!
An extraordinary jump in Medicaid savings had been predicted by estate recovery proponents if all states were to follow the tough Oregon model. However, it is now clear that the much-vaunted savings have not materialized. In 2003, nationwide the total estate recoveries amounted to just $330 million. That is only 1/8th of 1% (0.13%) of the total Medicaid spending in all states! And Oregon only collects about 2% of what it spends on Medicaid. You just can’t milk a dry cow.
In a nutshell family responsibility means, “Wait a minute, son and daughter; you don’t get off the hook that easy! The state can’t pay for your parent’s care, so you’ll have to!”
The English Poor Relief Act of 1601 required “the father and grandfather and the mother and grandmother, and the children of every poor, blind, lame, and impotent person” to support that individual to the extent they were able. Now similar laws are in about 30 states and have had an impact on social welfare of poor and elderly parents in the state having them. They are variously called family, familial or filial responsibility laws.
So far Federal law prevents state Medicaid programs from considering the finances of anyone but the applicant or his/her spouse. However, one element of the Medicaid reform proposal passed by Congress but vetoed by President Clinton in 1995 would have allowed such state “Family Responsibility” laws to become commonplace as a source of paying for the cost of nursing facility and other long-term care services. Adult children, at least the wealthy initially, could have been required to pay some or all of the cost of caring for their parents in nursing homes or other state-provided arrangements.
In 2005, The National Center for Policy Analysis, a conservative policy group, released an issue brief proposing that states begin enforcing family responsibility laws to reduce long-term care costs. This group claims that adult children should be forced under such laws to reimburse the state programs that provided care for their indigent parents. And it would not take much for Congress to force families to care for their elderly poor before they could qualify for Medicaid.
In the long run, these measures seem like Band-Aids over massive hemorrhages.
While I do not claim to be a prophet or the son of a prophet, I think those who are willing to take a close look at the past and the present can begin to read the handwriting on the wall and discern what the future holds for the public health benefits for the elderly.
· It will continue to be an economically viable program because of the insurance component and the co-payments (cost sharing)
· It will be supported politically because those who benefit from the acute care plus those who provide it have strong lobbies.
· Cuts in reimbursement rates to providers will continue in this entitlement program because its growth cannot be sustained as in the past.
· Like Social Security, Medicare will be a sacred cash cow that will eventually devour the nation’s resources, taking from the young to provide for the elders.
· It will become more and more the poor step-child of Medicare because the elderly poor with chronic health needs requiring long-term care have little power and weak lobbies.
· The demand for long-term care services will increase as the population ages.
· There will be fewer caregivers than demand requires so family members will have to carry more of the burden.
· There will be less state and federal funding to provide long-term care.
· The states will use all measures possible to reduce the care they pay for.
· The states will tighten down even more on eligibility criteria so only the truly poverty-stricken elderly will ever qualify – after they have paid all they have on their own long-term care.
· Eventually, even homesteads will not be protected in the qualification process unless occupied by a spouse and liens will become common; homesteads will become subject to estate recovery after the spouse dies or leaves that home.
· The states will pursue estate recovery with every means available to get every penny of resources left by a deceased Medicaid recipient.
· Families will eventually be forced to provide for their elderly family members to the extent of a substantial portion of their own income and resources before the elder could become eligible for Medicaid.
· The power of the state courts will be applied against those who fail to provide for their elders and forcing them to comply.
I have not painted a very pretty picture of the future for Medicare and Medicaid. But I think it is a realistic one that must be faced by professional care managers, family members, and all those who love the elderly and do not see them as expendable. The elderly do not have a duty to die and get out of the way as some politicians have stated or intimated. They deserve their dignity and our respect.
Indeed, it appears that the loving instruction of the Creator of the Universe will eventually be the rule of law - Honor your father and mother that your days may be long upon the earth.
Mark R. Ensign, JD, CPA
Attorney & Counselor at Law
Ensign Law Firm, P.C.
500 S. Taylor, LB 228
Amarillo, Texas 79101-2446