An interesting article appeared in the Wall Street Journal earlier this month that discussed the current state of Medicaid across the nation.

Medicaid and Long Term Care

Written by Mark Warshawsky, who served as vice-chair for the federal Commission on Long-Term Care, the article, titled “Millionaires on Medicaid”, illuminates how Medicaid really works these days and brings to light many issues in need of reparation. The most startling issue Warshawsky focuses on is that Medicaid is no longer just for the poor and disabled, though that’s who the program was created to serve. Medicaid now serves a great deal of people who possess substantial assets, some who are even in the top income bracket.

The current expansion of Medicaid under the Affordable Care Act, Warshawsky claims, reinforces the perception that Medicaid only serves the poor. It also detracts attention away from the real problem facing Medcaid today: long term care.

Long term care is an issue that is quickly making its way to the forefront of financial magazines and retirement websites. Though many envision long term care as solely nursing home care, there is much more to it than that. Assisted living, adult day centers, and in-home care also make up a major part of the long term care system.

A Financial Risk

People need long term care for a variety of reasons: from dementia to heart disease, from obesity to a stroke, long term care spans a wide spectrum of causes. Those who need long term care need it because they are unable to perform basic daily tasks on their own, whether temporarily or permanently. As Baby Boomers enter retirement, the issue of long term care becomes palpable. Government estimates place the risk of needing long term care at 7 in 10 for Americans older than 65.

Because the issue of long term care is a fairly new one that emerged amidst an age of rapidly evolving technology and lengthening life expectancies, most people haven’t taken the time to prepare for the high costs that are associated with this type of care. That is one reason Medicaid is under such a massive burden from the costs, because people who would normally never need to enroll in Medicaid are being forced to enroll after exhausting all of their existing assets to pay for care. Once those assets are gone and care is still needed, Medicaid is the next step.

Two-thirds of all annual spending on long term care is government paid, and $60 billion of that comes out of Medicaid. This spending is expected to more than double by 2050, according to the Congressional Budget Office. What currently makes up 1.3% of our GDP will soon make up 3%.

Benefits for Who?

It might come as a surprise then that there are many people who are using the benefits of Medicaid who aren’t struggling financially and who haven’t spent down all of their assets., or any at all. Thanks to Medicaid’s asset-exclusion limits, which Warshawsky calls “generous”, an individual can own a home worth $800,000 plus home furnishings, jewelry, a car, life insurance, retirement accounts, spousal assets, Social Security income, and a pension plan. One person can own all of those things and still qualify for Medicaid benefits. Certain types of attorneys base their business solely on helping families transfer assets properly to ensure they will still qualify for benefits.

Considering these facts, it’s no wonder Medicaid is under so much pressure. Not only is it serving those who it was meant to serve, the poor and disabled, but it now also serves those who have absolutely no business collecting benefits but believe they are entitled to them.

According to the WSJ article, 15% of elderly adults in the middle income bracket receive Medicaid benefits. So do another 8% in the upper middle bracket and 5% in the top income bracket. These individuals, who by no stretch of the imagination could be considered impoverished, are setting aside their own assets and being cared for by the government, instead. Though the Medicaid Estate Recovery program is supposed to recoup assets of beneficiaries to pay for health care costs, the truth is that less than 2% of all long term care costs are ever recovered.

Preparing for an Influx of Care

As the country gears up to tackle long term care head on, steps must be taken to ensure that Medicaid continues to provide only for those who are truly in need. Otherwise, there is serious financial disaster ahead for the program and for Americans. Warshawsky recommends the eligibility for benefits be tightened, requiring the wealthy to utilize their other assets to pay for long term care before taking advantage of Medicaid.

Long term care insurance partnership plans are a solid first step to encouraging people to take responsibility for their own costs while giving them a backup plan in case they exhaust all their assets. Tax preferences for long term care insurance plans would be a great next step to help promote awareness and preparation. Until Medicaid is restructured, though, the issue of long term care will continue to place a growing burden on the state, which cannot be sustained forever.