New Reports Suggest Many Seniors Spend Savings to Qualify for Medicaid

Voluntary Long-term Care Insurance Unlikely to Reduce Burden

RESEARCH TRIANGLE PARK, N.C. – As the baby boomer generation ages, many conventional assumptions about funding long-term care need to be reassessed, according to three new reports by researchers from RTI International and Avalere Health.

According to the reports released today, older Americans currently have limited options to pay for long-term care services, which include nursing home and in-home care. Many older adults who require these services pay for them through income and personal savings until they are poor enough to qualify for Medicaid. Moreover, one report finds that voluntarily long-term care insurance is unlikely to reduce the burden on Medicaid.

One of reports analyzed Medicaid spend-down trends; another assessed the potential impact of various financing models of long-term care insurance on Medicaid spending. A third report summarized the findings of the two other reports. All three studies were funded by The SCAN Foundation and are a part of a series produced to explore long-term care financing issues. 

The first report examined people age 50 and older who became eligible for Medicaid during a 12-year period. The researchers used data from the 1996 through 2008 Health and Retirement Study, a nationally representative survey of the older population funded by the National Institute on Aging, to analyze individuals’ spending, their income, and savings until they became Medicaid-eligible.

The study found that during that 12-year period almost 10 percent of the non-Medicaid population spent enough of their income and assets to qualify for the program. Additionally, among people who were Medicaid beneficiaries at any time during that period, almost two-thirds became eligible after spending down their personal finances. 

The researchers found that people who spent down to Medicaid eligibility were disproportionately lower income and had substantially fewer assets than people who did not. That finding is inconsistent with the common assumption that the income and assets of people who spend down to Medicaid eligibility are typical of the population as a whole, and that people who spend down are predominantly middle class.

“The results of this study demonstrate that Medicaid spend down is not a rare event and is part of a larger issue concerning the inadequacies of our retirement security system,” said Joshua Wiener, Ph.D., distinguished fellow and director of RTI's Aging, Disability and Long-Term Care Program and lead author of the report. “Many policy makers promote private long-term care insurance as a way to achieve Medicaid savings, but these results show that the income and assets of people who spend down are considerably lower than commonly assumed, casting doubt about whether this population could ever afford private long-term care insurance.”

The second report found that mandatory long-term care insurance is more likely than similar voluntary programs to cover people with disabilities and reduce Medicaid spending in a meaningful way. 

The authors used a simulation model to assess how different approaches to long-term care insurance programs would affect premiums and other policy outcomes. The model compared insurance premiums, the size of the insured population, the size of the delayed spend-down Medicaid population, and Medicaid savings for voluntary and mandatory long-term care insurance programs.  

According to the report, policy solutions promoting voluntary long-term insurance are unlikely to attract enough people to reduce the country’s dependence on Medicaid for long-term supports and services financing. 

In contrast, mandatory insurance options were more likely to have lower premiums, cover more people, pay for a higher proportion of long-term services and support spending, and reduce Medicaid spending.

The simulation found that by its 15th year, a mandatory long-term care insurance program with a five-year benefit length would have 11 times the enrollment and six times the population receiving benefits as a similar voluntary program. The fifteen-year Medicaid savings for the mandatory program were estimated to be $49 billion, compared to about $5.4 billion for the voluntary program.

“This analysis demonstrates that the voluntary and mandatory approaches to increasing long-term care insurance coverage come with important trade-offs,” said Wiener, who was a co-author on the report. “Policy makers should understand that while voluntary approaches will avoid the challenge of mandating enrollment for a public insurance program, they will not change the trajectory of Medicaid spending in a significant way.”

The reports and their findings were discussed at a policy forum sponsored by The SCAN Foundation today at the National Press Club in Washington, D.C.