Why Retiring Baby Boomers Will find Medi-Cal a Bust on Long-Term Care
The new administration of Jerry Brown faces many challenges, including a tough one that will get worse on July 1, 2011. That’s when the federal funds that have propped up California’s troubled Medi-Cal system will disappear.
That is bad news for retirees, including baby boomers, who in 2011 will be turning 65 every eight seconds. Many boomer retirees will need long-term care (LTC), but they shouldn’t look to Medi-Cal for such medical and custodial attention.
Medi-Cal is public assistance designed to be a safety net for the poor. This welfare program is being exploited by the middle-class and affluent, according to Medi-Cal Long-Term Care: Safety Net or Hammock? a new PRI study by Steve Moses, president of the Center for Long-Term Care Reform. The author lays out some stark realities.
For example, nearly 70 percent of all people require some LTC and 20 percent need five years or more. LTC is expensive whether provided in a nursing home ($256/day), assisted living facility ($2,576/month) or in one’s own home ($25/hour for an aide). Historically, government has paid for most LTC through programs like Medi-Cal, Medicare and the Veterans Administration. In 2008, California spent $3.8 billion on nursing homes and $6.5 billion for home health and personal care through Medi-Cal alone.
As a government agency, Medi-Cal has a bureaucratic incentive to expand, not reduce, the number of its beneficiaries. Medi-Cal officials have followed this pattern by extending to the middle-class and affluent a program designed for the poor. Anyone with income below the cost of a nursing home qualifies easily for LTC funded by Medi-Cal.
Assets are not an obstacle because Medi-Cal exempts virtually unlimited resources including up to $750,000 of home equity plus a business, automobile, prepaid burial plans, term life insurance and home furnishings of unlimited value. Medi-Cal Long-Term Care helpfully outlines the “Two-Mercedes Rule” and the “Renoir Loophole.”
People with even more wealth than Medi-Cal’s generous eligibility rules allow can turn to a cottage industry of specialized “Medi-Cal planners.” They manipulate and stretch the rules with special trusts, annuities, life-care contracts and many other sophisticated legal gambits.
In the past, Californians relied on Medi-Cal reluctantly despite its easy eligibility because the program paid primarily for nursing homes, which most people would rather avoid. Over the past three decades, according to the study, Medi-Cal has “rebalanced” to pay mainly for home-based and personal care, which most people prefer.
In fact, Medi-Cal even provides payments for friends or relatives to provide home care. According to Steve Moses, “such attractive services, coupled with easy eligibility, have anesthetized the public to LTC risk and cost.” According to his study, private-pay for LTC has declined precipitously and only 5.4 percent of Californians age 50 plus have purchased private LTC insurance.
While the population has been aging, Medi-Cal costs have been soaring and the state economy slumping badly. The state and federal governments, which now share the cost of Medi-Cal, are ill-equipped to provide LTC at anything like the current level. California’s budget deficit could top $26 billion over the next 18 months.
Meanwhile, Medi-Cal has cut back on home care and adult day health programs. Californians should expect such cuts to continue and increase after July 1, 2011, when supplemental federal matching funds that have propped up the program since October 2008 disappear.
The Brown administration will then have no choice but to cut popular benefits, tighten Medi-Cal eligibility rules, close gaping loopholes, and strengthen recovery from deceased recipients’ estates. Instead of cultivating dependency, the state will have to encourage personal responsibility for LTC through greater asset spend-down, home equity conversion, and private insurance.
“Currently Medi-Cal LTC attempts to provide too much for too many,” says Steve Moses. “Medi-Cal is going to fail and the people hurt will be the very ones for whom it was supposed to provide a safety net. In 2011 and beyond, California legislators should make it a priority to redesign Medi-Cal with those realities in mind.”