Medicaid–the nation’s program to reimburse hospitals and physicians for health care provided to the poor–has become an 800-pound gorilla sitting on the back of state budgets. In 2004 it consumed nearly a quarter of states’ budgets, and its cost is expected to rise 12 percent this year.
State legislators are scrambling to find a way to slow the program’s cost spiral. Reform measures include cutting benefits and managing the use of expensive prescription drugs. While these options deserve attention, they do not address the loophole in eligibility rules that is really draining money out of the system.
Eligibility Loopholes
Medicaid never was intended to cover the expense of long-term nursing home care for people who have the financial means to pay for their own care, yet that is what it has become.
According to a report jointly produced by the American Legislative Exchange Council (ALEC) and Council for Affordable Health Insurance (CAHI) released in February, financial tests for Medicaid eligibility are too lax to ensure aid is focused on the truly needy. Only 10 to 15 percent of seniors have incomes higher than the income tests imposed by the states, which means 85 to 90 percent of all seniors qualify for Medicaid.
Most states allow seniors to keep some of their assets while qualifying for Medicaid. While the intent may have been noble, an entire “elder law” industry has emerged dedicated to hiding the assets of senior citizens or steering them to their relatives. This asset-shifting loophole robs the truly indigent of the money they need for medical care and has become a significant factor behind Medicaid inflation.
It seems to me–a senior citizen myself, mind you–that there is an ethical issue here when someone can hold onto a $500,000 house, all the assets of a business, and a Lincoln Navigator, shift other assets to relatives, and then play the “poor” card because he or she has only $2,000 left in the bank.
First Steps
The first step in dealing with this cost-driver should be to eliminate the generous home, business, and property exemptions for the purposes of seniors’ asset calculation. The ALEC/CAHI study says Congress ought to require that seniors use reverse mortgages to tap their home equity before becoming eligible for assistance from Medicaid, as well as consider tax credits or other incentives to purchase private long-term care insurance.
Other measures for reform should include updating the ineffective three-year “look-back law.” A senior citizen should not be considered eligible for Medicaid until most personal assets, including the benefits gained from long-term care insurance, are actually expended on long-term care.
Stopping abuse of the Medicaid system would help stabilize spending on the program with a minimum of discomfort for those who can be legitimately called “poor.”
Personal Responsibility
Currently, Medicaid beneficiaries can pretty much use whatever health care services they want to use, for free. They simply show up at the physician’s office or hospital and get their care; the provider submits the bill to Medicaid.
Rather than this “blank check” approach to Medicaid, a better approach would be to fund Health Savings Accounts (HSAs) out of which beneficiaries themselves would pay for their care. Medicaid would feel a lot less like “free money” if beneficiaries had to part with the money themselves. HSAs give beneficiaries greater responsibility for using their entitlement money appropriately and rationally. Over-utilization of health care services would be discouraged by HSAs.
Medicaid is a health care welfare system. It needs personal responsibility-oriented reform, like the reforms made to other welfare programs back in the 1990s. Some entitlement devotees predicted social disaster; in practice, however, welfare reform has been a great success. Health care welfare reform through HSAs would be no different.
Legislators must close the Medicaid loopholes and start moving beneficiaries away from government dependency and toward private long-term care insurance and HSAs. The time has come to wean the 800-pound gorilla off its overly rich entitlement diet. If policymakers fail to do so, Medicaid will continue to shortchange the needy while consuming more than its share of state budgets.
The late Conrad F. Meier was senior fellow in health policy at The Heartland Institute and editor emeritus of Health Care News. He died unexpectedly on March 18, 2005; this was his final My Turn column.
