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Affluent People on Medicaid? It Happens

Predictably, people of means don’t include Medicaid in their retirement income plans. In fact, they often owned long-term care insurance until they fell on hard times.

Only six percent of Medicaid recipients use nursing homes, but their bills account for 42% of Medicaid spending. And while perhaps hard to believe, many of those who receive Medicaid for long-term care expenses are once-affluent people who outlived their money, according to Kaiser Health News.

The idea of “going on Medicaid” for nursing home care has always been a scary thought for me, and perhaps for you as well. It evokes images of forced bankruptcy, bacteria-ridden wards and helplessness at the hands of indifferent health care aides.

The good news here –such as it is – is that things aren’t quite that grim. A story by Kaiser Health News, published June 24 in The New York Times, cited figures showing that Medicaid covers the cost of care at many clean, well-lighted facilities for many former upper-middle class Americans who have simply outlived their savings.

Speak to an advisor by calling 1-866-223-2121 or sending an email here.

The article related the story of Alice Jacobs, a 90-year-old resident of a nursing home in rural Virginia. She once owned a factory and horses, raised four children, buried two husbands and amassed savings that she thought would last indefinitely.

But longevity risk eventually caught up with her. Years in an assisted living center consumed her savings. So she moved to a room at Dogwood Village, a non-profit, county-owned nursing home that receives about half of its $13 million in annual operating costs from Medicaid. People like Jacobs often don’t know that they’re actually on Medicaid, according to the article.

There are surprisingly many like her among some 70 million Americans reliant on Medicaid — at an annual cost of $389 billion to the federal government (and another $120 billion or so to the states).

Predictably, people of means don’t include Medicaid in their retirement income plans. In fact, they often owned long-term care insurance until they fell on hard times. Most are more likely to concern themselves with protecting their wealth from erosion by catastrophic illness or prolonged nursing home expenses than about running completely out of money and relying on Medicaid.

Nonetheless, many affluent people eventually rely on Medicaid, partly because they tend to live longer. It’s not unusual for a hospital patient on Medicare to convalesce in a nursing home. After a hundred days, private savings either replaces Medicare or Medicaid begins. Individual Social Security benefits may be garnished to help supplement Medicaid.

What about the future of Medicaid under the health care bill currently bumping its way through Congress? Will it still be there to serve as a safety net for the very old, like Alice Jacobs, who simply outlived her wealth?

The answer appears to be yes, but with limitations. The House version of the American Health Care Act targets nursing home coverage directly by requiring every state to count home equity above $560,000 in determining Medicaid eligibility, according to Kaiser Health News. That would make eligibility rules tougher in states like California, Massachusetts and New York, where real estate is especially expensive.

The Senate version of the health bill would cut total federal and state Medicaid spending over the next 20 years by between $2 trillion and $3.8 trillion, according to the AARP Public Policy Institute. But the Republican leadership has postponed the vote on that bill because it could not find enough Republican Senators willing to commit to voting for it.

In any case, the new health care bills reduce – but do not eliminate — spending on Medicaid. The core purpose of the Republican bills seems to be to kill the new taxes that have helped pay for the Obamacare subsidies – subsidies enabling tens of millions of moderate-income people to buy private health insurance. Any impact on Medicaid, or on the nursing home patients who rely on it, will likely fall into the category of collateral damage.

There is hope, however.

If interest rates continue to rise and Medicaid eligibility tightens, there might be an opportunity for life insurance companies to revive the concept of fixed deferred annuities with long-term care riders. These products, which fell victim to the low rate environment, showed promise a few years ago as an appealing form of high-deductible long-term care insurance.

Their return would help the once-affluent, along with plenty of others.

Speak to an advisor by calling 1-866-223-2121 or sending an email here.

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