On May 7, 1999, the Health Care Financing Administration's (HCFA) Center for Medicaid and State Operations warned state Medicaid directors that several nursing home chains may close or at least withdraw from the Medicare and Medicaid programs. If they do so, it will be the responsibility of the states to provide adequate care for these patients.

Such problems could be avoided by promoting more private financing of nursing home care, says the Center for Long-Term Care Financing.

In 1965, the new Medicaid program offered the sick and the elderly publicly-financed long-term nursing home care. Rather than pay out-of-pocket for home-care and community-based services, most chose Medicaid.

Even though Medicaid is supposed to be means-tested, most states do not set income limits. Among those that do, even the toughest income caps still permit most Americans to receive benefits.

• Only 15 percent to 25 percent of all Medicaid nursing home patients spent-down their assets to qualify for assistance.

• Homes, businesses and cars of any value are exempt from Medicaid eligibility rules.

• Due to these lenient requirements, 78 percent of nursing home occupants are eligible for Medicaid at the time of admission.

To fix the problem, the Center for Long-Term Care Financing says Medicaid must be limited to serving the truly needy, and the middle-class and affluent should pay for care to the extent they are able -- either through asset recovery or the purchase of long-term care insurance (LTC).

Seniors and heirs who wish to avoid recovery from their estates could purchase private LTC insurance. Such a private system of LTC financing would reduce costs of care for the government and taxpayers, ensure better care service through competition, and reinstate the notion of individual responsibility.

Source: Stephen A. Moses (Center for Long-Term Care Financing), "How to Cope With Long-Term Care," Consumers' Research, February 1999.