Millionaires on Medicaid

January 13, 2014

Five percent of earners in the top quintile receive Medicaid benefits, says Mark Warshawsky, an adjunct scholar at the American Enterprise Institute.

Health care spending in the United States on long-term care is very high:

  • More than two-thirds of annual long-term care spending for the elderly is paid by state and federal governments -- $60 billion of that spending comes from Medicaid.
  • Every day 10,000 baby boomers reach retirement age, a rate that should stay constant for the next 19 years.
  • With these numbers, the Congressional Budget Office expects long-term care spending to more than double by 2050, rising from 1.3 percent of gross domestic product (GDP) to 3 percent of GDP.

Notably, long-term care benefits from Medicaid actually flow to individuals in the top 20 percent of retirement earnings due to Medicaid's asset-exclusion limits. For example:

  • An individual who owns an $802,000 furnished home, has jewelry and a car can still receive long-term Medicaid support.
  • Moreover, that individual can continue receiving Medicaid support even while he has life insurance policies, retirement accounts with an unlimited amount of assets, $115,920 in assets for a spouse, Social Security income and a defined-benefit pension plan.
  • Some have begun using complex asset transfers and other transactions to further game the system.

As Medicaid has crowded out private insurance alternatives, wealthy individuals have taken advantage of the program: 15 percent of the elderly in the middle income quintile receive Medicaid benefits, 8 percent in the upper-middle quintile receive benefits, and 5 percent in the top quintile receive Medicaid benefits.

To fix this problem, the government should implement four key policy changes:

  • Provide a tax preference for long-term care insurance policies through retirement or health accounts.
  • Promote "life-care" annuities and other innovative products.
  • Encourage long-term care public-private partnerships.
  • Allow individuals to choose to receive a lump-sum from the government upon retirement (equal to the expected value of their Medicaid benefits) instead of joining the program.

Source: Mark Warshawsky, "Millionaires on Medicaid," Wall Street Journal, January 6, 2014.

 

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