NCPA - National Center for Policy Analysis


September 16, 2004

Medicaid was originally designed as a medical support program for the poor, but it is becoming increasingly popular among the middle-class and the affluent. The main cost driver for this latter group is long-term care, principally nursing home care.

However, the allure of "free" long-term care and liberal eligibility policies, combined with low reimbursement rates to providers from Medicaid, have led to a system that is overused and underfunded:

  • Many nursing homes have gone bankrupt, with Medicaid underfunding nursing homes by $4.1 billion in 2001.
  • Unable to hire capable staff, the quality of nursing home service has declined.
  • The wealthy and the well-connected stay in the best nursing homes, with the poor ending up in the least desirable facilities.
  • Poor quality of care has driven up malpractice liability insurance premiums by 51 percent over the last few years.

Currently, seniors can "spend down" their income and exempt many of their assets in order to qualify for Medicaid. To lessen the burden on Medicaid, long-term care should be available to seniors only after they consume their home equity with a reverse mortgage:

  • People over the age of 62 can obtain a reverse annuity mortgage (RAM), and receive a lump sum or monthly payments indefinitely, as long as they remain in their home.
  • Fees are built into the loan and paid off with the loan when the home is sold or transferred.
  • Proceeds of a reverse mortgage can be used for any purpose, including the cost of long-term care services.

Using reverse mortgages, many seniors could afford to pay for home-based care or better nursing home care than Medicaid can provide.

Source: Stephen A. Moses et al., "The Realist's Guide to Medicaid and Long-Term Care," Center for Long-Term Care Financing, September 7, 2004.


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