If the nation isn’t prepared for the aging baby boomers, it isn’t because the boomers sneaked up on us. For some time, we have seen the warnings and been conscious of the coming “age wave.” The problem is that few have taken heed and been moved to act thus far.

While national leaders warn about the coming collapse of Medicare and Social Security, state lawmakers grow increasingly concerned about meeting the increasing demand and cost of Medicaid long-term care as the boomers age. To stave off the coming disaster, state lawmakers need to respond quickly to embrace every ounce of the limited federal flexibility available.

Most Medicaid reformers look to how states can encourage people to plan for their long-term care through private long-term care insurance. Too often, these lawmakers think that merely educating people on the differences of Medicaid and Medicare and which pays for long-term care will be enough to reshape people’s behavior. But the truth is that it doesn’t matter whether long-term care is paid for by Medicare, Medicaid, or Santa Claus—the important thing is that somebody pays, and we know this because people are not going without this care.

The more important thing is for federal and state officials to recognize why they have a problem with long-term care. To wit, the government's been giving it away since 1965, crowding out private financing alternatives like personal spend down, reverse mortgages and long-term care insurance. It’s no wonder most Texans don't worry about long-term care, use their home equity to pay for it, or purchase long-term care insurance against the risk, and instead end up dependent upon public assistance for long-term care as the only alternative to consuming their own wealth and their heirs' inheritances.

The second thing is that although Medicaid, the primary payer of long-term care services in Texas, is a means-tested public assistance program, it is actually rather easy to qualify for Medicaid long-term care services. Generous eligibility guidelines and well-known and exploited loopholes make it easy for Texans with substantially higher income and assets to qualify by purchasing exempt assets with otherwise countable resources and retaining the counsel of Medicaid estate planning specialists.

Medicaid is too often used as inheritance insurance for those who have resources that should be used to support their own long-term care. Although Medicaid was intended to be a safety net for the few who truly have no other alternatives for their long-term care needs, it now serves the poor and prosperous alike and allows people to plan for Medicaid to pay their bills. As a consequence, the program will soon feel the weight of a growing caseload among those who are already the program’s most expensive population to serve, which will threaten the safety net for the truly needy.

What should Texas policy makers do about this? To a large degree, their hands are tied by federal laws and regulations. But to the extent that they can, they must begin to target Medicaid to the truly needy and use the savings to educate the public about long-term care and to incentivize the use of private financing alternatives.

As a result, seniors will get better access to higher quality care across a wider spectrum of care if they pay privately, and Medicaid will be able to do a better job for a smaller number of people who truly need it. The long-term care market will respond in kind, giving people the services they demand at the best prices. Competition will reward providers richly for providing benefits that the people want, and those seeking long-term care services, whether at home or in an institutional setting, will have greater choice with better quality.

Perhaps most importantly, people will have an interest and an opportunity to plan for their own long-term care.

Of all the examples where government programs have crowded out private activity, the most egregious and fiscally damaging have been the impacts of Medicare and Medicaid on planning for long-term care. Our window of opportunity to set these programs back on sound footing is quickly closing and nothing short of fundamental reform will do. If we continue to deny the problem and simply kick it forward into the future, we will find that the “inheritance” we’re trying to leave for our kids may not be enough to cover the tax bill with which we’ve stuck them.

Stephen Moses (smoses@centerltc.com) is president of the Center for Long-Term Care Reform in Seattle (www.centerltc.com) and a Senior Research Fellow at the Texas Public Policy Foundation in Austin, Texas. Moses’ new report on Medicaid Long-Term Care in Texas is available through the Foundation at www.texaspolicy.com.

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