Cautionary tales abound about relatively affluent households being forced to spend their accumulated wealth on expensive long-term care for a family member. With the annual cost of care well above $100,000 in many parts of the country, it doesn't take long to drain a family's financial resources. Once the money is gone, the family member can qualify for Medicaid, and Uncle Sam will pick up the tab for long-term care.

The only problem with this tale is that it isn't true for many people. A study of actual Medicaid spend-down patterns finds that it is overwhelmingly poorer households that qualify for Medicaid by exhausting their relatively meager financial assets. The SCAN Foundation, which supported the research, says it's the first detailed look in 25 years at how Americans actually qualify for Medicaid support for their long-term care needs.

This finding has important implications for any effort to develop a large-scale support system to help families pay for long-term care. Studies show that 70 percent of us will need some period of extended long-term care during our lives, most commonly during our later years. This figure is so large that it argues for some kind of insurance program to spread the costs of care over a larger population. That's the way auto and home insurance work. The premiums from people with little or no claims wind up effectively supporting the claims of people with big losses.

The Affordable Care Act--aka Obamacare--included a new program for voluntary long-term care insurance. But because it was voluntary, it soon became clear that relatively young and healthy people would not sign up for it. Their absence doomed the program because the high level of expected claims priced the product out of the reach of the people most likely to use it. So the government killed the program.

Most long-term care is paid for by Medicaid. Many people mistakenly think their Medicare will pay for extended long-term care but it does not. Private insurance collects only about $7 billion in premiums each year and pays only a few percentage points of the nation's long-term care expenses.

The SCAN study found that nearly 10 percent of new Medicaid participants between 1996 and 2008 qualified under the program's economic means test by spending down their assets. "Medicaid spend down is not a rare event," the study said. "Moreover, among people who were Medicaid beneficiaries at any time during this time period, almost two-thirds became eligible after spending down to Medicaid eligibility."

The study further found that "people who spend down are disproportionately black, Hispanic, unmarried, and have lower levels of education, all characteristics associated with lower levels of income and assets."

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Posted 6:28 PM

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