People are living longer, which is a good thing. Regarding retirement needs, however, this means it is as crucial as ever that people stay on top of saving and planning for their personal and financial needs when they hit retirement age. Long-term care, while not the most exciting thing to anticipate, must be carefully planned for as well. Those who cannot fund their own long-term care most likely fall back on Medicaid, which is unsustainable in the long term.
A Citizens League report from Minnesota, published last week and titled Moving Beyond Medicaid: Long-Term Care for the Elderly as a Life Quality and Fiscal Imperative, included a year-long, in-depth collaborative effort and study of long-term care financing challenges by a group of experts called the Long-Term Care Collaborative.
Citing the fact that two-thirds of Minnesotans aged 42-60 are concerned about their ability to pay for long-term care and a growing state Medicaid crisis looming, the report strongly advocates a “cost-effective hybrid reverse mortgage product” for seniors.
This option would resemble the standard reverse mortgage that is offered currently, but would be altered a bit. Stipulations include: loans would be available to anyone drawing Social Security; funds would be made available as a line of credit for specific purposes like long-term care; rates for low-income households may be subsidized; fees should total no more than 3-5 percent of the line of credit; the loan should be excluded as an asset for determining Medicaid eligibility; and the loans could be administered either through the private market or the state.
The report cites a high demand and market for this kind of product in the U.S., with 13 million people being qualified candidates for reverse mortgages and 7 million people over 65 and with incomes under $30,000 owning their homes outright. The volume of reverse mortgages also doubled nationwide between 2005 and 2008.
Replacing Medicaid’s home exemption with this hybrid reverse mortgage option could save Medicaid up to $20 billion per year in the U.S., the report said.
A Looming Crisis
The state of Minnesota is close to approaching a Medicaid crisis. Medicaid currently funds 40 percent of long-term care costs for the elderly in the state, and this statistic will grow rapidly if action is not taken.
“Medicaid funding for long-term care for the elderly could grow nearly fivefold in Minnesota by 2050, from $1.1 billion in 2010 to $5 billion in 2035,” the report said. Unless taxpayers agree to foot the bill for this – which is highly unlikely – other forms of financing need to be put into place. And Minnesotans seem to be on board; 86 percent think government should prioritize developing new and better options for personal funding of long-term care.
The LTC Collaborative suggests Medicaid be used as a co-insurance system that works with a person’s privately purchased insurance or savings and depends on a person’s income. Under this system, the collaborative hopes to restructure Medicaid to serve mainly the impoverished (as it was originally designed to do) and emphasize reward for personal responsibility and savings.
Other recommendations include prize-rewarded savings, a lottery-type system where savers can be entered into drawings for cash and prizes; a broader mix of insurance products; and a better offering of unbiased financial information and education for citizens.
For the full report, click here.
Written by Clare Pierson
Update: A previous version of the article stated that the number of reverse mortgages doubled in the state between 2005 and 2008, it has been updated to reflect that reverse mortgages doubled nationwide between 2005 and 2008.
