Improving the System of Financing Long-Term Services and Supports for Older Americans

Medicaid currently pays for most of the long-term services and supports (LTSS) given to older Americans. With the aging of the population, these costs to state and federal governments will increase rapidly. We summarize the current Medicaid eligibility rules, which are commonly portrayed as allowing access only to low-income and low-asset populations, but in reality they allow covered households to own significant housing and retirement assets. Furthermore, we present new empirical information about the weak efforts of states in enforcing even the current porous rules. We then report on the extensive asset holdings, especially in housing and retirement assets, across the distribution of retired households. We find that liberal eligibility rules and uneven enforcement increase the costs of governments and discourage the retired households that can afford it from covering LTSS exposure through private insurance and assets. We conclude with targeted recommendations to reform Medicaid and improve the LTSS financing system, following up on some of the proposals made by members of the 2013 federal Commission on Long-Term Care