The Medicaid Gentrification Myth
John B. Payne, Attorney
1800 Grindley Park Street, Suite 6
Dearborn, Michigan 48124
313.563.4900 FAX 313.583.3100
Medicaid planning—i.e. the gentrification of long-term care Medicaid—is not a major cause of the growth of Medicaid spending. Wealthy middle-class families are not sheltering large sums of money in abusive financial arrangements, nor are they bankrupting the program
The evidence cited to prove that middle-class nursing home patients are gaming the system is that the majority of nursing home residents are receiving Medicaid, despite the fact that only 20% of Americans are in poverty. The logic is this: If 20% of Americans are poor, but 70% of nursing home residents are on Medicaid, then 50% of those receiving Medicaid in nursing homes are not poor and must have sheltered their wealth. While this seems logical, it is not consistent with two basic principles of American wealth and long-term care utilization. The first is that poverty is much more pervasive than most people realize. Furthermore, the greater a disabled elderly person’s income and assets, the less likely the person will enter a nursing home.
Through the decade ending in 2001, the concentration of wealth among affluent White Americans was striking. The Net Worth table shows that net worth of American families was three or more times the median and net worth is lower in higher age brackets. Furthermore, in all age groups, non-Hispanic White median and mean net worth, both, were three to five times as high as they were for non-White and Hispanic households.2
The median value is the middle value. As many families have a net worth below the median as above it. The mean, however, is the average net worth. The fact that the mean is so much higher than the median indicates that there is a tremendous concentration of wealth among a few very wealthy families. It also means that the numbers of families in lower net worth strata are much greater than in higher strata.
The bottom 20% are extremely low-wage and low-net worth and it is, furthermore, an extremely narrow band. The next 20% are not much higher. As the table shows, the 50th percentile for age 75 and up is only $151,400, including home equity and all savings and investments. Based on current average private-pay nursing costs, a single individual in a nursing home would expend $151,400 in less than 33 months, assuming a 5% return on the investments and $1,200 per month in Social Security and pension income. A couple at that net worth with $2,200 in Social Security and pension income would be broke in 18 months. Therefore, very large numbers of low-net worth families is one reason that a large number of nursing home residents qualify for Medicaid.
The second reason for a disproportionate population of Medicaid-eligible nursing home residents is that disabled individuals with more resources will be less likely to enter a nursing home. Among the 34 million elderly in 1995, 5 percent were nursing home residents and 12 percent were living in the community with ADL or IADL limitations. Functional limitations increase substantially with age, particularly for the oldest old. However, U.S. Census figures reflect a decline in the nursing home population. Among those aged 85 and over, 24.5 % were in nursing homes in 1990, 21% in 1995, and 18.2% in 2000. There were more than twice as many community residents with long-term care needs as nursing home residents.3
Research using National Long Term Care Survey data found a decline in the number of family caregivers and an increase in the use of formal care provided by paid workers between 1984 and 1994. However, between 1994 and 1999, the number of spouses and children providing care to an older person with disabilities increased, while the use of formal care by older persons with disabilities who received care in the community declined. Reliance on family care increased dramatically and it may be presumed that the trend has continued.
The use of formal care went from 43% in 1994 to 34% in 1999, but reliance on informal care increased significantly from 57% to 66%. Nearly all of the decline in help between 1994 and 1999 reflects greater use of assistive devices, such as shower or tub seats or walkers. Because of this, a larger proportion of caregivers were caring for persons with higher levels of disability in 1999 than in 1994, and caregivers and care recipients were older than in 1994, with nearly 40% of caregiving children assisting parents age 85 or older in 1999 and almost 13% of caregiving children age 65 or older.
In 1999, about 30% of children with a parent in a community residential care setting, such as assisted living, were providing care. Family caregivers provide the vast majority of the long-term care received by older persons with disabilities.4
Contrary to the perception of many legislators and welfare officials, elderly people are not trying to get into nursing homes to take advantage of Medicaid; they are desperately trying to remain in the community. The nursing home is literally the last resort.
Therefore, if an individual has the means to remain in a community setting, he or she will do so and the greater the wealth, the longer the individual will remain in the community. Disabled elderly individuals do not generally enter nursing care, then give up their resources so they can become eligible for Medicaid. Quite the opposite seems to be happening. They go into a nursing home because they lack assets and family support or because they have expended their resources and lack other alternatives. It is lack of resources that forces many into nursing homes, so it should be no surprise that Medicaid-eligible patients predominate there.
Some relatively well off patients will enter nursing homes for purely physical reasons and use Medicaid planning to preserve the estate for a community spouse or offspring, but these patients are the exception, not the rule. Medicaid planning plays a very minor part in determining the size of the Medicaid-eligible nursing home population. The large proportion of Medicaid-eligible nursing home patients is due to the inequitable distribution of wealth in the United States and the inability of low-net worth disabled elderly individuals to remain in the community.
U.S. Department of Commerce, Economics and Statistics Administration, U.S. Census Bureau, “Net Worth and Asset Ownership of Households: 1998 and 2000" (May 2003).
Board of Governors of the Federal Reserve System, Federal Reserve Bulletin, January 2003, and unpublished data found at http://www.federalreserve.gov/pubs/oss/oss2/2001/scf2001home.html.
Robyn I Stone, Long-Term Care for the Elderly with Disabilities: Current Policy, Emerging Trends, and Implications for the Twenty-First Century (2000).
Mary Jo Gibson, In Brief (AARP Public Policy Institute, 2005).