Medicaid is a safety-net program best known for providing healthcare for individuals with limited incomes. The program, which is administered through a federal-state partnership, is probably not the first federal health program you think of -- that's Medicare. Yet Medicaid pays for millions of seniors to obtain care not covered by Medicare -- and not just those seniors who have low income.
That's why it's unsettling that the American Health Care Act -- aka Trumpcare, the proposed replacement for Obamacare -- would cut $880 billion in Medicaid spending over the course of a decade. Cuts of that magnitude could affect elderly Americans across all economic classes.
Medicaid reforms could hurt everyone who needs long-term care
Medicaid covered approximately 97 million Americans over the course of 2015, 6 million of whom were aged 65 and older. It helps seniors who earn up to 138% of the federal poverty level pay their Medicare premiums and co-insurance costs. However, it also covers an expensive service that most people will need at least once in their lives: long-term care.
Around seven in 10 Americans who reach the age of 65 will require long-term care for an average of three years, according to the Department of Health and Human Services. More than 80% of those who need long-term care will get help at home, while 18% will live in a nursing home or other institutional care environment. Those receiving care at home pay an average of $46,332 annually for a home health aide, while a semi-private room in a nursing home will run $82,608. This is more than double the median income of $38,515 for households 65 and older (as of 2015).
When seniors need care they cannot afford, Medicaid picks up the tab, provided the senior has a low income -- with maximum income varying by state and program -- or functional limitations that necessitate care, such as the inability to bathe, get dressed, or use the bathroom without assistance. Seniors must also have countable financial assets below an allowable amount, which is usually $2,000 per person and $3,000 per family; however, not all assets are countable, and spouses who remain in the community are allowed to maintain some assets.
More than 60% of all nursing-home residents are covered by Medicaid, and Medicaid pays 40% of all costs for long-term care services. It's not only low-income seniors relying on Medicaid to pay, either. Middle-class families cannot afford bills topping $82,000, and even wealthy families turn to Medicaid, using tools (like asset protection trusts) to appear on paper to have assets below the limit.
Budget cuts collide with a need for billions in spending
Medicaid spends close to 30% of its expenditures on long-term care, having paid more than $158 billion in 2015 for institutional and community-based long-term care services. Given that the population of Americans aged 65 and older is expected to double by 2050, while the number of Americans aged 85-plus is expected to triple, Medicaid spending on long-term care will only grow from here.
The problem: Trumpcare would change how Medicaid funding is provided. Currently, the federal government subsidizes states' Medicaid costs based on the cost of care for enrollees, with no cap on federal contributions. In other words, the more care a state needs, the more federal aid it receives. Under Trumpcare, states would be allotted a fixed amount of federal aid for each Medicaid enrollee. In other words, federal Medicaid spending would no longer be based on the actual cost of care.
This change, combined with a rollback of Obamacare's Medicaid expansion, would result in an $880 billion cut in federal Medicaid spending over the next decade. While around $510 billion of the projected federal spending cut would come from people dropping out of Medicaid due to changes made by Trumpcare, states that keep parts of Obamacare's Medicaid expansion could be on the hook for $253 billion in additional costs. And even if states don't maintain Obamacare's expanded Medicaid benefits, the change in the federal aid calculation means states will be forced to cover an additional $116 billion in annual costs -- which may be an insurmountable cost, given that nearly half of all states face a budget shortfall already. Reduced federal oversight of Medicaid programs, coupled with dramatic budget shortfalls, could leave states with no option but to make coverage for long-term care less generous or less accessible.
What are your options to get long-term care costs covered?
The future of Medicaid's long-term care coverage is uncertain, so younger Americans should plan to save up for long-term care costs or consider purchasing a long-term care insurance policy.
Critics of long-term care policies warn that they often provide insufficient coverage, but shopping carefully for a high-quality policy could pay off if you can no longer count on Medicaid to pick up the tab. And the younger you are when you buy a policy, the lower your premiums will be.